For powerlooms in Tamil Nadu, GST a potent disruptor

The tax regime was expected to benefit the sector, but a majority of weavers in the western districts say things have only turned worse for them.

December 24, 2017 07:19 am | Updated 07:25 am IST - Coimbatore

Demonetisation led to a fall in orders, which seem to be rebounding now, but other problems continue to plague the powerloom sector. A unit at Devarapalayam in Coimbatore district.

Demonetisation led to a fall in orders, which seem to be rebounding now, but other problems continue to plague the powerloom sector. A unit at Devarapalayam in Coimbatore district.

Velusamy, a powerloom weaver in Palladam, was elated. After almost a year of dull business, he recently had an inquiry from a master weaver for 1,000 looms to do job work. And, the rate (conversion charges) offered for the job work was “reasonably good”.

“There is a revival of demand after Deepavali. The master weaver was able to get quite a number of looms in Avinashi and Thekkalur,” he says.

Is this an indication that things are better at the powerloom clusters in Coimbatore and Tirupur districts after GST? Has the new tax system brought relief to the 20,000 weavers in the two districts ?

Not really, weavers say. GST has only turned things worse for the majority of them, they add.

Hope and fear

Unlike the neighbouring Erode and Salem districts, 90% of the powerlooms in Coimbatore and Tirupur districts are engaged in job work. Master weavers supply yarn to the job workers and pay them conversion charges for weaving fabric. The wages (conversion rates) paid to the job working units were revised every three years till 2014. They were not revised in 2017 and the job work units claim that some of them are getting the wages due for work done seven or eight years ago.

To start with, the powerloom sector, which includes master weavers, job workers, and exporters, was hit by demonetisation last year.

A powerloom weaver working on the looms at his unit at Devarayapalayam in Coimbatore District.

A powerloom weaver working on the looms at his unit at Devarayapalayam in Coimbatore District.

There was hardly any business for almost six months. Since the stocks in the pipeline were exhausted, there seems to be a revival in demand now, says M. Senthil Kumar, fabric manufacturer and exporter at Palladam and former chairman of Southern India Mills’ Association. Whether this demand will continue, it remains to be seen.

Less than 5% of the powerloom units in the two districts are direct exporters. These units have not been affected much by GST, except that the accumulated input tax credit pushes up the cost of the fabrics. Those catering to the domestic market are in a quandary, he says.

Over 70% of the powerloom units in the two districts are in the unorganised sector. They are not accustomed to keeping proper accounts. The whole business is dependent on traders in north India and a few places in the south. These traders went on a wait-and-watch mode when GST was introduced. Moreover, with the master weavers being exempted from having to pay the tax for the job working units not registered under GST — called the Reverse Charge Mechanism — the new tax regime is yet to fall in place for powerloom weavers, Mr. Kumar adds.

GST has generated hope too, though fear often dominates. As the entire textile value chain is covered under the new tax system, there is hope among job workers that the master weavers will pay the tax and continue with regular orders. Fear, since they do not know what wages they will get and if there will be a dent in the orders. The immediate impact will affect the livelihood of small weavers in rural areas and there are already such instances.

“We expected a relief when GST was introduced as every segment of the textile value chain will fall into a system. But, with the exemption provided till March for the reverse charge mechanism, there is confusion now. We want the GST to be implemented properly,” says C. Palaniswami, president of the job working powerloom unit owners’ association at Somanur.

Mr. Velusamy, who heads the job workers’ association at Palladam, adds that over the last one-and-a-half years, there has been a drastic fall in the conversion charges paid by the master weavers to the job workers. In some pockets there are medium-scale units coming up with automated looms posing a threat to the smaller weavers. The demand fluctuation is sudden and steep and there is distress, he says.

Tale of woes

Cases of weavers facing a sharp downturn in fortunes are common. Fifty-five-year-old M. Balasubramaniam started working on powerlooms at Palladam, located about 40km from Coimbatore, in 1979 when he was just 16. Learning on the job, he went on to set up his own small-scale weaving unit in 1999. Three years ago he invested ₹1.35 crore to upgrade to 10 automated looms.

But, his gradual climb up the ladder hit a block last year when those who gave him orders started delaying and reducing the payments. He sold his looms five months ago, rented out the weaving shed, and suffered a loss of ₹15 lakh. He was employing nine workers and all of them lost their jobs.

About 20km away from Palladam, at Devarayapalayam, 50-year-old Kandasamy and his wife start working on the nine powerlooms they have from 3 a.m. every day. They cannot afford to employ workers and earn about ₹ 8,000 a week if they get regular orders. However, business has not been very good. There are no regular orders. In any case, the job work rates are low.

We thought with GST every segment of the textile value chain will fall into a systemC. Palaniswami, Powerloom owner

“One of our member units does job work for a textile mill at Somanur. When GST was introduced the mill asked the job workers to register under GST though this is not mandatory. We took up the issue with the Textile Commissioner’s office and they issued a circular,” says Mr. Palaniswami.

“The job working units do not have to register under GST as the annual turnover is less than ₹20 lakh and so they are exempted. The master weavers are also not insisting now. When the exemption is removed, they should pay the duty as the job workers do not know how to keep accounts,” says P. Kumarasamy, secretary of the Somanur job working powerloom unit owners association. On the conversion charges, the job working units have submitted a memorandum to the District Collectors. “We want the State Government to fix the rates for job workers,” he says.

“At least 10% of the looms have been sold off in Palladam alone and another 10% units have not been functioning in the last one year,” says Mr. Velusamy. The governments should create infrastructure and support the job working units to become master weavers, he adds.

Master weavers

A leading master weaver near Tirupur, who did not want to be named, said there has been a reduction in the charges paid to the job workers as the master weavers are also facing uncertainties — demonetisation, issues with availability and rising price of raw materials. Import of fabric from Bangladesh and China is posing a threat to domestic manufacturers. “In the last one year, even I have reduced by 50% the job work that I used to give,” he says. All the master weavers might not be able to pay the tax under RCM (reverse charge mechanism). Many of them are gradually increasing their weaving capacity and reducing job works, he says.

Labourers at work at a powerloom weaving unit in Palladam in Tirupur District.

Labourers at work at a powerloom weaving unit in Palladam in Tirupur District.

Another master weaver at Somanur says that after GST, things were improving. However, with exemptions now, some of the fabric traders are buying without a bill, he alleges. The master weavers face several risks, invest heavily in their units, and will pay more to the job workers when the market picks up. The government should support and encourage tax compliance, he says.

Summing up, Mr. Senthil Kumar says implementation of RCM and e-way bill will only lead to more problems for the job workers.

They should demand complete exemption of GST so that the master weavers do not have to pay GST for them, and also demand removal of e-way bill for intra-State transport of goods. When GST is implemented without the temporary exemptions, and the entire textile chain falls into the system, those in the unorganised sector will also come GST. This might lead to a hike in textile inflation.

The industry and the government should jointly work towards creating an environment where there is healthy competition and the consumer gets quality products, he says.

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