Bhiwandi powerlooms unable to untie Gordian knot of demonetisation and GST

Around 300,000 workers were said to have been impacted due to the closure of units. It is estimated that more than 50% of the units in Bhiwandi were shut down following demonetisation

It could pass off as another suburb of Mumbai but for its roads. Roads in Bhiwandi are so bad that last February a woman went into labour prematurely while travelling in a van.

“I am experiencing back pain for the past four months and had to do an MRI. Some have fractured their hands and legs,” says powerloom owner Hanif Nathani. But bad roads is the not sole reason for his anxiety. 

The government’s surprise decision to demonetise Rs 500 and Rs 1,000 notes in November last year broke the back of Nathani and other powerloom owners of Bhiwandi. 

The textile town, adjoining Mumbai, is seeing challenging times since the note ban.

How the note ban hurt 

Owners are operating fewer looms and for a shorter time. “Earlier I used to run the powerlooms for 28 days each month but for the past four months I am operating them only for 22 days,” says Hanif Nathani.

While the looms used to operate round the clock in two 12-hour shifts, about 25 per cent of the units run on a single shift now, he adds. Loom workers too are suffering because they are being paid in accordance with the reduced working hours. 

“When the powerlooms were running at full capacity I was paid Rs 6,000 a fortnight, now I am earning half,” says Bhagwan, who works in Nathani’s unit.

Bhiwandi grew in prominence following the textile strike in Mumbai in 1982 and the town accounts for nearly a quarter of the country’s 2.5-million powerlooms. A majority of the unit-owners have 12-24 looms and do jobs work for larger units that procure yarn from traders. The yarn is woven into grey cloth at the looms while processing, dyeing, design, and print are carried out later at mills. Demonetisation was the first blow to loom-owners and its workers. About 85 per cent of the workers in Bhiwandi are short-term migrants from Uttar Pradesh, Bihar, West Bengal, and Telangana. Typically, they work for three-six months in the looms and return to their native places.

A cash crunch and subsequent lowering of the credit period by yarn suppliers led to reduced production and the closure of units. Around 300,000 workers were said to have been impacted due to the closure of units. Workers left and it is estimated that more than 50 per cent of the units in Bhiwandi were shut down following demonetisation. Some of the workers have since returned to the town.

Union Textiles Minister Smriti Irani visited Bhiwandi in April and flagged off a revival scheme for the powerlooms. The government announced it would provide subsidies for a loom upgrade and support the creation of yarn banks. “About 20,000 bank accounts were opened for powerloom workers under the Jan Dhan Yojana,” says Purshottam Vanga, chairman of the Powerloom Development & Export Promotion Council.

Local MP and BJP leader Kapil Patil says: “It is wrong to blame demonetisation and the goods and services tax (GST) for all the problems faced by the powerloom owners. The government is in fact working to revive the sector.” 

But despite the government intervention, powerloom units in Bhiwandi never really recovered from the demonetisation shock, Nathani says. And added to that is the confusion and complexities brought about by the GST.

GST impact

Earlier yarn attracted an excise duty of 12 per cent but there was no tax on jobs work, which has come in the GST’s ambit. Also, larger units were made liable to pay the GST on works carried out by smaller unregistered units under the reverse charge mechanism. This limited the work carried out by smaller units as larger units expressed reluctance to incur the tax burden.

Vanga says 60-70 per cent of the powerloom units have obtained GSTN registration and only 10-15 per cent of the units in the town have been closed. But daily cloth production has come down from 30 million metres to 17.5 million metres over the past year.

Lowering credit has been another issue. “Credit offered by yarn suppliers to powerlooms has also reduced to 15 days from a month while the expenses have increased,” Nathani says. Rashid Tahir Momin, treasurer of the Bhiwandi Powerloom Weavers Federation, says: “There is no stability in the powerloom business now because there is no policy certainty. Owners have sold their powerlooms in distress.”

Earlier this month the government reduced the GST rate on synthetic yarn from 18 to 12 per cent and simplified the filing process to ease the burden for small- and medium-sector enterprises, including loom-owners. The reverse charge mechanism has been put on hold till next March and tax filing has been eased for establishments with an annual turnover of up to Rs 1.5 crore. But despite the concessions, the mood in Bhiwandi remains grim.

“On the day the government issued the notification to reduce the GST rate, yarn manufacturers increased the price of yarn by around 5 per cent. The price hike cannot be justified and the government should rein in the yarn manufactures,” says Habib Ansari, proprietor of Habib Textiles.

Anita Rastogi, partner (indirect tax), PwC, says: “In the light of the current situation of the textile sector, the reverse charge mechanism on procurements from unregistered persons should be abolished. Once done, it will bring ease in doing business for small-scale industries and reduce compliance formalities for larger players.” 

Despite its proximity to Mumbai, the town lacks good infrastructure. A 24-km metro line has been proposed to link Bhiwandi with Thane and Kalyan. Vanga says more needs to be done. “We want a yarn market and export house in Bhiwandi,” he adds.

Series concludes