When September began, Harbir Singh, the manager of a small textile unit in the outskirts of Ludhiana was a happy man. This Punjab city is famous for its woolens and winter usually means big business for them. After two years of staggered manufacturing owing to erratic power supply in the region, with state elections around the corner, textile units this year were getting 24-hour, three-phase power supply.
In October, even took some loans and boosted production at the unit. Both the owner and Singh could not have anticipated the blow awaiting them come November.
“We are now like a patient running on life support,” Singh said.
After Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes would cease to be legal tender starting November 9, small and medium textile enterprises in Ludhiana, the industrial hub of Punjab, were one of the first victims of the systemic shock.
Across the region, these SMEs, which have an annual turnover ranging from Rs 25 lakh to Rs 10 crore, have seen massive dips in production, which most unit owners pegged at 80%.
The demonetisation has had a cascading effect on this sector. The liquidity crunch brought on by the move caused demand to plummet in the retail markets, and orders stopped almost overnight. The Rs 50,000 weekly withdrawal limit for current accounts has also made it difficult to pay their workers – most of them daily-wage migrant labourers – many of whom are now leaving town,
Trade associations put the number of small and medium textile enterprises in Ludhiana at around 11,000 and said these comprise a majority of the textile business.
Government data shows that the knitwear industry in Ludhiana employs close to 3,80,000 people. Between 70 to 80% of all woolen garments supplied to North India come from this town.
A majority of these units deal with traders in the unorganised sector across – small retailers who do not access the banking infrastructure and depend on cash for their transactions. The traders also do not pay Value Added Tax and their transactions are therefore unaccounted-for.
The timing of the demonetisation has been fatal for the garment industry. Textile units which produce winter garments count on the September-November period to boost profits and The small units get 80% of all their revenue in this season. This makes them extremely vulnerable to big-ticket reforms that could have a short-term fallout in these months.
Vindod Thapar, a garment manufacturer, said within days of the demonetisation on November 9, demand crashed. “Many orders we had were cancelled as retailers were not able to move the stock,” he said.
In the corner of his dimly lit storehouse, woolen yarns wrapped in dark polythene sheets were left heaped in stacks. Expecting the spike in production, most units had stocked raw material as early as in September since purchasing at the peak of the season would lead to cost escalation.
Charanjeev Singh, a woolen clothes manufacturer, said production involved 18 different processes from sorting the fabric to packaging the finished product. Since many units specialise in semi-handwoven products, dependence on labour was very high. “But how do we pay the labour when we don’t have any cash with us?” he said.
Industrialists claim 75% of all workers in this sector are migrants who cannot be paid through bank accounts. With the Reserve Bank of India imposing withdrawal restriction of Rs 50,000 per week on current accounts, owners hardly have any cash left.
As he watched stock positions on a huge screen at his office in Noorpur Bet, Narendra Chugh, a garment exporter, said while the idea of fighting black money was commendable, the demonetisation decision looked hasty since the industry was not kept in the loop at all. “The government went by the assumption that everyone is a black money hoarder,” he added. His medium-sized unit employed 1100 workers in October. This has come down to 220 on November 23. “How can Rs 50000 be enough to pay 1100 workers?”
Chugh predicts a general slowdown in the garment sector. “Do not be surprised if the sector as a whole registers a negative growth this year,” he claimed.
Though these businessmen hope banks would become more lenient in forwarding loans in the coming months, the balance sheet of these firms may not look too strong to access the credit.
Workers move out
Close to 75% of the textile workers in Ludhiana, trade unions and owners of units said, are migrants, who come here from parts of Punjab and nearby states during peak production season for a chance to earn higher wages. But after the demonetisation, many have struggled to find work and have gone back home. Covering that travel cost has also been a challenge.
Dharampal, who came to Ludhiana from Himachal Pradesh with his family of four in late August, has sent his wife and sons back to his village. “Our owner stopped production on November 15 and since then, that I have not found work,” he said, gathering pieces of paper on the road to light a fire and keep himself warm.
Workers are paid anywhere between Rs 500 and Rs 750 a day, depending on the task they are given. Typically, a small unit has 20% full-time workers and the rest are brought in according to demand.
Dharampal said on November 8, the day the surprise announcement on the demonetisation was made, his employer said he would continue to employ them if they were willing to take the old Rs 500 notes. For the first few days, Dharampal had no option and took the money. But he lost precious work hours while standing outside banks to get the notes exchanged for valid currency.
“One day, I had to stand in the queue for five hours,” he said. “When I came back, the manager deducted the wages for the lost hours.” The exchange limit of Rs 2000 per person means Dharampal can no longer exchange notes. “I will wait for another day and then go back home if I can’t find work,” he said.
Working on an automatic sewing machine, Harminder Kaur, another worker, said she lost three whole days standing outside banks. The queues were so long that she had to go as early as 4 am. “The banks open at 9 am and then start issuing tokens,” she said. “If you go late, you will be sent back as cash gets over quickly.”
Contractors who bring in the temporary workers said payments were pending. “Some of them are working for half the wages as there is no work available in most units,” a contractor said.
In many companies, workers on longer contracts are paid in two installments every month – on the 10th and the 25th. The demonetisation was enforced on November 9, disrupting the first installment, and with the liquidity crunch still persisting across the country, it is unlikely they will drum up enough cash for the second installment as well.
As she ironed the sweat shirts, a product in high demand during winter, Samreet, another worker, said her unit usually had only a single shift of six hours. “It is only in this season that we could work more and save,” she added. Now, they will have to find struggle to find work in the off season to make up for the losses. “The owners will have money to survive. What will we workers do?” she rued.
Asked if she used digital means of transactions such as PayTM, Samreet said she had no idea what they were.
Though hit by the demonetisation, the workers backed the government’s move. “Modi has done good,” Samreet said. “The rich too are standing in the queue with us outside banks.” Many of them expressed the hope that the demonetisation would benefit every one in the long run.
Retailers face the heat
The crisis is most visible in the retail markets. Garment shops on the usually crowded Clock Tower Road near Ludhiana’s railway station wore a desolate look as customers have become a rare sight.
Bunny, a shop manager, was whiling away his time playing a game on his mobile phone. After the demonetisation on November 9, he quickly arranged for a card-swiping machine. This, however, has done no good to his business.
“Last year this time, you wouldn’t have been able to enter my shop easily,” he said, recollecting the rush for buying winter clothes.
With Ludhiana being the hub for manufacturing of winter clothes, prices here are lower too, because retailers buy directly from manufacturers, doing away with the need for (and commission to) middle men. In the weekends, customers from as far as Ferozepur, Jalandhar and Patiala make a beeline to Ludhiana for winter shopping. This year, that buzz is conspicuously missing.
Bunny said he had stocked winter jackets worth Rs 7 lakhs in the first week of November in his shop, hardly 10% of which has been sold.“About 60% of our business happens in winter months,” he said. “This year, we will end up with a huge loss.”
Despite crashing demand, however, the retail price of the garments has remained stable. When asked why, Bunny said the complete breakdown of supply has stabilised prices. “If the factories were functioning, the prices would have crashed,” he claimed. “But they have all shut down production. The fear of lack of supply has kept the prices stable.”
Retailers said demonetisation has had a cascading effect on the local economy. Since demand has fallen, factories across sectors have stopped or scaled down production, which has made it difficult for daily wage labourers to find jobs. Elsewhere, those who have money either just have enough legal tender to get by and are cautious about spending. Since people do not have cash, there was no way to boost retail demand.
“Fearing trouble, people are just saving and not spending,” said Sukwinder, who owns two shops in the Model Town Market, another popular market in the city. “We are caught in a cycle.”
Retailers said it would take them at least a year of good business to make up for the losses they have faced so far this season.