One year of demonetisation: Tirupur knitwear industry frays at the seams

The 1,200-odd units in Tirupur's main market and other job works centres were doing a business of Rs 15,000 cr before Nov 8. Today, not even 40% of that business is left

A year ago, S Venkatesh was running a job works unit and was employing around 10 people. Today, he works as supervisor in a large garment unit in the knitwear hub of Tirupur. He is one of the hundreds of workers who had turned entrepreneurs, but had to again fall back on doing jobs as they decided to close down their factories, not being able to withstand the pressure of demonetisation, followed by the goods and services tax (GST).

The situation is not different in Khaderpettai Market, which sells clothes that have been rejected in the export market in Tirupur. These are branded cotton clothes made for exports, but have not made the international cut and ended up in the domestic market. 

The more than 1,200 units in this market and other job works units were doing a business of around Rs 15,000 crore before demonetisation. Today, they say not even 40 per cent of the business is happening.

Tirupur’s textile industry

Tirupur, a tiny town 450 km south of Chennai, is the hub of the knitwear industry. It houses exporters; merchant exporters, who take contracts from exporters; and domestic suppliers.

Exports are a Rs 26,000-crore industry and primarily cashless. But demonetisation has affected business because they have to give cash-based subcontracts to merchant exporters for job works such as knitting, buttoning, small servicing, printing, and packing. Merchant exporters themselves are small units with a workforce, which is paid in cash. The Tirupur Exporters’ Association estimates the turnover of domestic units at Rs 7,000 crore from accounted transactions and another Rs 7,000 crore from cash transactions, which are largely unaccounted. On the other hand, unorganised units run on just cash and are estimated to have a turnover of Rs 15,000 crore.

A year before — and today

In October last year, a month before demonetisation was announced, Tirupur was busy executing festival orders. The narrow roads of Khaderpettai were busy with customers. Today, the roads are deserted and the place looks like a ghost town. Shopowners gather to talk their time away because customers are very thin on the ground.

A Mohamed Imayil, owner of Limra Garments, is one such shopowner. He says the impact of demonetisation and the GST continues. A majority of the customers at this market are roadside shopowners from across the country. 

He says that business is down by 60 per cent and since he is not in a position to pay salaries, he has reduced the number of employees to four from 15. 

M G Kumar, owner of SKM Tex and one of the officer-bearers of the Khadarpet Association, agrees with Imayil and added that more than 300 shops have closed down in the past six months.

K S Babuji, general secretary, South India Collar Shirts and Inner Wear Small Scale Manufacturers Association (SISMA), says of the 2,000 units — all SISMA members — 30-40 per cent have closed down. They were giving jobs to 60,000-80,000 people, directly and indirectly. 

The Tirupur cluster alone directly employs more than 600,000 people. What is interesting is that no one here is against demonetisation or the GST. In fact, people like Babuji campaigned for the Bharatiya Janata Party so that Prime Minister Narendra Modi could replicate his success in Gujarat all over India.

All say the issue is implementation. Money rotation continues to be a matter of concern among traders. Besides, there is fear among customers who don’t want to spend, says A Sundaram of Jayavel Textiles. Compared to last Diwali, the order flow was down by 30 per cent and for the first time, the children-wear segment saw a dip of 25 per cent.

Tirupur was badly affected because it is largely a cash-based economy. The caps on daily banking transactions also affected the system, said S Rajendran, owner of a unit here. If workers are not paid their wages in time, they do not return to work the next week. Babuji notes, for example, workers need to be paid bonuses and they, and their union, have insisted that they be paid in cash, though the rules do not allow that. 

S Muruganandam, who works at Imayil’s factory, says his owner cannot pay the entire salary because the order flow has dropped drastically. 

The farmer-turned-daily worker says he does not have a choice but to continue as he will not able to pursue any other jobs, especially agriculture. Like him many of the workers are paid or supported by owners to take care of the basic necessities. If this trend continues, the only option for them is to move from the city to places like Chennai or other cities.

Already many of them have moved to the construction industry in the neighbouring towns and districts. Besides, as most of the workers are migrant workers, opening accounts for them is an issue.

What small businesses want

A four percentage point reduction in the GST rate, ease of doing business, and making bank credit available will put the industry here back on track, say small business owners. It is the source of livelihood for more than 800,000 people in Tamil Nadu and neighbouring states, including 100,000 migrant workers from the North-East.

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