Torn to shreds

Tirupur’s knitwear industry is yet to bounce back fully.

A woman spinning yarn in suburban Tirupur in Tamil Nadu.

THE TIRUPUR knitwear apparel industry in Tamil Nadu, one of the country’s leading textile clusters, is still smarting under the impact of demonetisation.

The industry records an annual turnover of Rs.35,000 crore and accounts for 90 per cent of the country’s knitted garment exports. Its estimated domestic annual turnover is Rs.12,000 crore, industry sources said.

“All looked rosy until the night demonetisation was announced. This midnight blow was hard,” said a domestic apparel manufacturer. For a year now, the cash-dependent industry has been facing a liquidity crunch following demonetisation, which has forced many medium and small units to down their shutters and left a few lakh labourers in the lurch.

After a brief assessment of the various factors that impact the industry, it is not far-fetched to claim that the industry in Tirupur is facing an uncertain future. The industry reportedly employs about three lakh people in about 6,000 units in the manufacturing cluster of big and small units spread across Tirupur, Avinashi and Palladam.

“Demonetisation has triggered a liquidity crunch in this labour-intensive industry. We need not wait for the financial year ending to analyse our performance. The prediction studies point to a disappointing performance by the industry in the days to come,” said an exporter.

Of the estimated three lakh workers, 30 to 40 per cent are migrant labourers from the north and north-eastern parts of the country. As the industry is not able to disburse wages, the usual practice being weekly payments, and routine daily incentives in cash, many have abandoned their jobs and gone back home. “Many units are suffering from a labour shortage since those who have gone to their native places for Deepavali holidays have not returned so far. Usually, they would return within a fortnight after the festival,” said a trade union activist.

Besides, despite government directives, most workers are yet to open bank accounts.

“They could not do so since the banks insist on both PAN [permanent account number] and Aadhaar cards, which many of them do not possess,” said G. Sampath, general secretary of the Baniyan General Workers’ Union, affiliated to the Centre of Indian Trade Unions. Labour unions affiliated to the Communist Party of India (CPI) and the CPI (Marxist) held various protests against demonetisation. Trade unions and exporters’ associations have been urging the banks in Tirupur to open more automated teller machines to help in dispensing cash. “Banks are yet to fully comply with [the request],” said Sampath. Many manufacturers accept what the trade union leader said. They expected the industry to bounce back in a month or so. “But it is not so. It has been tougher than what we imagined,” said a domestic manufacturer. “Barring a few big units, most are either small or medium. The industry, with exhaustive processes in its manufacturing chain from sourcing yarn from farmers to fabrics (looms), dyeing, stitching, embroidering, cutting, and printing before completing the finished apparel product, is highly labour-intensive and cash-dependent. The labourers have to be paid their wages in cash to keep the industry running.”

Industry insiders said that the export-oriented units had not faced a serious crisis since all accounting work related to the business was organised and cash transactions were streamlined through banks as per government guidelines. A mere 2 to 3 per cent of the total business transactions would be in cash, they added. The wages have been disbursed through banks for some time now and other transactions such as purchase of raw materials are done through cheques and credit.

Thus, the units focussed on exports have survived, unaffected by the cash crunch. “But the domestic knitwear sector involving small and medium units, which carry out ‘unaccounted operations’ to circumvent regulations, has been hit badly as it is mainly a cash-and-carry business. The ban on 500- and 1,000-rupee notes turned into a bane for domestic production, triggering a fall of nearly 40 per cent,” said a garment unit owner who caters to the domestic sector.

Ever since last Deepavali, the industry has been apprehensive of taking fresh orders, export or domestic. The industry players are wary of the government, which they fear might resort to fresh policy announcements such as demonetisation and Goods and Services Tax (GST).

Informed sources said it took a year or so for the industry to clear the inventories that piled up after the demonetisation move. The export rejects, most of which end up in the domestic market, have also found fewer takers. “And now we are grappling with the after-effects of GST. We are also confused about what the government will do in future,” said T.R. Vijayakumar, general secretary of the Tirupur Exporters Association.

M.P. Muthurathinam, president of the Tirupur Exporters and Manufacturers Association, said that despite a year having passed after demonetisation, Tirupur was yet to recover from its adverse effects. “The hard fact today is that hundreds of units, small and medium, are closing down owing to the cascading effect of the note ban. The domestic sector is totally affected. As the cash flow remains restricted, nearly 90 per cent of the domestic market has also shrunk, leaving lakhs of labourers facing a bleak future.”

He added: “The industry’s manufacturing chain has many major components and labourers are its mainstay. Production for export orders is to be undertaken against credit from banks and other lending sources. The money is to be disbursed to the labourers on a weekly basis. But when we are not able to distribute cash to them, they leave us. The industry would be busy during festival seasons such as Deepavali. But this year, a mere 30 per cent of production could be realised.”

Raja M. Shanmugam, president of the Tirupur Exporters Association, in his letter in December to the Union Minister of Corporate Affairs and Finance, Arun Jaitley, underscored the industrialists’ problems and appealed to him to relax the condition of insisting on both Aadhaar and PAN cards for opening bank accounts. He said that nearly three lakh accounts had to be opened for the employees, mostly migrant labourers, to disburse wages.

To mitigate the fallout of demonetisation and to meet the GST implications, the association, in a memorandum to the Ministry of Textiles in October this year, urged it to reduce the duty drawback rates from 7.7 per cent to 2 per cent and enhance the interest equalisation scheme for export credit to 5 per cent from 3 per cent in order to save the industry.

Also, the Southern India Mills’ Association (SIMA), in a statement in November, drew attention to the stockpiling across the value chain of textile industry units owing to cash flow restrictions. It noted with concern that the cash shortage had led to a severe shortage of funds for regular operations of the textile industry. “The situation is no different today. The industry is yet to overcome it,” said another exporter.

Many of the power looms in this belt and in Namakkal district have not been fully operational. “Demonetisation set us back by a decade,” said a weaver in Komarapalayam near Namakkal. The orders were not adequate and it was hard to find labourers. “We are slowly coming around, and it will take yet another year or so for this sector to become normalised,” he said.

Exporters and those directly and indirectly connected to the industry in Tirupur are keeping their fingers crossed on whether it will be able to achieve the export target of Rs.1 lakh crore in the immediate future since the industry’s recovery is painfully slow. “It is now in the hands of the government,” said a leading garment manufacturer and exporter.