GST hurts textiles: Traders to wait and watch till post-Diwali work begins

At his dingy office in the Sachin Industrial Estate, Amit Lakhani is busy perusing brochures of large textile companies these days. The 38-year-old second-generation owner of a weaving business is looking for a change in work.

The reason: The downturn in business since the roll-out of the goods and services tax (GST) in July. Even the revision of the GST rate announced on Friday has failed to revive his hopes.

“I’ve already discarded 100 looms that were being run from rented premises. The remaining 200 are also bearing losses. The revision of the tax rate is not enough for me to sustain the business,” he said.

Discarding the 100 looms has meant job loss for 35 workers from Bihar, Jharkhand, Uttar Pradesh and Odisha. Lakhani says he has no idea where they went since they were laid off. 

“I am looking at taking up a distribution franchise or trading for larger companies. That would be more remunerative. After Diwali, I will take a call,” he said.

In the port city by the Tapi river, the textile sector has been severely hit by the high GST rate that was slapped on it.  Since July, over 60,000 looms have been discarded and sold as scrap. Consequently, 25,000-30,000 workers have lost their jobs. If one takes spinning, trading, transport, and other verticals into account, the total job loss in the city would touch 100,000, say industry representatives.

The gloom is evident around the once overcrowded Ring Road, home to large textile outlets. Gone is the hurly-burly of business or the clamour of shuttle looms.

If loom owners are looking for other sources of income, labourers are in the grip of despair.

Dinesh Singh, 28, a labourer for transporters and traders at Millennium Textile Market, has been saving up to return to Gorakhpur in Uttar Pradesh. “Earlier, a decent month would fetch me Rs 15,000. Now, the trading and transport business has come to a standstill; I can hardly make about Rs 5,000 from loading and unloading of textile goods,” he said. 

On Friday, the GST Council announced a lowering of the tax rate from 18 per cent to 12 per cent for synthetic yarn. It also eased compliances of quarterly return filings.

But the mood in Surat is far from upbeat.

In the city, there are 650,000 power looms, 150-200 wholesale textile markets, 20,000 manufacturers including 10,000 weavers, 75,000 traders, 450 processing units, and 50,000-60,000 embroidery machines. The size of trade in synthetic fabric is valued at Rs 56,000 crore.

While the impact of the high rate has been across sectors, the worst hit is the weaving segment. For all these months, they had to pay 18 per cent GST on synthetic yarn, but could claim input tax credit for only 5 per cent. 

With lack of demand and working capital constraints, the synthetic fabric production in Surat fell from 40 million metres per day to 20-25 million metres per day.

Weavers such as Lakhani and Ashish Gujarati, president, Pandesara Weavers’ Association, said the lowering of the tax rate is only a job half done. 

“Earlier, we had to bear 13 per cent (18 per cent GST minus 5 per cent input tax credit). Now, we have to bear 7 per cent,” said Gujarati.

One of the proposed aims of the GST is to convert get informal sector into the formal bracket. But, industry representatives in Surat claim this is nearly impossible, with about 90 per cent of the business fragmented and decentralised.  

“The current GST regime benefits only an integrated player. But, the Surat industry has functioned as a symbiotic ecosystem of different business working in tandem. It is impossible to expect it to become centralised,” said Narain Aggarwal of Praful Overseas. He also chairs the Synthetic and Rayon Textiles Export Promotion Council.

So has Diwali come early, as Prime Minister Narendra Modi claimed on Saturday? The traders and weavers of Surat want to wait till after the festival of lights is over and the units resume production.

For now, this is the dullest Diwali for them in living memory. Orders have dried up, the exodus of workers continues, payment cycles have widened from 60 to 150 days. Most units have shut shop for the festive season.

While lower rates might provide some succour, there are other worries as well. The trading community is livid.

“We had made 14 specific demands — the most important one was to keep those traders out of the tax net who have annual turnover of less than Rs 2 crore,” said Tarachand Kasat of the Surat-based GST Sangharsh Samiti.  If demands are not met, the Samiti might go on strike.

The only person smiling in this crisis is Viral Godiwala, a scrap broker. According to him, in the pre-GST and pre-demonetisation era, units in Surat were discarding roughly 50-60 redundant shuttle looms per day. Despite not being in good working condition, these would fetch Rs 35,000-40,000 per machine. 

“Now, Surat discards over 250 machines daily in good conditions for mere Rs 16,000-17,000,” he said.