The textile and leather sectors, major sources of employment, are facing heat from the Centre's decision to demonetise the Rs 500 and Rs 1,000 currencies.
Companies are not able to pay wages and so, people are staying away from factories. The other challenge, mainly for the unorganised sector, is procurement of raw material. With labourers not coming to work, this is impacting output.
The exporters association at the textile hub of Tirupur in Tamil Nadu has welcomed demonetisation but requested withdrawals of higher amounts, based on the average they have been regularly withdrawing from banks for the past six months. This would, they plead, enable payment of weekly wages and other sundry expenses.
Of the around 600,000 workers at Tirupur, 40-50 per cent are migrants. Many don't have bank accounts. These workers usually get paid Rs 300-400 a day.
"We are ready to open accounts (for the work force) but bankers are burdened with a heavy load since demonetisation came into effect. They're not able to open thousands of accounts in the current situation," said an exporter.
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"We require Rs 10-15 lakh a month in cash to pay to the employees but the banks are only allowing withdrawal of up to Rs 20,000," says Sabu M Jacob, chairman, Kitex Garments. "Every month, we have 150-200 new employees joining; they might have to be paid in cash till they get a bank account. Even normally, it would take 15-60 days to open an account for migrant workers; now, the opening of new accounts has come to a standstill."
Leather
In the leather industry, 90 per cent of the units are small and medium enrterprises. The major problem is sourcing of raw material, supplied mostly from rural parts, said Rafeeque Ahmed, chairman, Council for Leather Exports.
"On a daily basis, half our workers have not been reporting to duty by rotation, since they are queuing at the banks to exchange money," added Uttar Pradesh Leather Industries Association's former head, Taj Alam. He feared export order deadlines would not be met, leading to loss of customers.
The leather hub of Kanpur employs roughly 100,000 workers and clocks around Rs 7,000 crore in annual export. Units here are not able to pay their workers in this liquidity crisis. Last week's wages were largely unpaid.
"Most of our workers either do not have any bank account or have little savings in them. Besides, the small cash at their home is in the from of the demonetised currency, which needs to be exchanged," said Alam. Productivity had dipped by half.
The positive side of the story, according to a senior official from the industry, is that many of the units in the traditional clusters were not recording provident fund and other employee benefits properly, since most of the transactions had been in cash -- they will either pay less or don't show it on their records. The new move will obviate this.
Industry sources said some companies were giving two months salary and bonus in advance, to dispose of Rs 500-1,000 rupee notes.
