GST woes: How Surat's powerloom industry is dying a slow death

Surat houses more than 650,000 powerlooms. Of this, at least 60 per cent have been shut since a month, a loss of Rs 900 crore, finds out Vinay Umarji.

Rukesh Kumar, 22, is running out of patience and finances.

He's whiling away time in his 6'x6' abode in the Shivamnagar slum in Surat that he shares with a fellow textile worker.

The Rs 5,000-odd he'd saved in June, after sending another Rs 5,000 back home in Patna, is almost over.

His employer had, as part of a general protest at the new Goods and Services Tax (GST) levy since July 1 on the sector, shut his dyeing unit.

Resulting in no work for Kumar and about 400 others.

"I am yet to hear anything from our contractor on when the unit will restart. If the money runs out, I will arrange some from home to book my travel back to Patna," Kumar tells Business Standard.

He's been working in Surat for 10 years, having come as 12-year-old.

The three-storied building in the Shivamnagar slum has a dozen such rooms and two common toilets, occupied by workers on a sharing basis or families.

Almost all of whom are waiting for a call from employers to resume work. Which looks slims at the moment.

The Rs 50,000-crore (Rs 500 billion) textile industry in Surat -- the diamond trade and textiles are the two sectors of note here -- employ an estimated 1.5 million.

Spread out in spinning, weaving, dyeing and processing, trading and garmenting jobs, through 20,000 manufacturers, including powerlooms, 75,000 traders and 150 wholesale textile markets.

Almost all the workers hail from other states - Bihar, Odisha and Uttar Pradesh, among others.

While the government and the media's attention has been drawn towards the textile trading community, trying to make its voice heard through an indefinite strike which began on June 16 and ended on July 18, it is the powerloom and processing units that are dying a slow death.

The problem

A single loom generates an average revenue of Rs 22,500 or Rs 15 per metre for 1,500 metres of weaving in a month.

Surat houses 650,000 such powerlooms, thereby generating close to Rs 1,500 crore (Rs 15 billion) of monthly revenue.

Of this, at least 60 per cent have been shut since a month, a loss of Rs 900 crore (Rs 9 billion) so far.

The weaving and processing units of the Surat textile industry have been the most hit, since they are largely informal and de-centralised, unlike larger textile entities that run composite units, right from fibre or yarn to finished goods.

According to Ashish Gujarati, president of the Pandesara Weavers' Association, which alone has 200,000 powerlooms, the decentralised units get their weaving and embroidery work done through job work or outsourcing, which, after GST, attracts an 18 per cent duty.

The double whammy for the powerlooms is that not only is most of the yarn twisting and embroidery job work unorganised and often done by women from their homes - it might also not merit any input tax refund under GST, as 80 per cent of the raw material is power and labour, which does not come under the input credit net.

"The powerloom industry is highly unorganised and decentralised. An 18 per cent duty on the job work as a service put an additional burden of 56p per metre; nor can it get input credit (treatment).

The government should have allowed time for the powerloom industry to first come under the formal taxation net before levying any duty on it.

The current structure favours larger composite textile players, since they don't have to pay tax at every level of production and processing, unlike the decentralised powerlooms," says Gujarati.

Mehul Patel, who runs a 100-loom unit in the Pandesara GIDC site, has been forced to lay off 16 workers, with five others left to work a single shift of 40 looms.

In the past month or so, Patel has incurred a loss of Rs 520,000.

"We have stopped getting orders from master weavers who used to outsource work to us. Whatever orders we even fulfilled are lying as inventory at our unit.

The additional burden of 56p per metre under the 18 per cent GST on job work is impossible for us to bear in this downturn scenario," he rues.

'Wrong sequence'

The industry has been demanding an 18-month vacation to get the entire value chain registered under the GST Network (GSTN) before any tax is levied.

Purushottam K Vanga, chairman of the Powerloom Development and Exports Promotion Council, says he has made several representations to the government and is waiting for the August 5 meeting of the GST Council.

"Surat represents a major chunk of India's powerloom industry, with Maharashtra and Tamil Nadu. Over 60 per cent of the 2.5 million powerlooms employing eight mn workers nationally are shut. With each passing day, orders are drying, leading to more units shutting shop," Vanga adds.

Gujarati says the statements Union finance minister Arun Jaitley has been making do not touch the issues of the powerloom industry.

"The FM is talking about composite mills, not the decentralised weaving and processing units of Surat, when he says GST will not have an impact on the textile industry.

It is complete discrimination against the decentralised units, which will see a duty credit accumulation that cannot be refunded by the government and multiple filings," he says.

Meanwhile, despite ending the strike, textile traders have seen almost zero business so far.

Ashish Nimbark, a small-time trader in the Millennium Market has even got calls from clients who wish to return goods, to avoid showing fresh stock after the GST onset.

More, with only 3,000 of the 75,000 traders registered on GSTN, small-time traders have hardly seen any enquiries being generated in the past month.