IIM Bangalore and King’s College London unveil collaborative research project: ‘Enablers and Obstacles for UK-India Trade: Banks and Diasporas’

Research report highlights the potential of the Indian handicrafts industry and its growth trajectory

Delhi, September 18, 2024: IIM Bangalore (IIMB) and King’s College London (KCL), in collaboration with their non-academic partner, the Federation of Indian Chambers of Commerce and Industry (FICCI), hosted a conference titled, ‘UK-India Trade: Small Firms and Global Ambitions’ in New Delhi. Held at the India International Centre, the event unveiled key insights from a three-year collaborative research project. The conference saw the presence of prominent scholars, policymakers and key stakeholders from academia, government and industry, who engaged in an in-depth discussion on the future of MSMEs, particularly in the handicrafts sector, and their global growth potential.  

The three-year research project, ‘Enablers and Obstacles to UK-India Trade (2021-2024),’ has been funded by the UK Economic and Social Research Council (ESRC) and the Indian Council of Social Science Research (ICSSR). Led by principal investigators Prof. Kamini Gupta and Prof. Sunil Mitra Kumar of King’s College London, and Prof. Prateek Raj from the Strategy area at IIM Bangalore, the research stresses upon the challenges and opportunities for Micro, Small and Medium Enterprises (MSMEs) in bilateral trade between the UK and India.  

“Our research reveals that India's handwoven carpet industry is composed of small firms with truly global ambitions. While we found that market linkages and demand-side factors are more pressing concerns than credit access, there is significant potential for growth. Kashmir, for instance, could boost its luxury carpet exports with better export assistance and innovation support. Uttar Pradesh and Rajasthan could benefit from exploring new export destinations and focusing on higher quality products. Importantly, this traditional yet innovative industry has the potential to become a major source of job creation, particularly for women, which could have a transformative impact on regions like Bhadohi, Srinagar and Jaipur", said Prof. Prateek Raj. 

“Unlocking the potential of India's handwoven carpet industry requires addressing two critical factors: access to credit and social networks. Our research reveals that small firms prefer inter-firm credit from suppliers or customers to formal options, highlighting the importance of relationships in facilitating global trade. By understanding the specific needs of each cluster, such as export assistance in Kashmir or quality upgradation in UP and Rajasthan, we can enhance the industry's global competitiveness and boost MSME participation in international trade", observed Prof Kamini Gupta. 

"India-UK trade presents immense potential, especially in services, investment and key sectors like handicrafts and textiles. With renewed focus on a free trade agreement, we anticipate significant opportunities for growth and collaboration. This partnership will drive innovation, bolster exports and strengthen economic ties between two global powerhouses", said Prof. Sunil Mitra. 

The project examined supply chains and access to bank credit for MSMEs, focusing on carpet-weaving handicrafts clusters in Kashmir, Rajasthan and Uttar Pradesh. The workshop highlighted key findings and explored themes such as UK-India trade, global value chains, social networks and the role of small firms in the global market. 

The research sheds light on how India’s hand-knotted carpet industry, comprising mostly small firms with global ambitions, holds immense potential for growth and job creation, particularly for women. With a median turnover of ₹1.5 crore, the industry exhibits strong vertical integration and export orientation, with Rajasthan and Uttar Pradesh leading the way. Nearly 90% of firms in Uttar Pradesh and Rajasthan introduce innovative methods and designs, while Kashmir excels in luxury carpet exports to Germany and the UAE. 

To further boost exports and employment, the industry seeks better market linkages, export assistance and innovation. With support from formal trade associations like the Carpet Export Promotion Council (CEPC), this traditional industry is poised for transformation and growth. 

The speakers' list included Piyali Mazumdar from the National Council of Applied Economic Research, Saon Roy from the Indian Council for Research on International Economic Relations, and Pranav Kumar, VP of International Trade Policy and Compliance at Reliance Industries Ltd, along with academicians from various institutes. 

The second leg of the conference will be hosted at IIM Jammu, where the changing nature of the handicrafts industries will be discussed. The event will feature Prof. Suresh Bhagvatula of the Entrepreneurship area, IIMB and Prof. Nilam Kaushik of the Strategy area, IIMB, in Kashmir. Deeply rooted in handicrafts, the survey process in the Kashmir cluster was driven by Mir Autif Mohammad, a PhD student at IIM Bangalore.

Key Highlights of Research Report: 

The survey, conducted between September 2023 to January 2024, has gathered extensive data on the handwoven carpet industry, exploring the value chain, credit practices, export-import activities, networks and innovation practices of 504 surveyed firms in Uttar Pradesh, 74 in the Kashmir Valley and 80 in Rajasthan, as well as specialized surveys of 74 linked sub-contractors and 105 weavers.

The industry comprises small firms with global ambition that need better market linkages.

• Kashmir can boost its exports in luxury carpets with export assistance and innovation 
• UP and Rajasthan can upgrade the quality of their offerings and explore new export destinations 
• The industry can become a major creator of jobs for women

A traditional industry 

Firms are mostly home based (61%), less so in Rajasthan (25%). Median turnover (2022) is 1.5 crore. Rajasthan’s firms are larger (2 crore), Kashmir’s smaller (28 lakh) and older by around two decades. UP firms are generational (90%), Kashmir and Rajasthan less so. Owners are mostly male (98%). Firms sparsely employ women, but Kashmir bucks this trend.

Strong vertical integration 

Industry exhibits strong vertical integration, with nearly half (43%) of the firms involved in every major production function. Subcontractors engage in processes like spinning, dyeing and weaving, and come from different communities.

Various sources of credit 

Firms mostly report no major barriers in accessing credit (87%), with complex documentation being an issue for some (10%). Firms prefer bank loans, internal funds and inter-firm credit, valuing relationships, low interest rates, trustworthiness and simplicity. Four in five firms in UP extend credit to others, half do in Kashmir and Rajasthan.

Strong export orientation 

Rajasthan (97%) and UP (81%) firms are mostly exporters, more than in Kashmir (46%), where access to international customers is an issue and attending trade fairs is less common. Kashmir exports luxury carpets, Germany and UAE being its focal destinations. In UP and Rajasthan, exports are mass market with USA followed by UK as main destinations.

Centrality of associations 

Firms rely on formal trade associations, such as the Carpet Export Promotion Council (CEPC) and local associations, gaining valuable access to international customers, trade fairs, policy advocacy and government schemes.

An innovating industry

Nearly all firms introduce new methods and design innovations in UP and Rajasthan, around half of the firms in Kashmir do. Half the firms exhibit a growth mindset.