ATIRA CASE STUDY DEMAND FOR COTTON TEXTILES ECONOMIC ANALYSIS

PRESENTED BY :(GROUP 1) ABHIMANYU MENON D A I S Y M E H TA PEYUSH AGARWAL ISHANT AGARWAL ROHAN JAISWAL

OVERVIEW OF THE CASE

ATIRA Ahmedabad Textile Industrys Research Association Study of the Demand for Cotton Textiles Purpose of the Study To Forecast the Demand for Cotton Cloth in India Parties to be benefitted by the Findings Textile Manufacturers and Government Agencies

DEMAND FUNCTION USED IN THE STUDY FOR COTTON CLOTH

Demand for cotton cloth was treated as a function of three variables , namely income , textile prices (excise duty) & food prices d = f ( y, Pt , Pf ) Where, d = demand for cotton textiles (per capita) y = national income (per capita)

Pt = textile prices (index)

Pf = food prices (index)

 The ATIRA STUDY argued that :-

a. A growth in Income will result in increased consumption of cloth or a switchover by consumers to more expensive varieties of cloth. Hence , there is a proportional relationship between the two. b. If the prices of cloth decline , consumption of cloth will rise. Hence, there is an inverse relationship between the two.
c. Food prices have an indirect effect on the demand for cloth. A rise in food prices , will lead to less demand for cloth ; as food is a much important necessity than cloth.

 Other factors in addition to income , textile prices and food prices that influence the demand for cloth are :a. Governmental policies such as protection to the handloom industry through imposition of handloom cess and excise duty on mill cloth. b. Secular changes in consumer preferences and tastes resulting in shifts in demand for cloth.

METHODOLOGY USED FOR FORECASTING DEMAND

2 SEPARATE MODELS FOR FORECASTING DEMAND :1) Demand for MILL-MADE CLOTH :- It shows a functional relationship between per capita deliveries of mill-made cloth for civil consumption (dependent variable) and per capita income, index of wholesale prices of textiles and the index of wholesale prices of food (independent variables). 2) Demand for Handlooms and Powerloom CLOTH :- It shows a functional relationship between per capita deliveries of handloom and powerloom yarn for civil consumption (dependent variable) and per capita income, index of wholesale prices of food articles and the index of excise duty on mill-made cloth (independent variables). The relationships postulated in the 2 models were estimated by the use of the statistical method of multiple regression analysis

DIFFERENCE BETWEEN THE 2 MODELS : The Excise Duty levied on mills became a part of the wholesale price of Mill Cloth and had the same effect on the demand for mill cloth as any other price change whereas the excise duty levied on handlooms and powerlooms increased their prices. Hence , the excise duty created a price disparity between mill made cloth and handloom cloth.

STATISTICAL ANALYSIS
BASIS Income Elasticity of demand MILL MADE CLOTH 0.44 HANDLOOMS 1.49 - 0 .43%

Increase in food prices - 0.40% by 1% , then decrease in demand of :

It was found that an increase of 1% in excise duty on mill cloth led to an increase in the demand for cloth produced by handlooms and powerlooms by 0.17%.

CASE STUDY QUESTIONS

1) Evaluate the ATIRA Study in terms of its methodology, assumptions and data used ? SOLUTION :-

METHODOLOGY:- For the purpose of forecasting demand

two separate models were used by ATIRA :1) Model 1 - Forecasting demand for mill made cloth. 2) Model 2 - Forecasting demand for handloom and powerloom cloth made by decentralised sector. In case of mill made cloth, both data on production and prices were available while in case of decentralised sector data on past production of yarn used by handloom and powerloom were available. ATIRA had no information on their past prices.

ASSUMPTIONS: 1) 2) Demand for cotton cloth was assumed as a function of three variables namely income, textile prices(excise duty) and food prices In Model 1 a functional relationship between per capita deliveries of mill made cloth for civil consumption (dependent variable)and per capita income, index of wholesale prices of textile and the index of wholesale prices of food (independent variable). In Model 2 a functional relationship was assumed between per capita deliveries of handloom and powerloom yarn for civil consumption (dependent variable) and per capita income, index of wholesale prices of food particles and index of excise duty on mill made cloth (independent variable) It was assumed that handlooms and powerlooms produced 4.5 yards to a pound of yarn.

In table 7.5 it was assumed that food and textile prices would remain at the 1955 level.

Table 7.6 assumed that the 1958 price level prevailed

DATA USED:

For both mill sector as well as decentralised sector, the data considered are cloth and yarn delivered for civil consumption only.
For decentralised sector, estimates of total cloth production were made on the basis of yarn deliveries by cotton textile mills. Data for per capita income has been obtained by dividing national income at constant prices (1948-49 = 100) by corresponding population figures. Data for index of wholesale price of food is taken from the Economic Adviser's ( Govt. of India) index of wholesale price which had 1948-49 as its base. The wholesale price of textiles data is compiled by the Economic adviser's ( Govt. of India) index of wholesale price of textiles with base 1948-49 = 100 Index of excise duty on mill cloth has been computed by ATIRA with base 1948-49 =100 In statistical analysis, ATIRA relied on time series data. Data on per capita deliveries of cloth for civil consumption, index of wholesale prices of food, index of wholesale price of textiles, index of excise duty and per capita income were available for the years 1951-57.

2) Can you suggest an alternative approach to the forecasting of demand for cotton textiles ? Moving Average Method Given a series of numbers and a fixed subset size, the first element of the moving average is obtained by taking the average of the initial fixed subset of the number series. Then the subset is modified by "shifting forward", that is excluding the first number of the series and including the next number following the original subset in the series. This creates a new subset of numbers, which is averaged. This process is repeated over the entire data series. The plot line connecting all the (fixed) averages is the moving average. A moving average is a set of numbers, each of which is the average of the corresponding subset of a larger set of datum points. A moving average may also use unequal weights for each datum value in the subset to emphasize particular values in the subset. .

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