The warp and woof of demonetisation

A week-plus after the government’s demonetisation move, Tiruppur’s garment industry — from exporters to suppliers, ancillary units and the workforce they employ — stares at a mounting crisis.

November 19, 2016 01:43 am | Updated December 03, 2021 12:27 pm IST

An employee at the stitching section of a unit in Pandian Nagar. Photo: M. Periasamy

An employee at the stitching section of a unit in Pandian Nagar. Photo: M. Periasamy

Samundipuram, Wednesday, 7.30 a.m. The yarn bobbins mounted on the creel of the circular interlock machine move seamlessly. A series of bulky movements later, the off-white yarn churns out some more off-white cloth, stretched from under the cylinder of the knitting machine. Venkatachalam, in his mid-50s, stands watching his machines, with his hands crossed behind his back, in his unit in Samundipuram in Tiruppur.

The air is thick under the slow grumble of the machines and the steady suspension of off-white dust of the yarn, accentuated by the yellow light bulbs lighting up from underneath each running machine, casting long shifting shadows. Bales of yarn waiting to be fed into the machine and bales of cloth knitted from the yarn ready for the supplier are stacked on the side of the shop floor. This is what remains of the Diwali stock, he says.

Venkatachalam had reached the knitting unit at 6 a.m. to run the machines. “My first worker will come in at 8.15 a.m,” he says. Until last week, this unit of 16 machines ran with two workers on round-the-clock shift. They were paid Rs.3,000 each every Saturday.

This Monday, >a week after Prime Minister Narendra Modi declared the existing Rs.500 and Rs.1,000 notes invalid , Venkatachalam had cut down two shifts to one. This has meant only alternate days of work for each of the two labourers. “Now, I’ll pay Rs.1,500 each to the two workers this week. No fresh yarn has come, and even if it did, I can’t run the machines without cash,” he says. Last week he produced 600 kilogram of cloth, against the usual 1,500 kilogram per week. He receives cheques from the supplier. But his wages are in cash.

A couple working with a ribbon-cutting machine in Pandian Nagar. Photo: M. Periasamy

Life in the slow lane Some 18 kilometres away in Pandian Nagar, Shakthivel is picking up the last of the cloth bundles he had commissioned Karal Marx for cutting. Marx owns a rib-cutter that cuts fabrics into bundles of ribbons that are then stitched up as folding on collars and sleeves of T-shirts. His rib-cutter occupies a 50-sq.-feet space partitioned off his less-than-modest living quarters. The last of the bundles remaining from the Diwali stock supplied by people like Shakthivel are the ones left for work for Marx.

At the foot of the rib-cutter is a can full of petrol. “Oh that. I had to fill petrol for my moped. But they refused change and I was forced to buy petrol for the entire money,” says Marx.

Shakthivel runs a stitching section with seven labourers including his wife. The supplier provides him with cut cloth, and the cloth runs through five machines to emerge as a fancy top. “Just my type” declares a fair-skinned girl gazing out of a fuchsia printed top, on the bundle just finished.

Only two days ago, Shakthivel had asked three of his workers not to come. “I only have old cash. And no fresh orders had come, and there were serpentine queues in the bank.” He has to pay Rs.4,000 each to each of them. He plans to wind up the remaining work, and lock up the section for the rest of the week. The rent of Rs.6,000 for the stitching section and house rent of Rs.5,000, both due for the 10th, was not accepted with old cash. Bending down to gently pick up her two-year-old son asleep on a cut cloth on the floor, Shakthivel’s wife Swarnalatha asks him if they should go to Palani, to be with their relatives.

Abu Baquar Siddique, Shakthivel’s chief tailor, is a man of quiet pride. He collects part of his weekly wages daily, the Rs.200 from Shakthivel every evening goes into buying 2 kilograms of rice for Rs.100 and other groceries for a fresh-cooked dinner for his family of four. On Wednesday, Shakthivel gave him Rs.500 of the old note to tide over.

When the past week saw households running on credit, goodwill, trust and goodness of the local grocers, Siddique never kept an ‘account’ of credit with any grocer. “I never have before. That’ll push us to buy more, consume more.” So, when the outlet refused to accept his money, he simply migrated to PDS rice. But his two young boys are unable to eat the poor quality ration rice.

Grinding to a halt These men (and women) are part of the garment supply chain that swells at the lowest end to include many interdependent household units. This chain train hinged on work orders from the small supplier, to a micro unit, to the last-mile household unit — until demonetisation stopped it in its tracks. Slowly, units are beginning to grind to a halt, threatening to snap this chain.

Two domestic suppliers that supplied cloth to Shakthivel’s stitching section locked down this Monday. The same two suppliers had supplied cloth to 20 other units with workforce of 20 each. Between them, the two suppliers each had a workforce of 100-150 workers. “They have to pay me around Rs.20,000-Rs.30,000,” says Shakthivel.

Small suppliers and dependent tiny units that look to the supplier for work are wary of piling up work commitments and resultant unpaid wages.

On Wednesday, the South Indian Collar Shirt and Small Manufacturers Association (SISMA) passed a resolution to downscale from 15 shifts per worker per week to six shifts. “Units are already laying off non-salaried workers,” says K.S. Babuji, general secretary, SISMA.

Eashwaramoorthy is a domestic supplier selling to buyers in Mumbai and Delhi. His unit with a 20-man workforce has now pared down to just three workers. The rest were asked not to come. “The current account withdrawal limit of Rs.50,000 is not allowed by banks here. How do we pay,” he asks.

Demonetisation for the garment industry came at a time when the buyers were on the verge of settling payments of the suppliers for the Diwali despatches across the country. The buyers are now unable to make bank transfers to the suppliers beyond Rs.49,000, and that too only after the suppliers courier multiple copies of proof for bank verification.

Tiruppur’s layered system The garment industry in Tiruppur is made of three types of units: exporters, merchant exporters who receive subcontract work from exporters, and domestic suppliers.

Exports — a Rs.22,000-crore turnover business — are primarily cashless. Yet demonetisation has tangentially affected exporters because they have to engage peripherally with cash-based subcontracts for ‘job works’ such as knitting, buttoning, small servicing, printing, packing to merchant exporters. The merchant exporters themselves are small units with a workforce paid in cash.

The cash crunch has halted 25 per cent of subcontracts commissioned by exporters, says T.R. Vijaya Kumar, general secretary, Tirupur Exporters’ Association (TEA), that has over 1,000 members. The exporters will have to deal with penalty of 20 per cent additional costs on shipments that will now be airlifted.

It’s domestic suppliers who are facing the demonetisation heat the most. They include micro units and sections that are partly, largely or fully run on cash.

The garment industry in Tiruppur has 8 lakh employees; 4 lakh in direct employment and another 4 lakh in subsidiary units such as knitting, dyeing, printing, embroidering, spinning, accessories. Of this, 20 per cent or 1.6 lakh workers are estimated to be unorganised workforce. There are 2,000 small, medium and tiny units — now facing the prospect of phased lockout — that provide work to this unorganised workforce.

Early this year, the TEA had met the Prime Minister during his visit to Coimbatore to present a ‘Vision 2020’ document to him that envisages increasing the garment industry’s turnover to Rs.1 lakh crore by 2020.

When demonetisation was announced, the exporters had cheered the decision. The TEA estimates the turnover of domestic units at Rs.7,000 crore from accounted transactions and another Rs.7,000 crore from cash transactions. On the other hand, the unorganised units solely run on cash are estimated to have a turnover of Rs.15,000 crore.

For the exporters, this is a ‘parallel economy’ with a cumulative Rs.22,000-crore turnover. “This supply chain runs on cash, weeding out taxes. If this economy is integrated, then there will be a level playing field for all,” says Vijaya Kumar.

A retailer at Khaderpettai market. Photo: M. Periasamy

Khaderpettai, Wednesday, 3.40 p.m. Jeganathan bears a distant look as he scans through a Tamil paper. He was making daily sales worth Rs.10,000-Rs.30,000 on average out of his 80-sq.-feet shop, stacked with bundles of trackpants, T-shirts of all hues. On Monday, he sent away the only daily wager he had. “Yesterday, I downed the shutter by 4 p.m.,” he says. Not a single sale on Wednesday in the shop he co-owns with his brother.

Khaderpettai market represents that parallel economy that Vijaya Kumar was talking about. It has over 3,000 shops, wholesale and retail and godowns, run solely on cash transactions. Khaderpettai lends the retail-end support for the domestic garment suppliers. They lend the rationale for business for the smaller manufacturing units, whose manufacturing orders hinge largely on the business vibrancy of Khaderpettai. Some of the garment godowns are straight extensions of the manufacturing units.

The hustle of Khaderpettai is missing since the demonetisation. Many believe things would look up once money circulation picked up.

The garment industry has a high labour demand. Attrition rate is 50 per cent, and the average labour shortage is 35 per cent. There is a general resistance both among labourers and domestic units to crediting wages through banks. Wage account entails Employees’ State Insurance and Provident Fund contribution from both ends. Labourers, with marginal wages, are not enthused at the prospect of deduction, and employers are equally unwilling to contribute.

Demonetisation has struck at the heart of this cash mode of payment of wages. Hence, ever since demonetisation, a primarily contractual workforce is migrating from smaller domestic units to export units, which credit salary through wage accounts. But the ability of smaller export units to absorb this preliminary flight of labour will unfold only in the coming days. Also, export units may not fully be insulated as the chain involves cash-based merchant exporters too.

Small is no longer beautiful Exporters also view demonetisation as a prelude to the nationwide rollout of the Goods and Services Tax (GST), as a move to bring everything into accounting, force small units to migrate to wage accounts. “Once GST comes into operation in April, there will less opposition and easy integration,” predicts Vijaya Kumar.

But on the ground, there is another reality being played out. The experience of micro units and sections so far indicate a possible immiserisation of owners and workers.

While labourers just may have the option of flitting to an export unit wherever possible, marginal units such as Shaktivel’s stitching section or the yarn-knitting unit of Venkatachalam don’t have that option. At worst, they will have to close down and move into the labour market themselves.

Forty years ago, Vijaya Kumar’s father had started out with 10 workers and 10 machines. Today, he runs an export business with 1,500 workers. “If this had come then, my father would not have survived,” he agrees.

This churn will decimate small units, which are unable to migrate, have no means or know-how to systemise their business operations. This slowly would also mean that businesses can henceforth be run only by the educated, who can engage tax accountants, auditors, and dedicated personnel for documentation. “Today’s tiny units are tomorrow’s larger units. This will also mean nipping start-ups in the bud,” concedes Vijaya Kumar.

Pointing at three shuttered shops in a Khaderpettai lane, a man, who refuses to disclose his name, says that almost all shops have sent away their daily wage workers. Until last week, each shop had a Hindi-speaking worker to help negotiate with buyers from beyond the Vindhyas.

“Do you see knitwear in the street shops of Chennai, Mumbai, and Delhi? They are from here. The garment units are showroom; we, Khaderpettai, are for the pavement. The poor buy from us,” he says. “We all started off lifting loads on our back and have come to own businesses. We are not educated.”

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