GST and Khadi Industry: A Case Study of Uttarakhand

Abstract
India, a country with diversity is famous for its rich cultural heritage. Khadi industry is a part
of Indian culture and tradition. About 70% of people live in villages. Any planning for the
development of India could not be complete without embracing the rural aspects. Khadi and
Village industries are traditional sub-sector of rural introduction in India.

Introduction:
The Khadi and Village Industries Commission (KVIC) is a statutory body formed by
the Government of India, under the Act of Parliament, 'Khadi and Village Industries
Commission Act of 1956'. It is an apex organisation under the Ministry of Micro, Small and
Medium Enterprises, with regard to Khadi and Village industries within India, which seeks to
- "plan, promote, facilitate, organise and assist in the establishment and development of
Khadi and Village industries in the rural areas in coordination with other agencies engaged in
rural development wherever necessary." In April 1957, it took over the work of former All
India Khadi and Village Industries Board. The First Director of KVIC was Late Sardar KA
Venkataramaiya, a veteran freedom fighter from Karnataka. Its head office is based
in Mumbai, with its six zonal offices in Delhi, Bhopal, Bangalore, Kolkata, Mumbai and
Guwahati. Other than its zonal offices, it has offices in 29 states for the implementation of its
various programmes.

Khadi
"The livery of freedom" – Mahatma Gandhi

Khadi, (pronounced Khādī) refers to hand-spun and hand-woven cloth. The raw materials
may be cotton, silk, or wool, which are spun into threads on a charkha (a traditional spinning
implement).
Khadi was launched in 1920 as a political weapon in the Swadeshi movement of Mahatma
Gandhi.
Khadi is sourced from different parts of India, depending upon its raw materials - While the
silk variety is sourced from West Bengal, Bihar, Odisha and North Eastern states, the cotton
variety comes from Andhra Pradesh, Uttar Pradesh, Bihar and West Bengal. Khadi poly is
spun in Gujarat and Rajasthan while Haryana, Himachal Pradesh and Jammu and Kashmir
Karnataka are known for the woolen variety.

Village Industry
Any Industry that is located within a rural area, where the Fixed Capital Investment
per Artisan (weaver) does not exceed Rupees One hundred thousand The Fixed Capital
Investment can be changed by the Central Government of India whenever it so requires.
Objectives of KVIC
The Commission has three main objectives which guide its functioning. These are -

 The Social Objective - Providing employment in rural areas

 The Economic Objective - Providing saleable articles
 The Wider Objective - Creating self-reliance amongst people and building up a strong
rural community spirit.

Objectives of the Study:

 Study change in taxes on of khadi and village industry products.

 Effect of GST on sales of Khadi and village industry products.

Industrial Profile

Rural Industry

Collage Small Scale Agri-based Ancillary

Handloom Sericulure
Industry Industry Industry Industry
KHADI AND VILLAGE INDUSTRIES IN INDIA

Gandhi Ji had appropriately realized the dual made in the rural society and its economy by the machine economy. He
advocated Khadi and Village industries and self-sufficiency of the villages and worked for the removal of the stigma
untouchability and low status of the artisans. So that the artisans could not get his due place and pleased not to hear
imported textile and their emerged a “SWADESHI MOVEMENT”.
Gandhi ji underlines the importance of rural India by saying that “India lives in Villages.” Gandhi ji wanted to make
every village self-sufficient by creating employment opportunities to them during the off season. For this he advocated
Khadi and spinning wheel for clothing which forms the need of people.

The industrial policy resolution of 1956, while emphasizing the role of cottage and small scale industries, started “they
provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of national
income and they facilitate an effective mobilization of capital and still might have either wise remain unutilized.”India
was known to the world for extensive use of cotton and silk goods. From about 1500 BC to 1500 AD for nearly 30
centuries India held the world monopoly in the manufacturing of cotton goods. India has a large pool of skilled labour.
Capital is scarece and we have vast manpower, which must be utilized. Our steps must be labour intensive and not
capital intensive. Khadi industry employs 32 million people (both full-time and part-time), accounting for about 80
percentage of the employment in the manufacturing sector. In the statement of textile policy announced by the govt. in
March 1981. It was started that “the Govt. is committed to encourage production of textiles and textile products in
Khadi sector considering its large employment potential, it would be the endeavor of the govt. to make the product of
this sector more competitive and of better quality.”

Gandi ji always felt that, all cannot be absorbed in agricultural and non-agricultural alternative employment is to be
found. The main basis of Khadi program was its economic value, which is not divorced from human values.
Khadi and Village industries presupposed the formation of skills relevant to rural area and the development of a well
designed and broad based supporting system, capable of assisting the new class of artisans, craft man, Industrialists and
entrepreneur at all crucial stage. Khadi and Village industries programs forced on the poorest status of the society.
Khadi and village industries have been developed under two periods one before 1947 and the other after 1947.
Before 1947, the development of Khadi and village industries was entirely a non-governmental effort under
the inspired guidance of Gandiji. After 1947, the govt. of India and the planning commission assumes the
responsibility for fitting Khadi and village industries within the frame work of the 5 year plan. The history
of Khadi and village industries can be analyzed under two headings.
  Kahdi and Village industries in the pre-independence period.
 Khadi and Village industries in the post independence period.

SALIENT FEATURES OF KHADI INDUSTRY IN AVINISSERY

The Association is one of the major Institutions directly aided by Khadi and Village industries commission in
the Kerala state. Avinissery Khadi is the pioneers in the field of Muslin Khadi.
Kuppadam weaving is an art of Kerala Khadi weaving. Then all these products attract and conquer the market
all over India. Main activity of these Khadi industry is to production, Marketing. A small type of dye house
and printing section is working in the Head Quarters Complex in Avinissery. Apart from Khadi, the institution
is engaged in village oil industry with 4 power Ghanies, Laundry soap, production and honey processing in the
Avinissery complex.

A fully equipped carpentry workshop is functioning at Avinissery for the manufacture and repairs of charkhas,
looms and other implements and furniture and wooden Handicrafts. The Avinissery Khadi industry is the
pioneers of 8 spindle woollen Muslin charkhas, approved by the Khadi and VI commission and acclaimed by
the institutions all over India.In 2010-11 the institution head a production of Khadi worth Rs. 4.37Crores and
village industries products valued at Rs. 3.50 Crores. Total sales 8.80 Crores. There are 110 regular employees
and 1500 rural Artisans. The main production areas of the industry in Avinissery are;

 Silk Khadi Production

 Carpentry and Blacksmithy

 Agmarked Honey Production

 Ghani Oil

 Cane Furniture etc

A small type of Dye House and printing section is located in the Head Quarters complex at Avinissery.
There are 31 production centres and 15 sales centres under the institutions spread over the districts of
Malappuram, Palakkad, Thrissurand Eranakulam.The institution has its own land and building worth Rs.
100.00 Crores located in 37 places in 24 panchayaths. The association has been working continuously on
profit in the last twenty two years.

THE DISTINGUISHING FEATURES AND MAJORADVANTAGES OF KHADI AND

VILLAGE INDUSTRIES

 In an economy like India more abundant labour supply and the concomitant unemployment and under
employment and rapidly rising labour force, Khadi, Village and small industries assume special significance
because of its high employment potential.
 Another major advantage is their ability to provide employment in the off-season. To a large number of
people, agriculture provides only seasonal employment. Khadi, Cottage and some other village industries
provides employment opportunities during the off-season and help many household to Miligate their
problems during the off-season.
 Khadi, Cottage and certain other village industries provide vast scope for employment of special categories of
people like women, children, old-ages, physically handicapped etc. It is also an avenue for part time
employment for those who are employed elsewhere either full time or part time.
 Some of the industries provide employment opportunities within the household premises and some others
near the place of residence. The location advantages of these industries are thus very great.
 A major advantage of these industries is that the capital output and capital labour ratios are comparatively very
low. That is the amount of capital investment required per unit of employment and the capital investments
required per unit of output are comparatively very low. In other words, the Khadi and Village industries in
particular and the small scale units in general maximize employment and output for a given amount of capital.
This is of particular importance to a labour abundant and capital scare economics.
 Because of the low capital output ratio and low gestation period they promote Non-inflationary growth.
 Khadi and Village industries have been found to be of particular help to the leaker sections of the society. The
participation of the scheduled castes, scheduled tribes, women and other weaker sections of the society in this
sector is significant.
 These industries promote economizing of resource utilization and conservation of resources. They are
expected to ensure maximum utilization of locally available raw materials by adopting easily adaptable
techniques. In some cases, non-conventional raw materials are used, thereby converting waste in to wealth.
 These industries can develop in almost all areas including backward, tribal, hilly and inaccessible areas.
 The small industries have acquired more attention in recent years due to the very less ecological problems
they create, compared to the large industries.
  As Khadi and Village industries do not use or use only very little electric power or oil, they do not cause
energy crisis and foreign exchange crisis.

KHADI AND VILLAGE INDUSTRIES PRODUCTS

Khadi means any cloth woven on handlooms in India from Cotton, Silk or woollen yarn hand spun in India or from
mixture of any two or all such yarns. Industries coming under the preview of village and Khadi industries include
1. Bee Keeping
2. Cottage Match, Manufacture of fireworks and Agar-batties
3. Cottage pottery
4. Cottage soap
5. Flaying curing and tanning of hides and skins and ancillary industries connected with the sameand cottage
leather industry
6. Ghani oil
7. Handmade paper
8. Manufacture of cane-gur and Khandasari
9. Palm-gur making and other palm products
10. Processing, packing and Marketing of cereals, Pulses, spices, condiments, massalas etc.
11. Manufacturing and use of manure and methane gas from cow drug and other waste products (Such as flesh
of dead animals, night soil etc.)
12. Lime stone, lime shell and other lime products
13. Manufacture of shellac
14. Collection of forest plants and fruits for medicinal purposes
15. Fruit and vegetable processing, preservation and canning including pickles
16. Bamboo and cane work
17. Black-smithy
18. Carpentry
19. Fibre other than coir.
20. Manufacture household utensils in aluminium
21. Manufacture of Katha
22. Manufacture of gums and resins
23. Manufacture of polyvastra
24. Processing of Maize and Ragi.
Road Map for KVIC in XII Plan
One of the most significant aspects of Khadi and Village Industries (KVI) in Indian economy is that it
provides sustainable employment to rural artisans. The Working Group on Micro, Small & Medium
Enterprises Growth for 12th Five Year Plan (2012-2017) has recommended a road map for projecting
Khadi as well as Village Industries as pure, ethnic and environment friendly products in the global
market.

To realize the growth potential of KVI sector, it is necessary that production, value addition and sale
grow sustainably. The XII plan approach paper requires that manufacturing sector grows at 11-12%
annually and an overall growth of 9-10% is realized. Accordingly, keeping an eye on the sectoral
growth potential and the requirement of plan mandate, a growth of 13% has been envisaged for khadi
and village industries production (khadi-11%, village industries-13%). During the first four years of
XI plan period, KVI production has grown 9.1% annually.

Value addition is taken as a major thrust area in order to make khadi activities attractive and
economically viable. KVIC had set an objective of achieving 70% value addition. This will need to
be enhanced to at least 100% and will need to be monitored through an appropriate measurement
mechanism.

Major thrust area of value addition in khadi has been identified as:-

 Focusing on eco-friendly and natural products of the sector.

 Identification and development of heritage village covering KVI activities.

 Integrated inputs relating to credit, technology, marketing intervention, capacity building,
innovations, skill development, infrastructure support, etc. to be provided under cluster
approach.
 Identification of surplus land with KVIC and KVI Institutions and work out action plan for
effective utilization of land.
 Innovations in design, technology product development and processes.
 Developing KVI products for users of all age group.
 Introducing interventions and promotional measures to increase the market share of KVI
products to provide more employment opportunities for rural folk.
 Make departmental sales outlets and Central Sliver Plants vibrant and centers for generating
surplus.
The following is the projected Production of Khadi & V.I. for the XII Plan

(in Rs. crore)

Year Khadi V. I. Total

2012-13 781.36 23776.50 24557.86

2013-14 848.00 26154.00 27002.00

2014-15 924.00 28769.00 29693.00

2015-16 1012.00 31645.86 32657.86

2016-17 1113.00 34810.44 35923.44

Total 4,678.36 145,155.80 149,834.16

Compound Annual 11% 13% 13%

growth rate

The proposal includes recognizing khadi activities as work of art and khadi artisans as artists. The
existing Market Development Assistance (MDA) scheme provides for 25% share for artisans as
additional incentive in the MDA on khadi production. Such incentive will be continued under
modified MDA.

Propagation of Indian khadi will be made more focussed in terms of its eco-friendliness, bio-
degradability, ready availability, and its unique character of an exquisite heritage product, ethnic,
hand-woven and humane.

Special thrust will be given on KVI export through enhanced participation in international exhibitions,
business delegations and buyer-seller meet and also through special promotional events abroad.

Action will be ensured on time-bound priority apropos Khadi Mark to develop it as an authentic mark
of purity and genuineness of khadi. Existing khadi certification regulations are already being revised
to provide for Khadi Mark. There will be independent third party validation of genuineness for
issuing and renewal of Khadi Mark.

Mahatma Gandhi Institute for Rural Industrialisation (MGIRI) will be developed during the XII plan
as a centre of excellence in rural industrialization by strengthening and expansion of the interface with
reputed technological institutions, nurturing innovative ideas in rural industrialization, development of
products/processes and technology dissemination providing quality testing and guidance to rural
enterprise.

A cluster based scheme named SFURTI was launched during 2005-06 and was mostly implemented
during the XI plan period in 29 Khadi and 50 village industries clusters. External evaluation study has
been conducted in respect of KVI clusters and the results are encouraging. It is proposed to take
up 915 KVI clusters with enhanced quantum of grants under a scheme with a proposed outlay of Rs.
1000 crore.

Prime Minister’s Employment Generation Programme (PMEGP) has created new hopes among youth,
particularly the educated unemployed, of becoming entrepreneurs themselves. It is proposed to
upscale the scheme for creation of jobs in manufacturing sector with enhanced project cost ceiling
(but reduced subsidy for bigger projects). A tentative outlay of Rs.9700 crore including Rs. 9200
crore as margin money subsidy and Rs. 500 crore as backward and forward linkage component has
been proposed for creation of 32 lakh employment opportunities through creation of 4 lakh micro
enterprises during XII plan.

Existing Schemes that are proposed to be continued in the XII Plan are - PMEGP, KRDP, MGIRI,
ISEC, MDA, JBY and SFURTI.

New scheme that are proposed to be introduced in the XII Plan - Scheme for KVI/CBC Loan
Waiver/Settlement – this is for write off of old loans by a one-time waiver/settlement. A tentative
outlay of Rs 300 crore has been proposed for a proposed write off/settlement in respect of pre-CBC
and CBC loans so that the institutions could start their operation afresh with a clean slate.

GST on Khadi products

Ministry of Micro, Small and Medium Enterprises (MSME) welcomes the introduction of
GST. The entire Khadi & Village Industries (KVI) sector has been enjoying the benefit of tax
exemption even under the pre-independence era. With the exemption to the SSI sector being
drastically reduced from the existing Rs.150 lakh to Rs.20 lakh, the exemption cover enjoyed
by many of the Khadi Institutions (KIs) has been removed. KIs are now mandated to obtain
registration under GST and also pay GST on various Khadi products which is 5%. The
products of the Village Industries sector were either taxed @ 0-14.30% before-GST and post-
GST the same products attracts tax @ 12-28%, and the details of the same is given below:
Details of products of the Village Industries sector under pre-GST & post-GST
 Items Before (GST) After (GST)

Dona plate 5% 18%

PVC Scrap 5% 18%

Ayurvedic Medicine 0% 12%

Sanitary Hardware & Paint 14% 28%

Marble & Granite 5-14% 28%

Electronic Weighing Scale 5.5% 28%

Lock 5% 18%

Mentha 5% 18%

Solar Plate 0% 18%

Textile sector 0 to 5% 18%

Gobar Gas/Bio Fuel Generator 0% 18%

Agriculture Diesel Engine (upto 12 5% 28%

B.H.P.)

Plywood 14.30% 28%

Sewing Machine parts 5% 12%

Detergents 5% 28%

Glassware boll (Kancha) 0% 18%

Tractor attachments 14% 28%

Weighing machines 14% 28%

Wet grinders 14% 28%

Compressors 14% 28%

Packing Machines 14% 28%

Auto-parts 14% 28%

Garage Equipment 14% 28%

Hand-made soap (3401) 0% 18%

Hand-made paper (4802) 0-4% 12%

Herbal Shampoo (3305) 5-12% 28%

Leather Products (suit-case/brief- 5-12% 28%

case/other articles)

Agricultural, Horticultural or Forestry 5% 12%

Machinery for Soil preparation

Harvesting or threshing machinery 0% 12%

 All food mixes, sharbat, ready to eat 5% 18%

packaged food

Hand operated mechanical appliances, 5% 18%

weighing 10 kg or less, used in the

preparation, conditioning or serving of

food or drink

At present only Khadi yarn produced in Khadi sector is exempted, while other Khadi product

attracts 5% GST. Ministry of MSME has approached Ministry of Finance to consider the

sector for exemption from GST or to ensure a seamless flow of input tax credit in order for

Khadi Institutions to claim input tax credit.

The Graphical Representation of above data:

30%
25%
20%
15%
10%
Before GST
5%
After GST
0%
 30%
25%
20%
15%
10%
5% Before GST
0%
After GST

30%
25%
20%
15%
10%
5% Before GST
0% Before GST2
Conclusion:
As per the data above we find that the taxes in each and every business under Khadi &
Village Industry have been increased under GST.