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Losing ground

Print edition : Mar 13, 2009 T+T-
in CoimbatoreIn Gurgaonin Surat

THE global economic meltdown has reached Tamil Nadus shores. It is seeping into the States 128-year-old textile industry and its relatively recent offspring, the garment sector. Industry sources say hundreds of export-oriented manufacturing units and ancillaries that make components and tools for them have been closed or unofficially put on hold in the past few months, leaving thousands of workers jobless.

The fall in exports has only added to the burden on an industry that is already struggling to cope with huge power cuts: mills now run only two shifts instead of the usual three, and this has meant laying off casual and contract workers.

In fact, the traditional textile industry, one of the largest employers in the country, is on the verge of slipping back into a period of slump after having made a recovery. The industry in Tamil Nadu, which is concentrated in and around Coimbatore, has as its partner in distress the sunrise garment industry of nearby Tirupur.

Of the 3,070 large textile mills in the country, Tamil Nadu accounts for 1,912, with 813 of them in Coimbatore district. Besides, the State has 30,000 small and medium enterprises (SMEs), organised and unorganised, engineering and non-engineering, of which 12,000 are located in Coimbatore district. These 12,000 SMEs employ about five lakh people and have an annual turnover of Rs.6,000 crore. These units have reported a 40 to 50 per cent drop in business as also a 25 per cent loss of jobs because of the present crisis, said K. Ilango, president, Coimbatore District Small Industries Association (CODISSIA). Notable among the big companies that have been badly affected is Lakshmi Machine Works (LMW) in the textile engineering sector. The company, which exports textile machinery to many countries, had to reduce its operations from three shifts a day to one.

Industry leaders fear that nearly seven lakh people may lose their jobs if the present situation continues. Most of the people who lost their jobs in the first phase were workers in tiny engineering units, numbering over 20,000, supplying spares, tools and accessories to the large mills and factories. Among them were migrants from Bihar, Jharkhand, Orissa and West Bengal as well as from other districts of Tamil Nadu, said J. James, district president of the Tamil Nadu Association of Cottage and Micro Enterprises (TACT).

The majority of the workers come from the nearby villages. When they lose jobs they return to their village to work as farm labour or take up jobs under the National Rural Employment Guarantee Act, he said.

Both the owners and the employees of the micro units appear to be the most affected in the present phase. When the big industrial units stop sending orders to the tiny units, the owners have no option but to close shop. As they mostly run the units with borrowed money, they face the wrath of moneylenders. They are also assaulted by musclemen set on them by private banks and moneylenders, said James.

The textile industry has encountered crises before, but the recession this time is the most severe ever. It is not one problem but a bundle of problems that have affected both our domestic and export markets, said K. Selvaraju, secretary general of the Southern India Mills Association (SIMA), in an interview to Frontline in Coimbatore.

The problems he listed included a 14 per cent appreciation in rupee value against the dollar in end-2007, a hike in interest rates and a 50 per cent increase in the minimum support price for cotton. As a result of these, the textile industrys utilisation rate came down to 80 per cent in 2008 against the previous years 90 per cent. Unless we get an 85 per cent utilisation rate, said Selvaraju, we are in for trouble. Yarn export also fell by 30 per cent during the period.

The textile industry in Tamil Nadu has come a long way since the first mill in the Coimbatore region, Stanes Mill, came up in 1881. If the industry scaled new heights in the 1950s with the modernisation of many mills, in the 1970s about 120 mills, with over 25,000 spindles, closed down and about 300 small units turned sick owing to a combination of cut-throat competition, both national and international, mismanagement and industrial unrest. Thousands of workers lost their jobs. Thanks to a mass movement organised by trade unions, the Union government intervened by launching the National Textile Corporation, which took over a number of closed and sick mills.

In the next 15 years, 17 more mills turned sick and were closed. In most of the surviving mills, the number of unionised and permanent workers fell drastically. This greatly changed the character of the labour force in the past 20 years or so, said U.K. Vellingiri, president of the Coimbatore district committee of the Centre of Indian Trade Unions (CITU).

In the case of the garment industry in Tirupur, the situation is equally bad. Even when the power cut began, the industry was in the throes of a crisis as a result of the cancellation of orders from customer-concerns in the United States. There was the problem of rupee appreciation vis-a-vis the dollar from January 2007. Tirupurs exporters are facing a lot of problems because of the global crisis, said A. Sakthivel, president, Tirupur Exporters Association (TEA). In 2007, we exported goods worth Rs.11,000 crore, but in 2008 exports value fell to Rs.10,000 crore. This was mainly because of currency fluctuation, among other things. This year it is not going to be any better, he told Frontline.

The industry hoped to do 15 per cent more, but we find that the orders are fewer and so far we have done 10 per cent minus, said Sakthivel. India has lost its export orders to China and Bangladesh by thin margins and this was mostly owing to inadequate support from the government to Indian exporters, he added.

Elaborating, he said that, for instance, in respect of drawback payment and interest subvention, Indian exporters were in a disadvantaged position compared with their competitors. He said if this discrepancy was removed Indian exporters would be in a better position to compete. Besides these issues, the acute power scarcity caused dislocation of production schedules and consequently loss of orders.

In the Tirupur region, 2.5 lakh workers are affected directly and another 1.5 lakh workers indirectly by the crisis. Of the 3,000 units, small, medium and large, in and around Tirupur, hundreds belonging to the small and medium categories have been affected the most, throwing at least 1.5 lakh workers out of job.

Said Sakthivel: I have told the government that if this situation continues and we do not get orders, at least one crore workers in the country across all sectors stand to lose their jobs.

He suggested that the government, apart from improving the Indian exporters capacity to compete, set up a market development fund. There should be at least a Rs.1,000-crore market development fund so that exporters can go for new products and tap new markets.

Industry and trade leaders have, by and large, welcomed the Union governments two stimulus packages and asked for more support, while trade unions have been staging nationwide demonstrations demanding measures to protect the interests of workers. A.K. Padmanabhan, the State president of the CITU, said the government should take speedy steps to tackle job-loss and wage cuts.

This is more necessary now because a vast majority of poorly paid workers have been denied of the benefits of the statutory provident fund and employees state insurance schemes, said M. Arumugam, president of the State Textile Workers Federation of the All India Trade Union Congress.

Criticising the general indifference of managements to the quality of products as well as the genuine needs of workers, veteran trade union leader A. Subramaniam of the Hind Mazdoor Sabha advised the industry to improve the quality of its products and explore the larger potential of the home market. What is, however, intriguing, Padmanabhan said, is the silence and inaction of the Tamil Nadu government over the rapid loss of jobs in the State.

The situation is equally bad, if not worse, in the industrial hub of Manesar in Gurgaon district, Haryana, around 90 kilometres from New Delhi. The once bustling hub now resembles a ghost town with empty buildings, solitary gatekeepers and empty roads. Rough estimates indicate that of the 1,000-plus garment manufacturing units here, almost 700 have shut down. Most of them employed between 300 and 500 workers, and the big units even 5,000.

Independent surveys conducted by the apparel industry in end-December 2008 in the export hubs of Gurgaon and Okhla, in Delhi, showed that 84 per cent of the manufacturing units had registered a decline in export orders and employment had gone down by 20 to 80 per cent. (The apparel sector in India employs around 3.9 million people.)

At the apparel units in Manesar, owners complained that labour and overhead costs were high and work orders were declining. For the workers, too, it has been a rough deal. The long distance they had to travel to work, the high cost of living in Gurgaon and the real threat of losing their jobs have seen several thousand workers quitting their jobs. Earlier, I used to get tired of hiring labour; now I just get tired of waiting and looking around for work, said Wasim, a trained cloth cutter-turned-labour contractor. Workers are ready to work for less but there isnt any work, he added.

Sushma Yadav, a merchandiser with one of the garment export units at Manesar, said that such was the burden of work earlier, that there would not be enough time to breathe. We used to have night shifts, too, but all that is a thing of the past, she said. Her unit, Dress of India Private Limited, employed 300 workers, half of them women involved mainly in thread-cutting operations. She said many women lost their jobs because of lack of export orders.

We now have only 10 per cent of the work we used to have. Even that is on a rate to rate basis, said Sushma. The slowdown began in 2006 with the depreciation of the dollar and gradually accelerated in 2007-08. The actual crunch was felt when she could not pay the employees their full bonus before Diwali.

Senior employees of many garment export units Frontline spoke to admitted that it would be difficult to offload the garments in the domestic market. These are not the kind of clothes our women wear. Even in places considered advanced in terms of taste, like Goa and Mumbai, for instance, there would not be any takers for these clothes. They are mainly use-and-throw kind of clothes preferred in advanced countries, said Sushma.

Her sentiments were echoed by Kusumita Nandy, assistant general manager at Rolex Hosieries in Gurgaon. This hosiery export company employs nearly 5,000 workers. Though reluctant to admit initially that a crisis was looming, Kusumita told Frontline that it would be impossible to sell in the domestic market. If they cancel their orders we wont be able to offload our garments in the domestic market. We would have to really cut down our prices. If importing countries are not going to buy, what is the point in producing? she said. The real problem would start after March, she added.

There is already a palpable reduction in export orders. Our employer has already told everybody to look for better options. Each and every person today is worried as to what will happen tomorrow. I can tell you that things are just about okay this month, but I cannot say what the situation will be in the next few months. Most employers are also feeling the pinch of the hike in minimum wages announced by the State government two years ago, she said. Another white collar executive Frontline spoke to said a 25 per cent reduction in jobs would take place across the garment industry. We will not have pay cuts; but we will definitely reduce the number of workers, he added.

In Gurgaon proper, in the bylane shared by two large garment export giants, Pearl Global Limited and Orientcraft, workers poured out in droves for their evening cup of tea. Reluctant to talk initially, they eventually opened up. Three workers, Mohammad Khalil, Banjarullah and Brajesh, from an adjacent garment unit, Fatima Fab Udyog, said they had been sacked. The company was running with 30 employees, while the rest of the 300 workers had been thrown out, they added.

The bulk of the workers were on contract, that is, they were on the rolls of the contractor who supplied labour rather than on the rolls of the company. In the garment sector, the period from December to March is off-season, which is chutti, or holiday season, for workers, which means holiday without pay.

A tailor working with one of the big garment units in Gurgaon said that after the minimum wages were hiked, employers reduced the rates of overtime as well as piece-rate work. They have put very high targets for us and companies are using some excuse or the other to sack workers, he said, requesting anonymity. Mahesh Kumar, business development manager of Urban Fashion Private Limited, a garment export unit in the red, said small and medium units were the worst affected. The small unit is the one that generates jobs, he said.

A senior official in the district Labour Department told Frontline that the garment industry had been affected the maximum, with leading garments brands like Koutons, Orientcraft and Orient Clothing having had to cut down drastically on their workforce and production. If big companies are going through this, the fate of the smaller units is worse. When we go on our inspection, we are told that the machines are not being used. No one tells us independently about having retrenched workers, he said.

Many workers, he added, had voluntarily accepted wage cuts on the assurance that their jobs would not be taken away.

Anil Kumar, secretary of the district unit of the All India Trade Union Congress, told Frontline that using recession as a pretext, some companies had put permanent workers on contract and also relocated their units under different names. There were several cases relating to default on wage payments pending with the labour court. We can understand that there is a recession now. But even when things were good, the salaries were never increased. All that the Labour Department is interested in is settling the cases, not taking the side of the worker, he said. Union formation was discouraged strongly. Worker are a demoralised lot here, he added.

A lot of social tensions has also erupted owing to the unstable work environment. The local people blamed outsiders as being responsible for the crisis. Overall, they held migrants, the bulk of them from Bihar and Uttar Pradesh, responsible for spoiling the atmosphere.

The Gurgaon Industry Association (GIA), set up in 1967, meets regularly to assess the industrial scene in the district, but does not, for some reason, have any data on the present crisis. We have anecdotal information. Our members do not inform us regularly. We think we should do a survey, industry by industry, about the extent of the crisis, said K.C. Papreja, general secretary of the GIA. He estimated that around 3,000 people had lost their jobs in the garment industry. The industry had been hit hard and there was a lot of retrenchment, he said, adding that it could take two years for it to recover.

The GIA believes that there is a 52 per cent reduction in export orders in the garment industry. It feels that a sector-wise stimulus is needed. S.L. Kwatra, member of the GIA, said the demand had to come from outside. Most of the units here supply to the U.S. and countries in Europe. Production is down by almost 40 per cent, he said. Addressing a press conference in January 2009, the chairman of the Apparel Exporters Promotion Council stated that nearly five lakh workers had lost their livelihood in the apparel sector and that more job losses were expected in the next three months.

Said Wasim, the labour contractor in Manesar: I am going to hang around here. Where can I go? I shall wait till things improve. Unlike him, there are not too many who are optimistic that things will turn out well in the district.

In Surat, the worlds largest diamond centre, life was all about prosperity until about six months ago. With over 3,000 diamond factories in the city, workers were usually assured of jobs and often had their pick of them. The lowest a diamond worker would earn was around Rs.6,000 a month while the extremely skilled ones earned as high as Rs.20,000. The industry did have its share of labour-related problems, but that did not prevent Surat from being the choicest destination for more than five lakh migrant workers.

But in September 2008, the shockwaves from the fall of the investment bank Lehman Brothers hit Surat. With the luxury goods market coming to a standstill, the diamond factories shut down abruptly and laid off workers.

Business was almost normal till Diwali, and 80 per cent of factories that had roughs [rough diamonds] resumed work after the Diwali break; but then liquidity became a problem. Now about 40 per cent of the factories are functioning, says C.P. Vanani, president, Surat Diamond Association (SDA). According to the SDA, in normal times there are about 3,000 factories in Surat employing around five lakh workers. When the crisis struck, approximately 2,000 factories closed down and about two lakh workers were laid off.

For a city that processes about 90 per cent of the worlds diamonds and where one in every eight residents in a population of four million is believed to be employed in the diamond industry, this was a catastrophic situation. Since then, 19 suicides have been reported though Satyendra Singh, a campaigner for workers rights, believes the figure is closer to 35. Nineteen of the dead are workers and the rest are their family members, who killed themselves out of poverty and shame. The government has made no effort to assist those who have lost their jobs. Non-governmental organisations try and help by providing counselling, but that does not help their economic situation, he says.

Vanani says he read about the suicides in the newspapers and asked the Commissioner of Police for details. The police told us that seven diamond workers had committed suicide in Surat and that their families had given their poor economic situation as the reason. We do not know anything about the cases outside Surat. As of now, our association has no plan to provide any assistance, nor has any family member of the dead come to us.

It has taken a while for the severity of the crisis to sink in. Ram Muhurat, a diamond polisher from Uttar Pradesh, said that workers had believed that after the three-week vacation that commenced in mid-October, things would perk up. Even Vanani hoped that Christmas and Valentines Day demand would pull us through. But when there was a negative demand from the domestic market as well as the markets in the United States, China and Hong Kong (China), the industry realised it was in for a long-term crisis.

There have been indications of this for the past three years, says Jivrajbhai Surani, chairman of J.B. Diamonds, Surats largest diamond exporter. In all my 46 years in this business, I have never seen anything like this. It is going to take a long time to recover. President Barack Obama said on television that it would take years to lift up the U.S. economy. That is an indication for us. Until the U.S. economy becomes buoyant, we will not recover. And since ours is a luxury item industry, we will take even longer to recover.

The global gems and jewellery business is worth $82 billion. Of this, about $39 billion comes from the U.S. About $17 billion of the American markets business comes to India, in particular to Surat and its diamonds trade. India controls about 90 per cent of the worlds business in diamond (but in the gems and jewellery business, India holds just about 3.5 per cent of the world trade). The health of its gems and jewellery segment depends on the health of its diamond industry. In 2007-08, diamonds were Indias largest foreign exchange earner, accounting for 13.5 per cent of the countrys total merchandise export.

About 85 per cent of diamonds are cut, shaped, polished and finally exported from Surat. The rest of the diamond business is scattered over Navsari, Palanpur, Jamnagar and the outskirts of Ahmedabad. In good times, the diamond industry would rank among the biggest single employer in the unorganised sector. But lack of job security plagues the sector. When there is a high demand for diamonds, there is work. The rest of the time, the workers are laid off. The companies do not have a regular staff of sorters, polishers and cutters.

Of the workers, 95 per cent are Gujaratis mainly Patels from Saurashtra, Kutch and north Gujarat; a few from the Bania caste also work here. The remaining are from Bihar and Uttar Pradesh. The workers slog all the year except for an annual three-week vacation in mid-October. Workers who are registered with diamond associations get fixed salaries beginning from Rs.6,000 a month.

Though the salaries are decided by the associations, it is worth pointing out that the associations are totally controlled by the factory owners. There are no trade unions, and attempts to create one have failed. Part of the reason for its failure, says Satyendra Singh, who is trying to form a union of diamond and textile workers in Surat, is the insular nature of the business. Both employers and employees are Gujaratis. This bhai bandhi (brotherhood) is foisted on the workers. They dont really feel this and would certainly like better wages but are too scared to be part of a union.

Diamond factory owners are dismissive of unions. Surani says: This is a family industry. It runs on trust. When reminded that the Factories Act calls for a workers union, he says: The karigars (workers) themselves do not want a union. If they have a problem they come directly to us and we deal with them on a one-to-one basis. There is no need for outside interference.

Rohit Mehta, joint secretary of the SDA, voices the same opinion. All our workers live in proper RCC [reinforced cement concrete] houses. They get more than minimum wages. The Factories Act is not relevant to us.The workers themselves tell us not to cut wages for Provident Fund. There is a family relationship between workers and owners. We see unions as confrontationalist.

That there is unrest among the workers is clear from the mass strike in July last year. Vanani says that the SDA had recommended a 20 per cent hike since workers had not got a salary increase for 10 years. Most of the large factories accepted it immediately but the small and medium ones refused, saying the profits were already too narrow. So, on July 1, workers in these units went on strike. Word spread and strikes happened in Amreli, Navsari, Ahmedabad and Bhavnagar, he adds. Satyendra Singh says: It was the biggest movement of unorganised workers. About 7.5 lakh workers went on strike. It made all factories accept the hike but not implement it, Satyendra Singh says. Factory owners blame the economic crisis that struck soon after for the failure to implement it.

Ram Muhurat has been working in Surat for the past 16 years. He still has a job but his earnings have dropped drastically. Before Diwali, I earned Rs.6,000 to Rs.7,000. We were paid Rs.6.75 a piece. Each takes about 20 minutes and in my 12-hour shift I would earn about Rs.50 a day. I was happy when they said they would give us 20 per cent more but we have not seen it to date. In fact, after Diwali the maaliks [owners] brought the rate down to Rs.5 a piece and they reduced the work hours to five. Now Ram Muhurat can do only about 12 diamonds a day because the maaliks have become less tolerant of small errors; earlier diamonds with minor errors were sent elsewhere to be polished.

Vanani insists that the SDA is keen on workers welfare. We have a Gem and Jewellery National Relief Foundation and we have set aside Rs.50 lakh to ensure that the education of workers children is not disrupted. We have asked schools in Surat to identify diamond workers children and we send cheques directly to the schools to ensure that the children continue their education. Vanani says 17,000 such children have been identified.

While the idea is generous, it does not take into consideration the fact that the majority of the workers are migrants from all over Gujarat. They cannot afford to continue living in Surat only for their childrens education when they do not have jobs to sustain their families.

From sourcing to production to sale, the diamond industry has been going through difficult times for some time. The availability and price of rough diamonds from the Big Three that provide half the worlds supply Tanzania, Botswana and the Congo are dropping. At the other end of the supply chain is the U.S., which purchases over 50 per cent of the processed diamonds from Surat; it has now drastically curtailed its demand.

Vanani says that many factories are functioning only to give workers employment. He hastens to clarify that it is not charity but it certainly is not bringing in income. The production of these diamonds is adding to the existing stock but none of the stock is moving. Normally we would have a balance stock of about three months but at present we have a balance stock of almost one year.

Rohit Mehta says: We have high-value stock, but the stock value has dropped. If the government gives me a loan against my stock, I can buy more diamonds and keep the industry cycle running. Even though there is an economic crisis, there are still buyers in the U.S., but they will want to buy at cheaper rates. We can manage this because we will be buying at a cheaper rate too [the price of roughs has gone down by 40 per cent], but only if the government gives us a loan. The government is giving packages to revive the general economy, but there is nothing for us. The governments refusal to give a loan is because, unlike gold, there is no standard pricing for diamonds. The SDA had suggested that the government appoint the Hindustan Diamond Association as a valuer since it is in the business of processing roughs, but there has been no response to the idea yet.

While factory owners say they prefer to wait until the end of the financial year to count their actual losses, the workers in this multi-crore industry do not have that luxury. There is a frightening here-and-now urgency in their lives and very few of them really know what to do. Vanani says: The future is not very bright.

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