Jobless in Panipat

The city’s shoddy yarn industry, said to be the largest in Asia, is still in the dumps as yarn manufacturers struggle to survive after demonetisation forced them to shut shop and lay off workers and GST resulted in demand compression and compounded their misery.

Women workers sort out rags for threading purposes. Behind them are packed bales of thread waiting for buyers.

IN SEPTEMBER, the United Nations Conference on Trade and Development (UNCTAD), in its “Trade and Development Report” 2017, expressed apprehensions about India’s growth and stated that the country’s informal sector had been “badly affected by demonetisation and may take a further hit due to GST”. The optimism that the new tax regime will result in a shift from the informal to the formal in industry has been belied as both the formal and informal components of the formal economy have had to shut shop. According to a Consumer Pyramids household survey by the Centre for the Monitoring of the Indian Economy (CMIE), nearly two million jobs were lost between January and August because of demonetisation. It also estimated that job losses because of the new tax regime could be larger than that caused by demonetisation.

The effect of the downward trend in production continues. Industrial hubs that give employment to lakhs of persons have been all but reduced to ghost towns. The industrial district-city of Panipat in Haryana has been one such casualty.

“We don’t pay taxes? What is meant by that? We pay a huge amount of indirect taxes that the government doesn’t put to good use to improve infrastructure or give us subsidised power and so on. First, demonetisation hit us, now the GST regime is crippling us. Business had never been so bad before,” said Chetan Chhabra, a shoddy yarn producer, in Panipat. His father, a former office-bearer of the shoddy yarn manufacturers association in Panipat said Haryana had jumped three notches up in the “ease of doing business” ranking and wondered what it meant. The Chhabras had fled to Haryana from Punjab in the period when Punjab was plagued by terrorism. They made Panipat their base and became one of the leading shoddy yarn manufacturers in the district and the State. Their dealings, beginning with paying suppliers of discarded material from where the yarn is produced to paying labourers involved in production, were mostly in cash. Following demonetisation, the father-son duo had to sell off their machinery and lay off labour. Of the 800 spinning machines they had, only 200 are left. Raw materials used in the production of shoddy yarn were found piled up in the factory porch with a handful of workers doing the sorting of rag cloth. “We now just trade in rag cloth material. We sell it to those who are still able to do some spinning work. We’ve also had to let go of our labour force,” said Chetan Chhabra. Almost all the 600-odd shoddy yarn units in Panipat either have shut down completely or are operating with a skeletal workforce.

The sale of home furnishings such as upholstery, sofas and curtains, for which Panipat is famous, has taken a hit as well. The demand for home furnishings hit rock bottom with the introduction of GST in what was a tax-free industry. The cash crunch and the GST burden have virtually choked both supply and demand, according to yarn producers. But exporters of home furnishings do not have any problem. They are the beneficiaries of many tax exemptions and the GST regime does not apply to them.

Nearly five lakh persons are estimated to be employed in various textile and textile-related work, including power loom, handloom, home furnishings and shoddy yarn production. Panipat has the largest shoddy yarn industry in Asia. “The government says ‘make in India’. For that to happen, it has to encourage industry with support from banks and provide cheaper infrastructure. Rather than do that, it has depressed the industrial climate here, which was already facing tough competition from cheaper substitutes from China,” said Chetan Chhabra. China-made blankets and bed sheets have flooded the market and they are cheaper and seemingly of better quality too. “We cannot lower our costs as that would leave us bankrupt. And under the WTO regime, the government cannot apply the anti-dumping clause here. What it can do is support us with easy loans as well as cheap power so that those kinds of overhead costs are met. Ease of doing business will come about only then. There has to be business first before ease of doing business,” said a shoddy yarn trader.

Shoddy yarn manufacturers pointed out that weaving had not been covered even under Value Added Tax but now it came under the GST regime. “The loom owners and weavers were our main buyers. They have stopped buying from us, so rag material just piles up,” said Vijay Chhabra, former vice president of the Shoddy (Yarn) Mills Association. Yarn manufacturers used to pay VAT but blankets produced from the yarn did not attract tax at the retail or manufacturing level. The blanket manufacturing industry, a manufacture said, was very small and units kept four to eight power looms at any given point and employed part-time accountants. “A person with four power looms would have no option but to shut down now after GST,” said a power loom owner.

The producers of shoddy yarn also pointed out that when small manufacturers protested the government relaxed the cap for filing quarterly returns. Now only those whose turnover exceeded Rs.1.5 crore had to file such quarterly returns. The cap, they said, was still very low and needed to be increased as barring rare exceptions there was no one in the industry whose turnover was less than Rs.1.5 crore. “Turnover basically means sales. What is Rs.1.5 crore today in terms of business? The cap has to be raised as this is only leading to harassment,” said another textile manufacturer, requesting anonymity.

Ghost town Panipat is famous for its “labour colonies” where migrants, mostly from Uttar Pradesh and Bihar, and the working class in the district stay. These colonies are basically urban ghettos from where migrant workers step out to work in environments that are as good or as bad as the cramped and ill-provided-for residential colonies. With much of industrial work having come to a standstill, workers had either left for their villages or were working in very precarious conditions. Frontline met workers in the Panipat Industrial Area located in the old parts of the city. Lined with spinning mills and shoddy yarn manufacturers, the industrial hub looked like a ghost town. “When we used to give a call for a strike, the lines used to be endless. Now there are hardly a handful of workers left,” said Anand Jawahar, district president of the Centre of Indian Trade Unions (CITU).

Ram Rattan Sharma is a dye master. The factory unit where he worked, Prem Spinning Mill, had shrunk its workforce from 250 to 25. He sat idle alongside the threading machines that had accumulated a thick layer of dust on them. The mill was among the bigger units and one of the oldest in the industrial area. Here the rag cloth is sorted out, dyed and then threaded. Dyeing, spinning and weaving units are located on the same premises but there was no work. Bales of thread lay packed, but there were no takers. The owner did not come in regularly, and an accountant and the dye master managed the premises. There were a handful of women, some from the local areas and others from Uttar Pradesh, who squatted and tore up rag cloth and sorted them. They were paid Rs.120 a day for eight hours, and they did not get work every day. “There is no work. It is all due to demonetisation. Things have come to a standstill here,” says Ram Rattan Sharma. The unit, set up in 1989, employed thousands of workers at one time. Work gradually began to shrink owing to cheap imports. Until recently, 300 persons worked in two shifts. “There was work for everyone—the blind, the deaf and the lame. Laley ke bhi kamai thi; aur labour ki bhi (the owner and the worker, both earned money). There’s nothing now,” he said.

Workers told to take “rest” The “thekedaarni”, or woman contractor, through whom women had been hired, said even the rag-sorting work was not required as regularly as before. “I have to tell the women to take ‘rest’ every two days. This means they need not come to work,” she said. She complained that nothing good had come for them from demonetisation. Most of the women, including the woman contractor, Rajabala, were Dalits.

Rajabala complained that no money had come into their accounts as “Modiji had promised”. Most of the women, like her, had spent their youth in the factory. “Not one rupee came into our Jan Dhan accounts, including the gas subsidy. In Rs.120 a day what can we buy? Gas, sugar or vegetables? We cannot afford to buy onions today. There is also no clean drinking water in the colonies,” she said. The women said the work was back-breaking and resulted in constant pain in the shoulders, but they had little option but to persevere.

The problem was that as the effects of demonetisation began abating a little, the spinning and associated units were hit by the GST regime. “Orders did not pick up after demonetisation. All the bales you see are advance orders that we took, but there are no buyers now. Our buyers cancelled their orders after demonetisation. They used to pay in cash. Workers used to be paid in cash. The consumers are mainly ordinary people, and nobody is ready to compensate for the extra cost of GST now,” said Ravinder, the accountant.

The problem is that post-demonetisation, not all the devalued notes were deposited in banks. It was learnt that industrialists bought land from farmers, who were quite willing to sell their land (they did not have to explain where they got the cash from, and it was shown as agricultural income), and sold it further to smaller groups of people. But the resale of land did not happen to the extent they had expected. All that cash got locked up in land and could not be used for industrial activity. As a result, the entire chain got affected, and the worst-affected was the working class. “Even the local people are not getting work. Let alone migrants. They all went back. Nearly 40,000 workers were laid off. These units come under the Factories Act but no government official has even come to see what is happening. If this is the fate of ‘make in India’, I wonder who will make in India,” said the mill’s accountant. “The minute we produce something, like yarn from rags, it is taxable. The power looms also have shut down. If they were functioning, we could have offloaded the bales to them,” he said. The “spinning” workers were from Bihar, while the weavers were mainly from Uttar Pradesh. Many of them have now taken to driving autorickshaws and tempos.

Sukhbir Singh Malik was the district president of the Panipat Small Engineering Workshop Association. A graduate from the Industrial Training Institute in Panipat, he worked his way up to set up his own machine-making unit for the textile factories in Panipat. He exported to Bangladesh and Nepal too.

“This government is not interested in encouraging enterprise,” he said. He had applied, along with 25 others, to set up an industrial cluster to manufacture machines that would match the competition from other countries. He said the Central government (the Ministry of Micro, Small and Medium Enterprises) agreed to give its contribution after the plans were passed. The plots were identified and money was paid up by the partner-industrialists for the cluster, but the State government’s industrial department has stalled the sanction of payment from its end. “This government is only interested in advertising. Basically we didn’t pay a bribe to the consultant sent by the State government department. Now there is no work of any kind. The machines and workers are sitting idle,” he said. Earlier, a VAT of 5 per cent was charged; after the introduction of GST, the tax on machines was hiked to 18 per cent. Malik used to receive orders from Jaipur, Maharashtra and Uttar Pradesh. The orders for power loom machines have all but stopped. “ Agar unka maal bikta hai, to meri machine bikegi (if their product sells in the market, my machine will be in demand too), said Malik. There was some demand for “jacquard work” from Karnataka as the government there was giving some subsidy to the jacquard loom industry. Hence his “jacquard machines” were still in demand, he said.

Shaafat Khan, a brass handicraft manufacturer and exporter from Moradabad, Uttar Pradesh, told Frontline that handicraft manufacturers should be exempted from GST. “The artisans are uneducated. They do not know how to use computers. They do not earn enough. How can they file GST documents three to four times a month? Fifty per cent of our business is down. Taxes should be filed once a month and there should be two categories, 5 per cent for utility and 12 per cent for luxury items. Lakhs of people are employed in this sector with no burden on the government to create employment. They are self-employed. It is a huge foreign exchange earner as well. The government should help the handicraft sector instead of imposing taxes on it,” he said.

The perception that the National Democratic Alliance (NDA) government undertook the twin steps of demonetisation and GST to rid the system of corruption is slowly dying down. Those who have had to face the brunt of this are the ones who were already marginalised in the economy and labour market. The hope that a transition from the informal to the formal will take place has happened only in the realm of imagination. If anything, it has made things worse for the informal sector and the small industrialist.