Why It Doesn't Make Sense to Formalize a Textile Business

In the world of business, formalization—getting a GST number, securing a bank loan, and operating with invoices—is often seen as the only path to growth. However, my research into Bagru's vibrant hand block printing community reveals a far more complex reality. For many small-scale textile artisans, the choice to remain informal is not a sign of a lack of ambition or knowledge. It’s a calculated, strategic, and often essential business decision.

Here's why, from their perspective, the risks and costs of formalization often outweigh the supposed benefits.

The Costs Outweigh the Benefits

Formalization comes with a price, and for many textile artisans, the returns on that investment are too small to justify the effort.

• The Cost of Compliance

Artisans like Shankar and Deepak have chosen not to register for GST. They feel it’s unnecessary and that their turnover doesn't meet the minimum threshold. More importantly, GST adds a layer of paperwork and complexity that doesn't bring them any more customers or profits—a high cost for zero return.

• The Inadequacy of Formal Credit

My interviews showed that bank loans are often a poor fit for the seasonal nature of textile production. Mukesh, a successful hybrid entrepreneur, intentionally avoids bank loans because the fixed EMI payments don't align with his business's irregular cash flow. For him, a high-interest loan from a private money lender is a better option because the repayment is flexible. Shankar, who has a cash credit account, found he quickly used up the limit and still had to turn to high-interest private lenders to manage his cash flow needs.

• The Problem with Online Marketplaces

The promise of online retail platforms is alluring, but the reality is often disappointing. Shankar found that the shipping fees and commissions on platforms like Amazon ate up his already thin profit margins. When he tried selling on Facebook, customers constantly bargained with him. This experience taught him that for his business, the best path to profit is to sell wholesale to loyal customers offline.

The Power of the Informal Network

The informal systems that outsiders often view as a disadvantage are actually a source of resilience and strength for the artisan economy.

• Trust over Documents

In the informal textile economy, relationships are built on trust, not contracts. Ram gives his older clients 30 days of credit, but in return, he gets a steady stream of job work. When he needs a loan, he borrows from a private lender—not because he trusts them, but because the transaction is quick and guaranteed, with no paperwork.

• Flexibility over Rigidity

The informal system is also more responsive to the realities of a production-based business. Artisans like Satya get paid in cash three times a month, which perfectly aligns with their cash flow needs. He doesn't need to stand in line at a bank because his employer provides him with the cash he needs, when he needs it.

• A Safety Net for the Future

The informal economy is built on a foundation of family and community. In the case of Ashok, he earns a living as a kaarigar while his wife earns her income through a separate sewing business. This household-level strategy is a prime example of how families manage risk and build a safety net outside of formal systems.

The Real Challenge

The artisans I interviewed are not anti-progress. They are pragmatic businesspeople who are making rational choices based on their own experiences. The real issue is not that they are unwilling to formalize; it's that the current formal systems—from banks to online marketplaces—are not designed to meet their needs. Until these systems can provide a more flexible, reliable, and profitable alternative, the smartest business decision for a small-scale textile artisan will continue to be to remain beautifully, purposefully, and strategically informal.