Reverse growth

Demonetisation and GST have pushed back Kanpur, the second largest city in Uttar Pradesh and a leather industry centre, by ten years.

Cleaning hide at a tannery in Kanpur, a 2014 picture. Nearly half of the 400-odd leather tanning units in the city have stopped work completely or partially in the aftermath of demonetisation and GST.

“THE DISINTEGRATION and decadence of Kanpur’s industrial and commercial status has been unravelling for many decades. The city, called the ‘Manchester of the East’ during the British Raj since it was the second biggest manufacturing centre in the country after Calcutta, does not have a single megacorp industrial or commercial enterprise now. In fact, the last of the big ticket companies exited from the town nearly three decades ago. Since then the city and the district have been surviving mainly on industries such as leather, garments and hosiery, fertilizers and chemicals, soaps and detergents, and edible oils. The turnover from these was not comparable to the impressive record of the past. Still, it helped the region provide some employment and earnings to the State and its people. But even that has crumpled by the double whammy of GST and demonetisation,” said Prem Manohar Gupta, chairman of the Trade Committee of the Merchants Chamber of Uttar Pradesh, while discussing the impact that GST and demonetisation has had on the country’s most-populous State’s main industrial centre.

Gupta said the depletion of revenue from these measures was yet to be quantified comprehensively. Informal estimates are that the cumulative overall loss of employment would be 10 to 15 per cent from what existed before demonetisation. In terms of actual numbers, this would run into loss of employment to lakhs of people.

One of the sectors that held on relatively better was the leather industry. A wide range of leather products, consisting not only routine products like sandals, shoes and chappals but also harness and saddlery, were produced here for both national and international consumption. This sector formed an important component of the exports from Kanpur, bringing in considerable foreign exchange to the country.

Talking to Frontline without wanting to be named, a major leather goods manufacturer and exporter said that over the past one year this sector had been impacted negatively not only by GST and demonetisation but also by other governmental and political moves. “These political and governmental moves are not directly related to trade but to cow politics. This was initiated by the Yogi Adityanath-led Uttar Pradesh government through its notifications in March-April 2017 and then made harsher by the Union government’s directives in May. This has now been followed by the GST mess.” The leading manufacturer-exporter’s views are echoed by other persons affiliated to the industry, including government officers who are deputed to facilitate the sector’s export-related growth.

Explaining the series of blows suffered by the sector, another leather manufacturer-exporter told Frontline : “First, demonetisation dealt a body blow to the cash flow and liquidity in this sector. Every process, from procuring raw hide to employing workers to treatment of the hide, became a challenging task in the absence of cash flow. Hundreds of thousands of workers, both in the formal sector and in the informal sector, were retrenched during the months immediately following demonetisation. Almost 80 per cent of the workforce in this sector is associated with the industry without formal agreements or contracts. Naturally, they were the ones who took the brunt of retrenchment. This was followed up by the serial restrictions on cattle slaughter and on abattoirs and trade, leading to yet another round of travails.”

An official associate of the leather export body said that the cumulative impact of all this was either complete closure or partial shutting down of nearly half of the 400-odd leather tanning units in the city. Informal estimates are that the retrenchments that happened from November 2016 to August 2017 would be around 80,000 to a lakh. In this context, the official added, it was unlikely that the sector would ever be able to recapture its record of the 1990s when the turnover from Kanpur was Rs.5,000-6,000 crore.

According to Ali and Vikas Pal, two labourers in the Kanpur leather sector, a telling picture of the collapse of the industry is Pech Bagh Street in the heart of the city. The street once teemed with activity, with over 500 godowns piled up with raw animal skin and approximately 1,500 labourers working in these godowns almost round the clock. “Now, Pech Bagh is a pale shadow of what it was, with 50 per cent of the godowns shut down owing to the multiple restrictions that have come up through demonetisation, cattle laws and GST issues. And a lot of our former colleagues have become street-side vendors of tea, vegetables and cigarettes, earning just one-tenth of or even less than what they got from the leather industry.”

A senior official associated with the leather export body told Frontline that, ironically, in the climate created by demonetisation and GST, it was those industries that had a significant “below the tax radar” operations that were thriving. “If Kanpur is taken as a case study, you can see that the readymade garments industry and the production of detergents are thriving, essentially because both streams contain a sizeable quantum of informal production work, which is carried out from the houses of poor people, including in slums and villages. These operations are under the tax radar, and the owners of such enterprises make huge money. But the leather industry cannot go under the radar since it has a significant export element. It is widely accepted that new GST processes are confusing, but the provisions that apply to the leather industry and export, especially in terms of drawback rates and State GST and Central GST rates for procurement of raw materials, are, put simply, confounding. We are supposed to advise the exporters on how to tackle this, but the unending revisions have made life difficult for us too.”

Prem Manohar Gupta and a number of associates in different merchant bodies have little doubt that the Union government implemented both demonetisation and GST without sufficient application of mind and detailed planning. “This reflects in almost all aspects of GST processes, starting from the filing of online returns. The file size of these documents are such that they can be uploaded only if you have high-end 4G connectivity. In places like Kanpur, you don’t even get 24x7 electricity, not to speak of high-speed connectivity. We are forced to spend hours on end to upload documents. On one occasion my team and I managed to upload a file at 3 in the morning after struggling for nearly 10 hours. If this is the case in Uttar Pradesh’s second largest city, what would be the case in smaller towns? So much for the claims of ease of doing business,” Gupta said.

Amidst such perceptions, members of the industrial and merchant communities of Kanpur say with one voice that demonetisation and GST have pushed back the city and its enterprises by at least 10 years.