This study aims at understanding and quantifying the relationship between the important variables of the sub-sectors of the Indian silk industry through an econometric simulation model, and using the model for forecasting as well as policy simulations. Forecasts of the endogenous variables of the system (demand, supply and prices of mulberry cocoons, raw silk and silk fabric) was made for the period 1991-92 to 2000-01 which indicated that the growth in the industry will slow down in future. Policy simulations were undertaken to assess the changes in the import price of raw silk, export price of fabrics and regulation of the quantity of imports of raw silk on the silk industry. While imports and exports were closely linked, their impact on the silk industry was not very high. It was also revealed that the income of the consumers and mulberry acreage have significant influence on the industry.