Demonetisation

#Demonetisation: Farm to loom, textiles totter

currency ban

Mumbai, Bhiwandi & Ahmedabad: Since the turn of the century, Bhiwandi — once called the Manchester of Asia — has wilted against competition from Bangladesh and Vietnam. Bhiwandi holds more than a sixth of India’s 6.5 million power looms — machines that manufacture fabric from yarn.

A congested city of about 1.5 million, 30 km north of Mumbai, it was once a key link in India’s cotton economy, which employs 25 million workers alone, the second-largest employer after agriculture.

The Indian textile industry is already challenged by falling exports, low productivity and rising prices. Bhiwandi has now been further crippled by the aftermath of the November 8, 2016, scrapping of 86 per cent of bank notes, by value.

Notebandi ne humko paanch saal peeche fek diya(demonetisation threw us five years behind),” said Asad Farooqi, 65, who has been running more than 100 power looms for about 30 years.

In this industry where son tends to follow father, Asad’s son, Aftab, 34, remembered how they lived in prosperity in his childhood, and that earning Rs 20,000 for a consignment was very normal.

“Last month, we earned Rs 17,000 from all our looms business,” Aftab said, with a wry smile. The Rs 20,000 of 1996-97 would translate to about Rs 70,000 today, after factoring in an average inflation of 6.5.

The textile industry, of which decentralised power looms and knitting are the largest components, contributes 2 per cent to India’s gross domestic product. Maharashtra, with more than 1.1 million power looms, is one of India’s largest power loom hubs, providing direct employment to a million people in Bhiwandi, Malegaon, Dhule, Sangli and Sholapur.

Only 20 percent of these (Bhiwandi’s looms) are running today,” said Mannan Siddiqui, President, Bhiwandi Textile Mills Association, who has spearheaded the attempt to revive Bhiwandi’s looms over more than 20 years.

Malegaon, 270 km to Mumbai’s northeast, is similarly struggling to keep looms running.

Bhiwandi is one of the key links in India’s textile supply chain — from farm to loom. Although there are no consolidated data, we found production cuts, job losses and revenue declines in an already struggling sector.

Cash rules critical parts of this supply chain: from farmer to yarn factory to yarn trader to power loom cloth manufacturer to wholesaler to retailer to consumer. Dyers, zip-and-button fixers and daily workers who lift bales are some of the poorest in this chain and they appear to be the worst hit.

Textiles were the largest creator of Indian formal-sector jobs, with 499,000 added over the last three years. There is strong international evidence that exports help create additional jobs and push up wage and income growth.

In Mangaldas market, the biggest textile market in Mumbai — a city once known for its textile mills and labour unions, both now relics of history – N. Chandrakant said business was 20 percent less than normal for the winter-and-wedding-shopping season, which runs from November to February. There was no business in the first week of notebandi.

“Customers are buying simple, plain shirt material, and demand for luxury items has reduced,” said Chandrakant. “People are being economical.”

Kripesh Bhayani, a cloth-and-apparel retailer in the same market, is also a garment maker who runs 17 imported fabric-weaving machines in a Mumbai suburb. He said manufacturing was unaffected, but finishing of garments — such as fixing buttons and zips — had suffered. Bhayani outsources these jobs to household industries, which work on cash.

While the demand for garments has dropped 30 per cent, wholesale demand has dropped 50 per cent, merchants told us.

“Our market remains crowded the entire day during the November-to-February season,” said Bharat Thakkar, Secretary, Mangaldas Market Cloth Merchants Association. “Sellers struggle to attend to the flurry of customers. The relatively empty shops today tell you everything.”

At Ahmedabad’s New Cloth Market, trade had fallen by 80 per cent, according Rajesh Agarwal, Secretary of the market association. He explained why 60 of his 80 embroidery workers had returned to their villages after notebandi: When sales dropped, his cash dried up, so he could not pay salaries. Workers, said Agarwal, preferred to go temporarily jobless than endure the hassle of opening accounts in already stressed banks.

“Slowing consumer spending has resulted in a slowdown in domestic demand for apparel and other end-products of textile industry in the immediate term as a fallout of demonetisation,” The Financial Express reported onDecember 3.

As a result, retailers cancelled their cloth orders from wholesale traders.

Wholesaler Sudhir Parekh explained how a boom at the start of November — when Diwali shopping season gives way to the winter-and-wedding-shopping season — collapsed afterNovember 8.

Cashless does not work there.


“A lot of inventory that would have been sold by now is stockpiled at my shop,” said Parekh, who works from Mumbai’s Mulji Jetha wholesale cloth market. “My cloth, which is my working capital, is lying here, and there is no way I can purchase more from the textile mills. I am stuck.”

This part of the textile supply chain is all cash: Consumers pay cash to retailers, who pay cash to wholesalers because it is convenient. Wholesalers, who place large orders with textile mills and pay through cheques or bank transfers, are not currently doing that because of the shortage of cash, driven by the drying up of retail spending.

Parekh said he was ready to go cashless, but his ability to do so depended on retailers and customers to do so.

Cashless transactions, however, dominate the large-volume purchases of cloth that traders make from textile mills in Bhiwandi, Surat, Ahmedabad, Tirupur and Coimbatore.

In Bhiwandi, Suleiman Rahil and Syed Nasar Ali, both in their 40s, were doing nothing when we met them. Both are loom workers who run five to six power looms, in whichever factory needs them. Both are from Pratapgarh district in Uttar Pradesh, and have five children each.

Rahil and Ali each earned Rs 15,000 a month beforenotebandi, they said. Their incomes are down by a third to about Rs 5,000 each, there is no work most days, and they spend their day looking for odd jobs, including in farms and other markets.

“How can a family with six children sustain itself on Rs 5,000 a month?” Ali asked.

Bhiwandi labour contractor Ashok Ahuja — who also owns about 60 struggling power looms — explained how half his workers, from various rural districts of Uttar Pradesh, Bihar, Jharkhand and West Bengal, left for their villages when work dried up.

Some have started returning. Ahuja restarted his looms in Bhiwandi on January 2, two months after he shut them down, right after wholesalers cancelled orders after demonetisation.

In Bhiwandi, Siddiqui argued that China, Pakistan and Bangladesh’s policies have benefited their textile industry, while India’s have enfeebled power loom owners like him, who must deal with not just low demand but daily price variations of yarn — the chief raw material for power looms — over the last four years.

The cost of yarn — which he buys from Mumbai — varies intra-day, “like the stock market”, said Siddiqui, as yarn traders increase or reduce the price according to daily demand.

On December 20, the yarn was selling at Rs 156 per kg. On January 4 the rate had shot up to Rs 178. When Siddiqui finally bought his yarn, it was Rs 200 per kg. “About 10 kg of yarn is enough to produce 100 metres of gray fabric, which typically sells at Rs 30 per metre,” said Siddiqui.

A 100-metre swathe of cloth fetched him Rs 3,000, of which Rs 2,000 went into buying yarn the day we visited. With the Rs 1,000 left, Siddiqui had to pay for workers, electricity and machine maintenance.

While the manufacture of yarn, the chief raw material in making cotton fabric, has largely been unaffected, the same cannot be said of ginning facilities in the same mills, where cleaned, seed-free cotton is obtained from raw, impure cotton. The slowdown between November and January was because cotton farmers were not accepting cashless payments.

“About 30 vehicles with cotton come to our mill every day,” said Mukesh Patel, who runs the ginning facility at Pashupati Mills. “On January 6, we had only five vehicles coming to sell cotton. The highest number we have seen after demonetisation is 15.”

“Farmers accept only cash as they have to pay their farm labour in cash,” said Patel. “Cashless does not work there.

By Abhishek Waghmare

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