Problems and Prospects of Employment and Income Generation in the Cottage Industry Sub-Sector in Bangladesh

Abstract

Unemployment associated with poverty 1s a serious problem in Bangladesh. In this country the existing economic sectors like agriculture, large and medium scale industries and service sector have failed to provide the required employment opportunities for growing unemployed people. The agriculture is the single largest sector in terms of employment generation. But this sub-sector is already overcrowded and the incidence of disguised unemployment is very high. 1n fact, to ensure mechanized and market-oriented agricultural sector, it is necessary to transfer labor force from this sector to some other non-farm economic sector. Among the non­farm economic sectors the formal industrial sector of Bangladesh is historically backward and a quick expansion of this sector is still a far cry. Moreover, the capital-intensive large and medium scale industries are not competent to provide employment opportunities for the unskilled rural people who are the surplus labor of agricultural sector. On the other hand, the service sector in Bangladesh is surprisingly expanding in terms of its contribution to national income but not in terms of that much in employment generation. Likewise this urban-based sector is also suitable only for the skilled and educated people. The cottage industries are the traditional non-farm economic activities in Bangladesh. As a non-farm source of employment and income generation, this sub-sector is popular among the craftsmen, rural poor and idle agricultural workers. In various capacities, the participation of women workers in the cottage industries is very significant. This sub-sector can form a strong base for the sustainable industrial as well as agricultural development by linking those sectors. Through this study a modest attempt is made to review the growth trend of cottage industries, to examine the effectiveness of this sub-sector in income and employment generation, in upgrading the level of income of the workers and the owners with the •special reference to the women and poor people and to see the prospects of, this sub-sector by finding out the major obstacles faced by this sub-sector and their possible solutions. At the same time on the basis of the findings some measures are suggested for the promotion of this sub-sector. In this study both primary and secondary data are used. For the primary data both random and purposive survey techniques were used. Primary data were collected from six upazila of six districts of six administrative divisions of Bangladesh with a view to include the various types of cottage industries. These districts are Cox'sBazar, Dhaka, Rajshahi, Satkhira, Jhalkathi and MauloviBazar. To study handloom industries, one upazila from each of three districts- Sherajgang, Kushtia and Tangail-districts selected, as most of the looms are located in these areas. This research studied 10 industries of each selected upazila and 90 cottage industries in total from the above nine districts. The secondary data were collected from the recognized published sources. The available data show that during the last three decades the growth rate of cottage industries was on an average 2.25 percent. The growth of this sub-sector dropped down to 1.70 percent in 1995 from 2.05 percent in 1991, which recovered in 1995-2000 and reached at the level of 3.5 percent. In the case of handloom during period (1985-90) the number of operational looms increased from 1.32 percent to 3.87 percent. Again in 1995-2000 this sector grew upwardly after facing a recession in 1990-95. About 67 percent of the industrial employment is provided by this sub-sector. In the last three decades the average growth trend of employment in this sub-sector was 2.53 percent. But the growth rate of employment in the cottage industries contracted from 3.13 percent in 1970 - 80 to 2.38 percent in 1995-2000. The situation will be worsening if the handloom sector is set aside out of consideration. On the other hand, the contribution of this sub-sector to GDP has increased from 1. 1 percent to 4.2 percent during the same period. In all of the development plans, programs and industrial policies so far pursued in the country these industries has received theoretical priority as a measure for poverty eradication through employment generation in the productive sector. The government policies, in practice, have a strong preconceived notion towards the development of the mechanized formal industrial sector. The policy makers set their mind to achieve overall development through the quick expansion of the formal industrial activities. But theft attempts succeeded a little to achieve the target. From the Third Five Year Plan, the allocation for this sub-sector increased gradually, but on an average in all the Five-Year Plans so far implemented, this sub-sector hardly got 1 5 to 20 percent of the total allocation of the industrial sector. The trade and commerce policy, fiscal and monetary policy as well as the industrial policies of the government mainly favored the large and medium scale industries. It is always mentioned in the different industrial policies and long term plans that initiatives would be taken to link the cottage industries with the large and medium scale industries. But, no actual progress in this regard was found. Even still now there is no separate industrial policy or schedule for this sub-sector. The government policies have failed to reform the existing institutes to provide this sub-sector with proper financial, marketing and technical support. About 60 percent of the studied cottage industrial units’ mention that lack of financing is their basic problem and 80 percent of them want financial assistance. But this sub-sector has to depend largely on self financing. As found in this study, the industries more than 80 percent of the primary capital and 4 7 percent of the working capital are accumulated from the personal savings and earnings of the proprietors. The institutional sources provide only 10 percent of the initial capital requirement and 18 percent of the working capital requirement. No long-term credit is provided by the non-institutional sources, and 35 percent of the working capital is provided by the non-institutional sources at a very high rate of interest. The modal long-ten and short-term capital requirements of the enterprises are found less than Tk. 80,000 and less than Tk. 5,000 respectively. The high collateral demanded by the lending institutions, inadequate bank branches at the grass-root level, the lengthy official formalities and inadequate information about credit are discouraging the interested owners of the cottage industries to borrow from the institutional sources. At the same time, the bankers are shy to finance the cottage industries considering those risky and Jess profitable. Some of the specialized institutions are also lacking proper trained field workers to administer such type of credit. The rate of interest charged by the institutional sources is higher than that of the desired one. The withdrawal of the interest rate subsidy for the credit disbursed to the small industries by the government has further worsened the situation. The owners of the cottage industries are facing double-edged deprivation either in procurement of raw materials or in marketing of the output produced. About 63 percent of the studied units are totally dependent on domestically grown agricultural raw materials and only 11 percent consume mostly imported raw materials. Majority of the industries are procuring raw materials from the indirect sources, of which 32 percent are dependent on the mahajans to purchase the raw materials on credit by paying higher prices and receiving less prices of their products, as they have to sell their products to the mahajans because of adverse prior agreements. In the case of output marketing only, 18 percent of the owners are using direct channel of marketing, and about 32 percent are somehow dependent on the mahajans to market their products. As found in the field study, 92 percent of large cottage industries se11 their products indirectly, while 87 percent of medium and 59 percent of small-scale cottage industries sell their products in the same way. Indirect marketing reduces the profits of the owners by increasing the cost of production and in this way the loss of revenue is, on an average about 25 percent of the total revenue earned, which is hindering income and employment generation prospects of this sub-sector. In addition to the seasonal supply problems of raw materials, inadequate supply of raw materials because of the increasing use of land for cereal cultivation, competition with the formal industrial sector producing the close Substitutes and selling those at lower prices by utilizing the scale of production and Jack of product diversity are creating other marketing problems. About 72 percent of the owners are primarily involved in this sub­sector. The proprietors who have other primary sources of income are not much interested to make their industries economically viable. Such industries are mainly operated by the unpaid family workers and responsible for the poor income generation. Generally, the comparatively large industries, operating commercia11y, offered more employment than that of the others but a few female workers are employed in these industries. The average number of employment in the cottage industries is about 4.65 person of whom 67.5 percent are full time workers and 54.5 percent of the employed workers are paid. Most of the unpaid workers are female family members. In the studied industrial units, on an average 40 percent are female workers and in mat, coir and fish products' industries, the majority of the workers are female. Though, a number of workers are working in this sub-sector, yet the average number of working days is 227 per year and the average weekly working hour is 38. Seasonal production of raw materials and lack of storage facilities are mainly responsible for low yearly working days as well as low weekly working hours. The average fixed capital per worker is Tk. 3801.03; while per worker working capital per worker is about Tk.830. That is to say if all other things remaining unchanged, only Tk. 4631.03 is required to create a fresh employment in this sub-sector. In this study lack of finance, increasing cost of production, inadequate supply of raw materials and in adequate demand for their products are identified as the basic problems to generate employment in their cottage industries. [N this sub-sector 72 percent of the owners are employed primarily but 59 percent of the owners' primary source of income is provided by this sub-sector. That is to say 10 percent of the owner’s primary source of income and employment are different. The average value-added per enterprise per week is about Tk.2000 and weekly family income is Tk. 934.26. Generally, the skilled workers are paid more than that paid to the unskilled workers. The wage of the skilled male workers is higher than that of the agricultural wage laborer and in the case of female workers it is less than the agricultural wage laborer. There is clear wage discrimination in wage payments as the female workers are paid on an average 35.5 percent less than that of their male counter parts having the equal level of skills and in the case of unskilled workers it is about 19 percent. It happens, as the females are not in good position in terms of bargaining power and opportunity cost of employment. The average rate of profit is about 17 percent. Though the average does not reflect the whole truth. If we keep the top three profits making industries out of consideration it will drop down to below 10 percent. Alarming thing is that only 16 percent of the net profit is re-invested, which is also against the expansion of this sub-sector, and a reflection of non­commercial attitude of the owners. On the other hand, the labor productivity is not up to the mark as compared to the rate of wages. Generally, the commercially operated medium sized industries are at the better position in terms of income generation. Poor labor productivity, less attractive profit margin, inadequate wage of unskilled workers, wage discrimination, existence of unpaid workers, subsistence level of operation, higher input prices along with inadequate supply, exploitation of 'the middlemen and very poor amount of investment from net profit are the major problems of income generation in the cottage industries. In this sub-sector it is possible to generate employment and income at a lower cost; where the higher capital productivity, participation of the poor people, female, family workers and unskilled workers in the cottage industries are remarkable. But still this sub-sector is lacking in utilization of its potentialities. For this purpose modernization of this sub-sector is very necessary through training, technical assistance, financial support, proper and year round supply of raw materials, storage facilities, widening the market of the products and by extending infrastructural facilities etc. To ensure all these things, the government will have to come to the scene by designing a long-term integrated plan for supporting this sub-sector. 1t is necessary to establish exclusive zones in the countryside to provide the cottage industries with all types of institutional supports by reforming the present institutions specially to serve the cottage industries.