The handloom sector is one of the largest employers in India, providing employment to about 65 lakh persons. The sector represents the continuity of the age-old Indian heritage of hand weaving and reflects the socio-cultural tradition of the weaving communities. The Government of India has been following a policy of promoting and encouraging the handloom sector through a number of policies and programmes. Most of the schematic interventions of the Government of India in the Ninth and Tenth Plan period have been through the state agencies and cooperatives in the handloom sector. However in the face of growing competitiveness as well as opportunities emerging in the post liberalization environment, the logic of economic liberalization for handlooms will sooner or later, involve elimination of subsidies for handlooms. The issue has therefore, to be seen in the context of productivity, employment generation, protection and promotion of traditional skills and the need to provide a safety net to the poor in a Country where any economic programme must some how have target in this direction.

This sector is highly decentralised and dispersed and handloom weavers can be found in over 400 clusters in the country. In view of the high employment in the sector and cost disadvantages faced by handlooms compared to the Mill and Power loom sectors and due to the manual nature of production, the Govt. of India had been following a policy of protection of the Handloom sector since long. This policy consists of subsidy for production of yarn supply, marketing rebate on sales, and exemption from excise duty on hank yarn which has recently been discontinued.

What the handloom sector should look far then is not continuation of financial subsidies, but institutional support for modernization of production, steady and regular supply of inputs like yarn, dyes and chemicals at reasonable prices, training in design and innovative patterns of weaving. There is also a need to empower weavers to chart out a sustainable path for growth and diversification in line with emerging market trend. The handloom sector has an edge over the power loom and mill sector in its ability to commercially produce the goods in small volumes, openness to innovation, quick to switch over to new designs, adoptability to suppliers requirements and creation of exquisite designs. It has also the comparative advantage in terms of availability of skill base across the country, abundance of local raw materials and labour intensity. Yet this sector has not been able to fully harness its potential.

During the VIII and IX Plan, the Central Government has been extending financial assistance to the states on the basis of centrally sponsored schemes and intended benefits have gone to the beneficiaries as determined by the State Governments. There has been no focused approach in growth and development of Handloom sector as resources were generally spread very thinly. The working group for the X Five Year Plan had proposed a slight shift in the development paradigm--focus on cluster development.

In the Textile Policy of 2000, to make the Handloom industry capable of surviving in a globally competitive world, emphasis was given on encouraging and assisting excellence in craftsmanship in order to carve out a niche on exclusivity of design and product and for this purpose, on the provision of skill upgradation, technological improvement, product development and marketing. After the removal of restrictions on imports as per the W.T.O. obligations, the Handloom sector have seen erosion of fiscal protection by removal of the excise exemption in favour of handloom sector and putting it at par with the Powerloom and Mill sectors since the excise duty on yarn was abolished for all sectors.

The Hon'ble Finance Minister in his budget speech of 2005-06 has stated that:

"I think it is necessary to lend further help to the handloom sector. The Government proposes to adopt the cluster development approach for the production and marketing of handloom products. The Ministry of Textiles will take up 20 clusters in the first phase at a cost of Rs.40 crore, and the amount will be provided during the course of the year".

Looking at the aforesaid situation, it has been felt that the cluster approach for the development of handloom sector where all the needs of the cluster are met would be an ideal solution to the travails of this sector. In fact this initiative of the government was also highlighted in the award ceremony of Handloom Export Promotion Council (HEPC) held at National Institute of Fashion Technology (NIFT, Gandhinagar) on 20th May 2005 by honourable Union Minister of Textiles, Shri Shankasinh Vaghela.

The objective of Integrated Handloom Cluster Development Scheme (IHCDS) being introduced in the year 2005-06 is five fold: