Faquir Chand of village Machrauli near Panipat in Haryana is hunting for a job that could match his skill-set. “I lost my job after working for 15 years in the handloom industry owing to the scaling down of manufacturing activity in this cluster due to dissipating demand,” he said.
There are hundreds like him in the industrial clusters of Punjab and Haryana who face lay-offs, as small and medium entrepreneurs findtheir businesses becoming unviable. They now find it more lucrative to diversify into the real estate sector.
The burgeoning cost of land in the past few years – and the big gains to be made in the realty sector compared with manufacturing – has lured many SMEs to test the waters in the real estate business. Some burnt their fingers but many have made a quick buck.
An exporter of sporting goods from Jalandhar told Business Standard that running a manufacturing outfit was full of hassles. “We have an interface with sundry government departments like power utilities, sales tax and excise, pollution control board, labour department, municipal corporations and so on. A small entrepreneur cannot afford to hire managers to delegate responsibility. Multi-tasking prevents him from thinking big and better.”
He added that the ever-increasing cost of inputs (fuel, rubber, steel, cotton and power) and wage rates have squeezed margins, since they cannot pass on the rising cost to buyers. Their inability to spend on brand-building activities puts them at the mercy of trading houses. As cheap substitutes from China are available in all verticals, small vendors do not get a fair deal from big buyers.
“The demand for land is inelastic, because we need more land to grow food for the increasing population and cater for growing urbanisation,” added a rice processor from Karnal. “Since the supply of land is limited, the price will never crash and our investments are safe.”
An exporter from Jalandhar added that he had invested Rs 60 lakh in plant and machinery five years ago. The value of his business had doubled and he sought orders from international brands. However, some of his competitors who invested the same amount in real estate had managed to earn a ten-fold return, he said.
In some areas, small manufacturers are also forming consortiums to invest in projects that they cannot access as individual investors.
Policymakers in the two states are aware of what is happening. The Haryana government is undertaking a survey of SMEs in the state, which is expected to be completed by September.
According to the information available with the industries departments of the two states, Haryana has nearly 80,000 SMEs and Punjab about 150,000.
The textile cluster at Panipat in Haryana is down to 50,000 handlooms, from about 300,000 five years ago, making skilled labour redundant. A member of the Handloom Exporters Association of Panipat said 50 per cent of the town’s exporters had opted out from exports, because they could not compete in the global market.
As a result, business and employment generation have declined in this cluster and entrepreneurs are now investing in the real estate business.
Other clusters – agricultural implements in Karnal, steel at Mandi Gobindgarh, steel utensils in Yamuna Nagar, scientific instruments in Ambala and garments near Ludhiana – are going the same way.
Most of these clusters had carved a niche for themselves in the international market in their heyday, but succumbed to competition due to lack of technology upgradation.
Small manufacturers are either becoming traders (importing from China and selling in India), or entering the realty sector and making alliances with hospitality chains to offer their premises in tier-2 towns.