India has been enjoying rapid economic growth since the 1990s. Any discussion of the recent economic growth of India needs to take into consideration the textile industry. In 2008, the textile industry contributed 4% of GDP and employed about 37 million workers across India. Furthermore, the textile industry has played an important role in rural development and poverty reduction in India.
In terms of the international economy, the structure of the textile market has changed over the last two decades particularly with respect to trade restrictions under the Multi Fibre Arrangement (MFA) which has been deregulated since 1995, according to the GATT agreement at the Uruguay Round.
Traditionally, Indian textile industry policy has involved protecting unorganized manufacturing units (small-scale units) from market competition by strictly restricting organized manufacturing units (medium and large-scale units) from entering the market. Therefore, the Indian textile industry has been dominated by the unorganized sector. However, Indian industrial policy has become gradually more liberal and market oriented in recent years due to the globalization and liberalization of the textile industry.
In this paper, I mainly discuss the characteristics of the Indian textile industry in terms of globalization and liberalization. I focus especially on the productivity performance of unorganized textile units. In the empirical part, I analyze the difference in the total factor productivity (TFP) of unorganized textile units. The TFP of an unorganized textile unit is calculated through the estimation of the Cobb-Douglas production function. The data for unorganized textile units are obtained from the 56th round of the National Sample Survey (NSS), which conducted sample surveys across India in 2000 and 2001. In addition, in order to deal with the endogenous problem between the dependent variable (gross value added) and explanatory variable (policy variable), the regression has been performed using the instrument variable method.
The results of empirical analysis lead to the conclusion that the supporting policy increases the TFP of unorganized textile units. However, the results have also shown that nearly 90% of small-scale units do not accept any kind of support from public or non-public organizations. Furthermore, problems with electricity supply adversely affect the TFP of unorganized textile units.

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