T K Rout*

1.0 Introduction:

Geographical Indication (GI) is an Intellectual Property Rights (IPRs) stipulates protection of intangible property of unique products originated from a particular geographical area having unique quality associated with that region.

The economic rationale of IPR protection through GI is closely associated with the perception to link origin as a quality signal for marketing the goods for sustainable development of the producers’ community.  It protects the consumers from deception by eliminating quality-price disparity. The registration of the product under the GI Act provides an important legal tool to the proprietors to initiate infringement action against the unethical business practices through judiciary system. It also helps in realising tangible benefits for the producers through systematic and sustained brand promotion and market linkage of the designated products in post GI period. Most importantly, GI could be an instrument to curtail the market distortion arising out of information asymmetry between buyers and sellers. It can be viewed as a process, where reputation is institutionalised in order to solve the problem of information asymmetry and unethical free riding on good will associated with the products. The registration acts as a consumer protection measure and also at the same time protects the producers by safeguarding the reputation and quality of the product.

*The author is working as Deputy Director (MR) in Textiles Committee, Govt. of India, Mumbai.

1.1   Empirical Evidence on GI benefits:            

Researchers have made attempts to quantify the impact of the IPR protection of unique products & traditional knowledge (TK) through empirical research in order to quantify potential benefits of GI. A consumer study organised by the EU Commission estimated that 40 percent of the consumers are willing to pay a premium of 10 per cent for origin guaranteed products (EU Commission 2003). The consumers’ willingness to pay higher premium price to the original products may be attributed to the elimination of uncertainty on the quality and originality of product.

A study conducted by OECD highlights a number of factors that influence the small & rural enterprises dealing with unique products and penetrating the niche markets.  The two important factors that have emerged as (a) market access and (b) market differentiation.  One approach to address these factors could be to work collectively in order to develop a competitive advantage.  The approach is well accommodated with an origin labelled validation strategy confirming the economic rationale for protecting geographical indication. (Bramlay, Bienabe & Kirsten).  It can also influence the rural economy as most of the origin-labelled originated from rural area.


On product specific studies, the Jamaica Bru Mount coffee received a premium of $14.50 per kg in comparison to bench-mark prices of Columbia miles (Rangnekar 2003). The French GI designated cheese has sold at a premium of 2 euro per kg over other non-protected cheese. Likewise Italian Toscano Oil is sold at a premium of 20 percent since it registered in 1998. It has been estimated that 85% of French wine exports and 80% of EU exported spirits use GI’s as a marketing tool for promoting the product both in domestic and export market. The GI has become a lifeline for 1,38,000 farms in France and 3,00,000 Italian employees during post-TRIPS period.

The studies on regional origins and prices of wine have also given rise to positive impact on the GI registration of the products (World Trade Report 2004). The primary econometric tool used in the analysis is the hedonic[1] pricing model on wine and it allows estimation of the value of such important features as a geographical origin, variety, vintage, etc. whose inclusion bring about an additional premium for the original products.  Schamel and Anderson (2003) extended this analysis to the case of Australian wines and found that regional origin has become a more important determinant of prices over the period 1992-2000 as compared to other factors. Their study indicated that the average premium price of the product has increased by 31 percent in 2000 as compared to 1992 for select Australian wines. The Pinot Noir is cheaper by 22 percent compared to a Shiraz from the Barossa Valley, while a wine produced in Canberra is 25 percent more expensive than its counterparts. As such, the trends have pointed out that the products once registered can act as a riding force for free trade. Broadly speaking the IPR protection of unique products may give rise to the benefits by offering community ownership, to the producers as it is the only IPR, which prescribes community ownership. Besides, it acts as a stimulating factor for deriving premium price and facilitator of free trade. A study on Australian Wine (Schamel & Andersons, 2003) has estimated that the regional origin is more important determinant of prices over a period of time, as the product fetched and premium of 31 percent in post registration period. Further, it is evident that most of the GIs designated products have originated from rural area. In textiles, is it the Kanchipuram Silk of Tamil Nadu or Jamadani of West Bengal, Patola of Gujarat, almost all products has originated from rural area. As such, the production can give rise to a spill over effect to the development of rural India and hence bridging the gap between urban and rural in the country.

[1] In hedonic models the observed market price of a product is the sum of the implicit (unobserved) prices paid for each attribute of the product. The assumption of these models is that the preferences (utility function) of consumers depend on the attributes of a product. Producers in term have cost functions, which depend on the attributes of the product. In equilibrium markets determine the implicit (unobserved) prices of these characteristics.

1.1.1 GI as a means to protect traditional knowledge

Designated GIs are being increasingly considered as an instrument for protecting the traditional knowledge (TK) of the indigenous people in a legitimate way.  This component of the TRIPs Agreement includes both the socio-cultural aspects as well as the production process involved in the process of manufacturing the traditional knowledge.

In the process of production of unique textiles like Banaras Brocades & Saree, the technical content can be protected as technical idea, while the cultural value as a form of expression and its distinct characteristics can be protected through the symbol of a mark or indications. Therefore, perhaps in the negotiating committee of the World Intellectual Property Organisation, while few countries look at different IPRs for protecting traditional knowledge, most of the countries look favourably at GI as the best means for protecting traditional knowledge. It is because of the fact that GI as an instrument possesses some specific characteristics than any other form of IPRs and hence considered relatively more suitable for the customary traditional knowledge of indigenous people. The suitability of GI for protecting the Technical Knowledge can be attributed to the involvement of community ownership for maintaining quality and goodwill of the products.

1.1.2 GI as a stimulating factor for Price:

It is believed that the products protected under GI Act or contemporary Acts are fetching higher premium price as compared to similar products which are not registered. Some studies have even indicated that the consumers are willing to pay higher premium for the GI designated products than others because of the elimination of uncertainty on the quality and origin of the product. The consumers are assured that these products come from the right region with desired qualities. Schamel and Anderson (2003), in their study, analyse the case of Australian wines and found that regional origin is more important determinant of prices over a period of time (1992-2000), with average premium of up to 31 percent which the Australian wine commanded in the year 2000.

However, the assessment of the developmental impact should not be limited to the standard criteria (high prices, increased sales, rise in employment & income).  Instead the distribution of the benefits within the rural areas, the level of participation of local actors, reproduction of social system and environmental impact are the factors which should be taken into account to ensure sustainability.

1.2   Economic development through GI: A Case of Pochampally Ikat:

It is imperative that the IPR Protection through GI provides much needed protection against infringement and help the consumers from deception besides promoting economic prosperity of the producers’ community. The most important benefit from GI is that it reduces, if not completely, eliminates unfair competition, which ultimately benefits both genuine producers & consumers. In order to protect the traditional knowledge from infringement and ensure the development of producers, the weavers of Pochampally Ikat registered their hand woven textiles under the GI Act, 1999 of India in the year 2004.

1.2.1 Protection of Market through GI:

The Pochampally Ikat has been registered under the Geographical Indication Act during the month of November 2004. It is presumed that the parameters of market, the supply chain and the organisation of the manufacturing have undergone changes over years. Given this scenario, our attempt is to map the growth trajectory of successful handloom enterprises and locate them in the context of the growth of the handloom industry of Pochampally. The study also examined the comparative market position of pre and post registration periods, which will document and provide a platform for comparisons. A protected product under GI will have a quality of its own to maintain its reputation, and hence, the consumers of the product will benefit from purchasing quality products. Since, the opening of the market has been effective from 1st January 2005 and registration of unique products of textiles and clothing under GI has taken up more recently, this study make an attempt to examine the implications of GI registrations for the manufacturers of Pochampally Ikat.

1.2.2 Market Analysis of Pre & Post GI Registration Periods:

Pochampally hand-woven textile weaving centre in the state of Andhra Pradesh in India is known for famous hand-woven silk and cotton saris, Ladies Dress Materials (LDMs), furnishings, etc over last 200 years. The Ikat textile is woven by using tie and dye techniques of yarn, which is the specialty of the centre. In this process, wherever colour is not required in the yarn, the yarn bundles are tied with rubber strips before undergoing the process of dyeing. Two different processes like vat and napthol dyeing are used in the dying process as per the requirement. The products are produced in the traditional pit looms and the products bear legacy for generations. Around 5000 artisan households work in the centre, the Ikat weaving is a way of life and source of their livelihood. This unique product experienced many difficulties during last 50 years due to wide spread infringement by the large mills. The marketability of the product reduced due to availability of cheap infringed products in the market, which gave rise to reduced demand for the original product. The decline in demand of the products resulted in low income for these artisan families and subsequently most of them diverted to other occupations bringing the product to the stage of near-extinction. In such a situation, the enactment of GI Act of India provided a platform to this unique craft for protection. Subsequently the artisans successfully registered the product in 2004 under the said Act of India.

It was believed that with the IPR protection of the product the demand for Ikat has increased and so also the other key variables like price, productivity, employment and the overall income of the artisan households. In order to quantify the benefits of the protection to the product and the producers, a study on comparative market analysis of pre & post GI registration period was conducted. The result of the study gives a promising picture to the product as a whole. The analyses of the data collected from a sample of 256 Small and Medium Enterprises (SMEs) , all existing co-operative societies and the producers & trading associations during the pre and post registration period  has indicated  the key variables of the product like price, quality, productivity, employment, income of the producer and selective product diversification has increased in the post registration period. It is also noted that the structure of the industry though has changed drastically in the post GI period; the size structure doesn’t seem to have changed radically. It is may be noted that change in the size structure will need large investments, the entry of new artisans joining  the industry and the extent of perceived demand for the Ikat will play its role on the mindsets of these cottage-industry manufacturers.

Table. 1
Trends in Production, Productivity & Employment

Growth Trends of Key Variables

1.3 Conclusion: The paper has tried to analyse economic rationale for protecting geographical indication in the context of a theoretical framework. The theoretical explanation has further validated by a case study of a registered product called Pochampally Ikat. It is evident that providing protection for the designated products through GI is more than just monopolization rather the economic rational is based on the consideration of the value addition and market differentiator that arises from this IPR. It is pertinent that the protection of unique products can give rise to sustainable development of the products if and when the protection is effectively converted to tangible benefits for the stakeholder’s thorough brand promotion and market linkage. In case of Pochampally Ikat of India, the producers have already experienced the developmental angle of the GI as they are able to harvest the tangible benefits in terms of enhanced premium price and rise in employment.

However, from the policy perspective, much empirical studies need to be taken up to quantify the direct and indirect implication of geographical indication particularly with reference to the developing countries as