Agra footwear traders going belly up

COPING WITH THE SLOWDOWN

The pall of gloom is unmistakable at Hing Ki Mandi, home to some 80 footwear traders. They procure their stock from the 400-odd manufacturing units spread in and around the city. Over half of the shoes, slippers and sandals sold in the country are supplied from here.

In the last few weeks, at least 15 of these traders have declared themselves bankrupt and have created a hole of around Rs 10 crore in the trade. Another dozen or so are expected to follow. They are expected to suck out another Rs 5 crore.

Business is down sharply. Market sources believe that compared to the Rs 750-800 crore business volumes transacted in the market during the past two years, the transactions this year could drop down to less than Rs 600 crore in view of the global economic crisis.

Mugeev Khan, co-proprietor of Bonno Shoes, one of the scores of small-scale footwear units functioning in Agra, said that the domestic footwear trade in the town operates mostly on IOU notes issued by the bulk traders to the manufacturers, with a payment maturity date ranging from three to six months.

In order to conduct business, the manufacturers have to trust the firm for honouring its IOUs and till recently, the payment was indeed secure. But for the past four to six months, the traders had begun delaying payments on their IOUs and about 14-15 traders declared themselves bankrupt, creating an unprecedented cash-flow crisis in the market.

This could lead to social unrest in the city as over 200,000 people draw their livelihood from the footwear business in Agra, with a fourth of them employed in small and big factories.

Rajiv Gupta, a former president of the National Chamber of Industries and Commerce of Uttar Pradesh, said that since about 60 per cent of the domestic footwear trade in Agra was primarily in the unorganised sector, the layoffs in the footwear units were going unnoticed, but it is a fact that in the past month alone, at least 150-200 skilled footwear labourers and technicians have been rendered jobless due to low business volumes.

At the root of the crisis is the liquidity crunch. Currently, the traders are busy clearing the payments on their credit notes under pressure of the middlemen, deferring on new purchases in the absence of buyers.

Talking to Business Standard, Rahul Shrotriya, who recently lost his job as an upper passing supervisor in a small-scale shoe factory after the owner decided to shut down production, said that the factories were not receiving new orders from the traders and the older payments were still due in the market. He said that most of the footwear manufactured in Agra was purchased by wholesalers in Delhi, Mumbai and Pune but the demands from these towns have come down to a trickle.

Gupta claimed that the stocks in most of the cottage and small-scale footwear units of the town were at an all-time low and there was no way to quickly replenish them as the banks were turning down loan-against-inventory requests, demanding collaterals, which most of the units were unable to provide, forcing them to adapt cost-cutting measures like downsizing their workforce and slowing down production.

In comparison to the reeling domestic footwear trade, the exporters, who form the “elite” group of footwear manufacturers in the town with 75-80 mid-scale manufacturing units, still appear at ease, as was evident from the Rs 200 crore worth business transacted during the two-day international footwear expo held in Agra last week whereas the previous expo had generated business worth just Rs 145 crore.

Agra Footwear Manufacturers and Exporters Chamber sources claimed that footwear exports from Agra are posting a growth rate of 20-25 per cent annually and this trend has not yet shown a noticeable slowdown despite the recession. The exporters had grossed a turnover of Rs 1,200 crore in 2007 and this year, the transaction is expected to surpass Rs 1,500 crore despite an appreciated rupee during most of the year unless the European markets too, succumbed to the international financial crisis.

Rafeeq Ahmed, former chairman, Council for Leather Exports, said that the economic recession had originated in the US and the Agra exporters, whose participation in the total Indian footwear exporters was around 30 per cent, have customers in Italy, Spain and Portugal, who were still placing orders, impressed by the qualitative superiority of Agra footwear compared to the Chinese competition.

Dileep Mittal, a footwear component manufacturer, claimed that this year the orders placed by visitors in the international footwear expo had risen by 20-25 per cent over the previous year, which indicated that the footwear export segment was not as severely affected by the global recession as had been expected and this predicted a brighter future ahead for footwear exports from the town.