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GST adversely impacting Ludhiana knitwear SMEs

"Home to almost 12,000 hosiery units, with an annual turnover of Rs 14,000 crores, Ludhiana has long been a knitwear hub. However, of late dynamics seem to have changed and the industry is suffering from the after affects of demonetization & GST. As Darshan Dawar, President – Knitwear Club, the association of hosiery owners says, this may not be the case for much longer, since business is down by 25 to 30 per cent. Many small units are holding on till this winter. If the season goes well, smaller units might remain afloat. But if demand falls further and order cancellations continue, more than 2,000 units will be closed by the end of the year."

 

 

GST adversely impacting Ludhiana knitwear

 

Home to almost 12,000 hosiery units, with an annual turnover of Rs 14,000 crores, Ludhiana has long been a knitwear hub. However, of late dynamics seem to have changed and the industry is suffering from the after affects of demonetization & GST. As Darshan Dawar, President – Knitwear Club, the association of hosiery owners says, this may not be the case for much longer, since business is down by 25 to 30 per cent. Many small units are holding on till this winter. If the season goes well, smaller units might remain afloat. But if demand falls further and order cancellations continue, more than 2,000 units will be closed by the end of the year.

The ground reality

GST adversely impacting Ludhiana knitwear SMEs

 

As a workers employed in the industry for considerable time, explains earlier there were 80-90 men working with him at his factory. Now there are only 50. Being labour-intensive industry, it used to employ over four lakh workers, but 30 per cent have left for jobs elsewhere. Some have gone back home as there is not enough work for them. There is no work even for the temporary job shops. Daily wage jobs in the hosiery sector shrank following demonetisation, and this year there has been a further cut. Companies are getting fewer orders, and pending orders have been cancelled. Production has been affected, and even his unit had to shunt out 25 daily labourers. Till now, companies retained permanent stuff even though there is little work for them. If no changes are announced for the hosiery sector, especially for the small- and medium-scale units, full time workers too would lose their jobs.

GST impacting adversely

Some hosiery unit owners say, GST has forced them to increase the selling price of their products. Also, there is now a need for larger amounts of working capital and cash in hand, which has pushed smaller or marginal hosiery owners off the map. Cost of products has to go up by Rs50 to Rs100 a piece, and buyers have refused to buy. The unorganised hosiery sector used to carry out business based on a system of credit. Payments were made when the finished product was sold. Now, the raw material cost plus its tax has to be paid for at the time of purchase, for which the units have to take loans at high interest rates. It takes time to produce and sell, and payments of the sale can take even longer, he added. He felt that the situation might work out for those who have large scale units, but for small or micro units, taking bank loans and paying a huge amount of interest for months could mean end of their business.

Thread or yarn was earlier taxed at 3 per cent, and is now taxed at 5 to 12 per cent post GST, reduced from the slab of 18 per cent on October 6, after the GST council meet. Meanwhile thread mills have created cartels and are quoting unrealistic prices. Manufacturers cannot pass on the increase to customers, as there is already a demand shortage post demonetisation. As a result, they have cut down their own margins. Another factor affecting the industry is the GST imposed on job work. Sonu Nilibar, coordinator, the Cloth Merchant Association of Ludhiana, says, suits, saris, sweaters, etc, pass through some hand work and machine work processes done by artisans. They work from home, are not trained, and don’t have big set ups. These artisans are mostly illiterate and rarely keep accounts. Even if they are not in the GST net because they fall in the less than Rs 20 lakh category, to get bills from them is almost impossible.

 
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