SMALL INDUSTRY

Spanner in the works

Print edition : April 12, 2019

A defunct powerloom in Bhivandi after demonetisation, a December 2016 picture. Photo: Rajendra G

In a workshop in Sahibabad, Uttar Pradesh, a June 2012 photograph. Industrial activity here now is dull. Photo: Saurabh Das/AP

A fabric unit in Tiruppur that had to be closed down. A September 2018 picture. Photo: M. Periasamy

Unemployed workers idling in a tea shop at Sanarpatti near Sivakasi, Tamil Nadu. Photo: R. Ashok

From powerlooms in Bhiwandi, knitwear in Tiruppur and fireworks in Sivakasi to MSMEs in Ghaziabad, small industry across India, hit by demonetisation and the introduction of GST, is trying to stay afloat.

AHARASHTRA

Looming crisis

A defunct powerloom in Bhivandi after demonetisation, a December 2016 picture.   -  Rajendra G

More than two years after demonetisation and the introduction of goods and services tax (GST), the once thriving powerloom industry in Maharashtra’s Bhiwandi remains paralysed. The promise of the State and Central governments had been that both demonetisation and GST would be brief but necessary hurdles towards cleaner, transparent business practices. Bhiwandi hung on to that promise and hoped for a revival but it did not happen.

At one time, the din of powerlooms competed with that of traffic in the city. Two-wheelers, handcarts, delivery vans, trucks—all mostly bought on loans—crowded the roads catering to Bhiwandi’s endless need for transport of goods. In its own convoluted way, all this was an indication of a flourishing industry. But all that is a thing of the past.

Demonetisation crippled the industry because it halted cash payments. Demand for cloth fell because all businesses across the board were affected. Then came GST with its demands for computerised systems, which added to production costs. Sluggish orders and increased financial outlay forced businesses to shut. At the bottom of the rung were daily wage workers who were forced to survive on average daily salaries of Rs.500. In an effort to keep going, businesses took loans so that they had working capital, and this added to their burden. In late 2017 there was a brief respite thanks to government tax incentives, but it did little to improve the demand for Bhiwandi’s goods. And almost like a counter to this, Maharashtra introduced intra-State e-way billing for goods over Rs.50,000. Bhiwandi’s cloth travels considerably for washing, packaging, and so on, before it reaches its final buyer, and the new billing was a kick in the teeth for the industry.

There are no definite statistics yet of the businesses that have closed because loom owners have not officially shut down. They have merely ceased operations. From an approximate 12 lakh operational looms in 2017, there are now about seven lakh. And the number of workers has dropped from about six lakh in 2017 to about three lakh.

“It was just too much effort,” says Aziz Khatri, who owns three galas (workshops). Lounging outside in the relatively quiet lanes of Bhiwandi, he says he operated one of the galas until a few months ago but found it counterproductive to keep it running. In the 20 months since GST, his turnover has dropped from about Rs.6 lakh a month to Rs.1.5 lakh.

The introduction of GST was also “very tough on us. My nephew is a CA [Chartered Accountant], so he could help me. Everything had to be done online, and there was no way to save what one entered. ‘Make in India’ is a big boast, but we don’t even have steady Internet connection. Many of the people here are smart businessmen but illiterate. They had a really rough time. First they thought they could avoid GST, but I warned them not to try that game. The government was serious and would have broken them,” he says.

After demonetisation, workers were laid off and many returned immediately to their villages, unable to afford rent and food. Prakash Singh tried a change of profession. He used to assist a master loom operator, but when the loom shut down, he, as an unskilled worker, found it difficult to get a job. “There were masters who were going for lower-paid jobs, so why would anyone hire me?” he says with remarkable cheerfulness. So, he became an entrepreneur and set up a “chai biskoot” stall. Initially it worked, but with declining customers, Prakash Singh will have to draw on his reserves of optimism and think of something else.

Gala owners too are looking at other options. Khatri says his three galas can make him a crorepati if he sells them as real estate. Before he makes any decision, he is watching a proposed cluster development policy of the Department of Co-operation, Marketing and Textiles, Maharashtra, which wants to build a logistical hub in Bhiwandi to boost the powerloom industry. Men like Khatri are sceptical of this and say all that is really required to revive Bhiwandi is to provide a steady supply of power and some tax incentives.

Everyone seems to have a story in Bhiwandi, and there are common threads running through them. At one time these used to be about exploitative loom owners. But gradually, it is the government that has become the common enemy, and the common thread is insidious and far more dangerous.

Muslim-majority city

Bhiwandi has a Muslim-majority population. The 2011 Census says: “Bhiwandi is Muslim majority city… with approximately 56.01 per cent of city population following Islam….” It is a quietly accepted fact within Bhiwandi that the loom business is being targeted because the majority of those in it are Muslims.

Azizulla Wajiuddin has lived all of his 58 years here. He owns a small restaurant and says the only reason he has survived is because “everyone needs cheap food”. He notes that earlier communal tensions between Muslims and Hindus would flare up but die down quickly. “Now,” he says, “it is all pervading. There is an ‘us’ and a ‘them’. They call us Pakistan. Maybe the government’s thinking is to destroy Muslims by destroying their livelihood, but it is bewakoofi [stupidity] because there are many Hindus too who have lost their earnings—not just loom workers but traders… so many Gujarati traders as well.”

There is no real evidence to support such beliefs, but the fears are understandable given the country’s growing communal antagonism.

Also, it would not be the first time that a political party has tried to strangle a community’s livelihood. During the Mumbai riots of 1992-93, the Shiv Sena targeted the city’s small bakeries because they were almost all owned by Muslims. This so-called act of protecting Hindus backfired terribly. Among the many purchasers of the bakeries’ pavs (buns) were Mumbai’s countless vada pav sellers—almost all of whom were Hindus. Their reality after the Sena’s arson attacks was simple: no pav meant no business.

The present reality indicates that the government has no interest in reviving the existing powerloom industry in Bhiwandi.

Struggling to survive

In Uttar Pradesh’s Ghaziabad, except for the stray, inebriated reveller on the roads, Holi was a muted affair this time. Empty shops and downed shutters in the industrial and shopping clusters were indicative of a crisis. At first sight it seemed like the shops were closed for the festival, but it was learnt that business was generally “down” and had been so for some time.

In September 2018, as many as 22 industrial units were closed on the orders of the National Green Tribunal (NGT) following alleged non-compliance with pollution standards, a charge which some of the units have contested in court. Industry association representatives pegged the job loss because of this at 7,000-8,000. This was the latest blow to hit the twin industrial areas of Ghaziabad and Sahibabad, which had been reeling under the effects of demonetisation of high-value notes and the imposition of GST. In addition to this, the government’s move to disinvest profit-making Central public sector undertakings (PSUs) has caused new concerns.

In a workshop in Sahibabad, Uttar Pradesh, a June 2012 photograph. Industrial activity here now is dull.   -  Saurabh Das/AP

 

As many as 3,300 registered industrial units and around 49,000 small establishments functioned in Ghaziabad district. Engineering, handloom, transport, brick kiln and construction were the main activities, employing around three lakh workers. But the once-bustling industrial area is now a shadow of its former self because of deindustrialisation following the sale of industrial land for real estate development, private colleges, malls, hotels and other non-industrial activities over the years, which have resulted in a lot of out-migration and reduced industrial activity. It is estimated that only 10 to 15 per cent of the workers managed to settle down permanently and the rest have gone back to their villages or to other States in search of regular work.

Dinesh Mishra, an office-bearer of the Centre of Indian Trade Unions (CITU) in Ghaziabad, said the number of construction workers had grown rapidly owing to the sale of land for real estate development. Yet, with demonetisation, even such activity took a hit and many workers have returned home. Worse, some realtors took to fraud by confiscating homebuyers’ money and diverting it to shell companies and benami transactions. The brick kiln industry, which used to employ two to three lakh workers, has been affected badly by rulings of the NGT and the Environment Pollution (Prevention and Control) Authority.

In 1996, following a Supreme Court ban on brick kilns in Delhi, many of them relocated to areas in the National Capital Region such as Ghaziabad, Noida and Gautam Budh Nagar. “Many households that were dependent on brick kilns suffered badly. We had to withdraw our children from schools. Jo thoda bahut kaam tha, wahi khatam ho gaya [Whatever little work was there, was taken away from us]. The bricks for construction here are now coming from Haryana,” said a worker in a brick kiln.

Aslam, a dealer and trader of industrial batteries, said there had been “no work” after the induction of GST. “We never made huge margins earlier. Everyone was happy. At least there was some work happening. Now there is nothing. For every transaction, one has to make an online payment. We are all self-employed. If the government doesn’t give us employment opportunities, it has no right to take them away from us,” he said.

Petty businessmen and small-scale unit owners too lost out heavily in the post-demonetisation and GST period. According to a 2017 paper by the Indian Industries Association, the Micro, Small & Medium Enterprises (MSME) sector in Uttar Pradesh accounted for nearly 60 per cent of the total industrial growth. As on December 2015, there were more than one lakh MSME units in the State. But there has been no study to show how many had to shut shop after demonetisation and the introduction of GST.

It is the working class that has taken the brunt of it. An estimated 30,000 persons are reportedly engaged as tempo drivers in Ghaziabad, several of them former industrial workers.

In the organised sector, there were 3,200 units employing up to 50 workers, 486 employing up to 100, 403 employing up to 200, 117 employing up to 300, and 86 units up to 400 workers. Only 17 units had over 1,000 workers. “The small industries never revived post-demonetisation. Many workers left the city. The decline started earlier but the new policies made it worse,” said Mishra.

Continental Carbon used to employ around 500 workers; after the NGT order, it shut down operations for some months and had to let go of 300 workers. An elevator manufacturing company belonging to one of the oldest industrial families in the country had to close operations for 15 days and had to let go of some of its workers. No new industry has come up in the district, and the existing ones have no support from either the Centre or the State government. With stagnant industrial growth and limited employment opportunities, many workers have turned to daily wage labour. The spurt in labour chowks—the points of congregation from where workers are “picked up” by prospective employers and where wage rates are negotiated—was evidence of the crisis for the working class.

According to a matrix compiled by the Labour Ministry of the various “labour law reforms” of the Central government, Uttar Pradesh was one among seven States to adopt the amendment to the Industrial Disputes Act in its statutes that allowed units employing up to 300 workers (from the earlier threshold of 100) to effect a lay-off and retrench workers without taking prior permission from the government.

In its manifesto for 2014, the Bharatiya Janata Party promised to “prepare the world’s largest workforce” and give “economic freedom” to new entrants, especially in MSMEs. Its policies of demonetisation and GST, however, seemed to have had the opposite effect—first, in creating a nationwide dwindling workforce as indicated by the not-yet-released Periodic Labour Force 2017-18 report of the National Sample Survey Office (NSSO), and second, by killing entrepreneurship. Not one person Frontline spoke to appeared enthused about either the political or the economic climate. “If I do not have any extra money, how will I spend? I can’t give a record of everything. I don’t earn that much. Not everyone can do online transactions. Most of us are petty businessmen and employ up to 10 to 15 persons, sometimes even fewer people. The market is absolutely cold. We used to do business earlier. This time it is different,” said Ishwar Tyagi, the owner of an engineering parts manufacturing unit in Ghaziabad.

He said the self-employment scheme of the Central government (Pradhan Mantri Swa-Rozgar Yojana) was a non-starter as the loan amount was paltry and as banks had to take guarantees, the entire amount was never released. “The government has no liability. It is the responsibility of the banks alone. Which bank would take that risk? Not even one machine can be purchased for Rs.50,000. It is too little,” he said.

Last September, workers of Central Electronics Limited (CEL) in Sahibabad, a profit-making Central PSU established in 1974 under the Ministry of Science and Technology, went on an indefinite strike following an approval by the Central government in 2017 for a 100 per cent strategic sale and transfer of management control. CEL was the country’s first solar power manufacturer. Apart from infrastructure and electrification projects, some of which were in remote areas, CEL handled defence orders as well. “This was shocking for us. The steady deindustrialisation of Sahibabad over the years and the closure and sale of several profit-making PSUs like UPTRON in Uttar Pradesh had already displaced thousands of workers. Our strike continued for 70 days. There was not a single Minister who we did not approach. We have approached the courts also. This should not be allowed to happen,” T.K. Thomas, working president of CEL Employees’ Union, told Frontline.

He said things had gone from bad to worse in the last five years. No new employment was being generated, demonetisation and GST had broken the back of small enterprises, and the government was now targeting well-established and profit-making PSUs in order to declare them moribund. He hinted that real estate motives were behind such moves.

AMIL NADU

Steep slump

Tamil Nadu is no exception to the situation prevailing in the country today—its economy is in doldrums, companies are folding up faster than they open, e-commerce portals are eating into the profitability of most established businesses, policy changes have rendered the workforce jobless overnight and money appears to be in short supply everywhere. Many medium, small and cottage industries in Tamil Nadu are either on the verge of closure or have folded up. This is a fact acknowledged by the government in its own policy note for the MSMEs Department for 2018-19. From 2007-08 onwards, the number of MSMEs gradually increased from 27,209 (2007-08) to 2,67,310 (2016-17); 2017-18 was the first year in which the sector saw negative growth, with only 2,17,981 units. Investments slumped by more than Rs.10,000 crore in a single financial year, from Rs.36,221.78 crore in 2016-17 to Rs.25,373.12 crore in 2017-18. As a result, the sector, which employed 18,97,619 persons in 2016-17, saw a steep slump and only 13,78,544 workers were employed by the end of 2017-18.

A fabric unit in Tiruppur that had to be closed down. A September 2018 picture.   -  M. Periasamy

 

According to the Tamil Nadu government, MSMEs manufacture more than 6,000 products, contributing about 45 per cent to manufacturing and about 40 per cent to exports. The government also acknowledged, in a roundabout way, that the big industries had not been paying the MSMEs promptly. Its regional Micro and Small Enterprises Facilitation Councils (MSEFCs) intervened on behalf of the small players and got a part of what was due to them from the big manufacturers, according to the policy note on the MSMEs Department in 2018-19.

In 2015-16, this amounted to only Rs.78.57 lakh (12 cases). In 2016-17 (the year demonetisation was forced upon an unsuspecting people), this rose by an incredible 24 times: the MSEFCs managed to get Rs.1,924.49 lakh from the big players, based on 99 complaints. In the next year, 2017-18, the number of cases settled by the MSEFCs was on the higher side—Rs.829.65 lakh from 83 cases. In fact, in just two financial years (the year of demonetisation and the year after), the MSEFCs had to intervene to get as much as Rs.2,754.14 lakh for the small players, while from 2011-12 to 2015-16, that is, in the preceding five years, the total complaints settled by the council amounted to only Rs.1,499.53 lakh.

“This is only a fraction of the problem. You do not need a policy note to understand where we are now,” said a medium industry manufacturer near Chennai. The owner of a middle-range manufacturing firm said: “Demonetisation, GST, the reluctance of banks to lend us money, the insistence of banks that we pay back on the exact date on which the amount is due regardless of what our problems are, and the lack of access to regular finance has hit us very hard.”

That is not all. Industrial clusters in Tiruppur, Coimbatore and Erode, which comprise the textile/hosiery and dyeing belt in the State; the leather industries in the Vellore-Ranipet belt; and the fireworks and match works industry in and around Sivakasi, are also in dire straits. The construction industry was dealt a death blow by demonetisation and the plastics industry by the withdrawal of single-use plastics without giving an alternative to most manufacturers, and retail outlets for consumer durables in major metros, a large employer of semi-skilled labourers, are cutting back because of competition from e-commerce giants.

For almost all of them, the crisis began with demonetisation and was accentuated by the imposition of GST, the refusal of public sector banks to take kindly to even minimal delays in repayment, and a few factors beyond the control of the industry itself.

Hosiery industry

Take the case of the hosiery industry in Tiruppur. It was already facing stiff competition from vendors in Vietnam and Bangladesh because they had preferential treatment in the European market, and labour in these countries was much cheaper than in India. The industry, which was growing until last year, showed negative growth after a long decade. Tiruppur, which employs over six lakh workers and contributes about 50 per cent of India’s knitwear exports, managed to export only Rs.24,000 crore worth of products in 2017-18 compared with Rs.26,000 crore the previous year, according to the Tiruppur Exporters Association. The last time there was a dip in exports over that of the previous year was in 2011.

“I have not laid off my staff. But they work only one shift these days,” said a prominent knitwear owner in Tiruppur. It is not only loss of jobs; lakhs of labourers are now underemployed in Tiruppur. For one season, the fall in rupee versus the dollar helped them, but with new contracts being signed with retail chains in Europe and the United States, based on the new rate of the rupee, this advantage, too, is now gone. Association representatives have met the Minister for Textiles, Smriti Irani, with a list of immediate demands, and Prime Minister Narendra Modi even addressed a public rally in the knitwear town. But there has been no major intervention that has helped stem the slide in the industry.

Fireworks industry

In the case of Sivakasi, the Rs.5,000-crore fireworks industry came to a grinding halt in October 2018 after a judge in the Supreme Court wanted them to manufacture green crackers. A set of shocked manufacturers wanted to know what that meant. A distributor in Sivakasi, who declined to be named, asked: “What is a green cracker? What goes into it?” Another insisted that there was no way anyone could manufacture crackers in India without using barium nitrate. As the back-and-forth went on in the Supreme Court, more than six lakh labourers in Sivakasi and its neighbourhood went without pay for over three months. According to those in the industry, many have left the town in search of alternative jobs.

Unemployed workers idling in a tea shop at Sanarpatti near Sivakasi, Tamil Nadu.   -  R. Ashok

 

While the open court observation in March that the Supreme Court cannot “kill jobs in the fireworks industry” provides a glimmer of hope, the uncertainty is already taking its toll, with major manufacturers adopting a wait-and-watch attitude. Manufactured fireworks cannot be stored for an inordinate length of time, and there was no point in producing crackers if the Supreme Court verdict went against the industry. Either way, it is for the workers to bear the brunt of this uncertainty.

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