For the already distressed weavers and poorly paid labourers in the famous Banarasi sari industry, demonetisation has come as a crippling blow.
Withdrawal limits of Rs. 50,000 on current accounts (around a 10th of the actual requirement in the trade) and falling business post November 8 have constrained traders from paying weavers and producers for saris in cash. They are struggling to meet their own expenses.
The weavers and small producers, starved of cash, struggle to purchase raw material or pay labourers, many of whom have taken to other jobs like driving battery-powered rickshaws. Cost of raw material — yarn, colour, lotion, etc. — has soared. The entire production cycle has been badly hit.
“What will my family eat if I use up the little cash I have managed to get to purchase raw materials,” asks weaver Akhlaq Ahmed, 48, who has three daughters. Mr. Ahmed has stopped production even as he struggles to recover dues. A friendly trader offered him some advance money. But most are not so lucky. As they struggle to make ends meet, the prospects of weavers are further hit by the paralysis of the local “batta” system after the demonetisation.
From production (weavers and small time producers) to marketing (traders in Varanasi and wholesalers from metro cities), the trademark Banarasi sari industry primarily works on credit — a complex and age-old system of rolling credit relying on post-dated bearer cheques exchanged against cash. This ensures cash flow.
Business in the market is much above capital available always and traders pay weavers and producers by bearer cheques, which act as credit. The traders may themselves be awaiting payments for sales. The weaver uses the cheques, each less than Rs. 20,000, in one of three ways. With good financial standing, he may wait to encash it after it matures. Second, he may forward the bearer cheques, which usually have random names, to suppliers of raw material.
Third, if the weaver is short on capital, has to pay unbanked labourers and meet daily expenses, he cannot wait for the cheques to mature. He may set aside a part or take all cheques to the “batta” market, and get them exchanged for cash, for a commission.
The batta (discount) rate ranges from 0.5% to 3% a month but may rise during festivals or emergencies, when weavers are desperate.
After demonetisation, most of the few dozen battawallahs in Varanasi have shut shop as they are unable to withdraw money or encash the cheques. They have stopped accepting new post-dated bearer cheques. This has halted the supply of cash downstream, affecting the weavers as well as the labourers.
