An analysis of production loan and future expansion plan of handloom weavers from West Bengal, India

Purpose This paper aims to investigate whether production loans influence the future expansion plans of handloom weavers in the context of West Bengal, India. Because the decision to borrow is endogenously determined by the weaver, the paper uses a structural model that addresses this endogeneity and underscores the impact of borrowing on the likelihood of planning expansion. Design/methodology/approach Using primary survey data on 825 cotton handloom units across the three natural clusters, the study applies a structural model and estimates it using two approaches: a recursive bivariate probit model to jointly estimate borrowing and expansion intentions while controlling for socioeconomic variables such as gender, age of the production unit and using caste-status and registration-status of units as instruments; a probit model with production loan status as a binary endogenous treatment to compute average treatment effect and average treatment effect on the treated. Findings The recursive bivariate probit and treatment-effect models show that borrowing for production significantly increases the probability of planning expansion. Female proprietors are taking production loans, but are less likely to plan for expansion. The weavers from reserved castes and registered weavers are more likely to borrow. Originality/value This paper contributes by linking production credit to weavers’ expansion intentions using a structural model that accounts for weavers’ endogenous decision-making behavior. Using primary data, it highlights that production credits significantly impact future expansion plans, which is important for the long-run sustainability of this sector, and identifies key policy prescriptions to boost growth potential in the informal handloom sector.