Human hair is a huge business and are usually sold to create weaves.
There are different ways to collect human hair :
1/ Tonsure : personnal gift to God
Tonsure, in various religions, is a ceremony of initiation in which hair is clipped from the head as part of the ritual marking one’s entrance into a new stage of religious development or activity. In Hinduism, the underlying concept is that hair is a symbolic offering to the gods, representing a real sacrifice of beauty, and in return, the offerers are given blessings in proportion to their sacrifice. In some traditions, the head is shaved completely, while in others a small tuft of hair is left. In some South Indian temples like Tirumala, Palani and Tiruttani, it is customary for pilgrims to shave their heads in or near the temple of the god they are visiting.
Over 10 million people tonsure their hair every year in exchange to the god blessings.
85% of the Indian population have had their hair shaved at least twice in a lifetime in tonsure religious ceremonies.
2/ Classic sale :
Poverty is very important in India. A third of the Indian population live under the poverty line. So men and women are often forced to sale their hair for next to nothing. When we know that 1 hair lock worth 15$ and 1 entire wig made up with human hair worth till 3000$, Indian dont even know the value of their hair. Hair can also be collected monthly from womens hair combs and brushes in villages by what is known as a hacker. Every time they comb their hair, those that fall are collected in bags in exchange of sweets, plastic, toys, etc
3/ Robbery :
Hair is so valuable that some people have recourse to robberies. Women can be scalped when falling asleep. Hair can also be robbed at the cinema
References : Good Hair, Prezi.com, Wikipedia
Here is an interesting report about this huge business.