Silence of the looms

The power loom sector in Bhiwandi, Maharashtra, bleeds from demonetisation and GST.

A normal scene in Bhiwandi after demonetisation is that of fewer workers running large power looms such as this.

IF India Inc has been reporting losses and its head honchos have been speaking out against Goods and Services Tax (GST) and the after-effects of demonetisation, it does not take much to imagine the situation of small businesses. Backed by financial and technical resources, big businesses have managed to roll with the punches and are likely to land on their feet, but small businesses have had to deal first with the sudden shock of demonetisation and then the red tape of the world of GST. In Maharashtra, the plight of Bhiwandi encapsulates what demonetisation and GST have done to small businesses.

At the best of times, Bhiwandi, the power loom capital of Maharashtra, is quite a depressing town, with the incessant clang and shriek of machinery and the pall of dust that covers everything. But, in a twisted sort of way, these were signs that all was well in Bhiwandi.

The town has about nine lakh of India’s 21 lakh power looms crammed into airless galas (workshops), all built cheek by jowl on 38 square kilometres. The town provides various forms of employment to most of the taluk and to thousands of migrant workers, mainly from Uttar Pradesh and Bihar.

“Silence is not a good sign here,” says Mohsin Mohammed Tarir, who owns about 100 power looms. Reminiscing about November 8, 2016, Tarir says his first reaction was that it was a joke his friend was playing on him. “Something like this has never happened before, so it’s easy to dismiss it. How can anyone even think of doing something like this—one day the Rs.1,000 note is legal tender and within four hours it is not accepted anywhere. Many of my boys [weavers] were saving up to go home [to Uttar Pradesh] and they prefer to travel with big notes. They came to me in the morning confused and holding their Rs.1,000 notes. That’s when it hit me.”

The nightmare of demonetisation as experienced in the rest of the country kept snowballing until finally in December 2016, Bhiwandi’s looms were switched off: there was a paucity of workers, and a cash crunch ensued because of no-sale, no-purchase. The situation was bad enough for Union Textile Minister Smriti Irani to visit Bhiwandi and assess the situation, after which work resumed.

The power loom industry had been on a downward spiral for some years. About 30 per cent of the looms had shut down over a two-year period because of unstable yarn prices, high export duties and competition from China. But “never once did we think Bhiwandi’s future was dark,” says Tarir, “but this time we have doubts about the survival of the entire industry.”

Ahmed Ansari, who worked as a grey (unbleached) cloth agent, echoes this: “There are three things people invest in Bhiwandi and it depends on who you are. If you’re a local man, you will invest in a small shop or a rickshaw. If you’re a south Indian, you will try and open a small eatery. But we people from U.P. put our money in the power looms. If the looms are silent, what do we do?”

Ansari cut his losses by leaving Bhiwandi almost immediately after demonetisation. He says living in his U.P. village was cheaper because he saved on house rent and food. He says Bhiwandi was like a ghost town for a while following demonetisation as workers left for their home States of Bihar and Uttar Pradesh.

The second shock

Eight months after demonetisation a second jhatka (shock) hit businesses in the form of GST. “ Yeh jhatke se ham nahi bach sake ” (We could not escape this shock) says 65-year-old Gul Mohammed. He says he closed down his single gala of about 40 looms because he just could not understand what was required and why he had to infuse even more money into a business that was already showing slim profits. The biggest blow was the disparity in the GST on yarn. Many looms spin man-made fibre (MMF) cloth because there is a greater demand for it since it is cheaper at about Rs.30 a metre. Cotton costs about Rs.75 a metre.

The GST that was applied to MMF yarn was 18 per cent while that for cotton was 5 per cent. Additionally, there is a minimum of 5 per cent tax for every stage of business, from bleaching the grey cloth, to sizing, warping, weaving, mending, folding, packaging and transporting it. Many of these stages are handled by independent agents or job workers, but GST has hit them quite hard. Loom owners, especially the big ones, have cut out agents and moved all the production stages in-house to try and save on tax.

In July, loom owners and other manufacturers in Bhiwandi submitted a memorandum to Union Finance Minister Arun Jaitley and Maharashtra’s Minister for Finance Sudhir Mungantiwar detailing the difficulties in doing business because of GST. They got the standard assurance that the matter was being looked into. It was only in October that the GST Council reduced the MMF rate to 12 per cent.

Digitally ill-equipped

Digital India is yet to enter Bhiwandi where all transactions are in cash. Understanding the multiple layers of taxation has been baffling for many. Tarir says he spent “more time trying to understand the paperwork than working at the business”. After all the entries are made online, it is frustrating when they get lost because of poor connectivity and the fact that there is no option to save the entered data.

The problems of capital flow and unsold stock continue to haunt the industry. Helplessness with regard to technical aspects of GST means that some loom owners are yet to get GST numbers. Because of this, buyers are unwilling to buy their goods. Even four months after GST was implemented, Bhiwandi is still reeling from it.