Why small businessmen in Gujarat are quitting industry and turning to financial speculation

Two major trends are playing out in Gujarat’s economy.

On one hand, small industrial units are shutting down. This is not a recent development. Micro, small and medium units in the state started getting into trouble about five years ago, well before the central government demonetised high-value currency notes in November and introduced the Goods and Services Tax in July. As Scroll.in reported from Surat, several factors were at work – rising imports from China, the entry of bigger players with greater economies of scale, and government policies such as import duties that favoured bigger companies over smaller ones.

On the other hand, financial investments have boomed in Gujarat. Two years ago, a sharebroking firm in Rajkot, Marwadi Shares, was adding about 1,000 new customers every month. That is now up to 6,000 new customers a month, said Ketan Marwadi, its managing director.

Data for the last five years shows the state’s people are investing more in fixed deposits, mutual funds and small savings accounts.

Businessmen in the state say the two trends are related – an industrial slowdown is leading to a rise in financial investments.

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Missing in the panel set up to frame India’s new mineral policy: Adivasis, ecologists, civil society

Does the KR Rao Committee ring a bell?

It was set up last month by the Union Ministry of Mines after the Supreme Court’s tough judgement on illegal iron ore mining in Odisha. Disposing of a petition filed by the non-profit Common Cause, Justice Madan B Lokur and Justice Deepak Gupta not only ordered the Union government to recover the full value of iron ore mined illegally by the mining lease owners, it also asked it to review India’s mining regulations.

These regulations have failed to arrest illegal mining in the country as is evident in several cases across India – for instance in Karnataka and Odisha, as well as Goa, where the Supreme Court imposed a ban on iron ore mining in 2012, and Tamil Nadu, which has seen rampant illegal sand mining for several years. They have also failed to mitigate the social and environmental consequences of mining. Indeed, there are glaring economic inequalities in India’s mineral-rich districts. Communities living close to the mineral reserves teeter at the edge of destitution and battle environmental pollution even as a handful of politically-connected people amass extraordinary riches.

The Supreme Court therefore directed the Centre to set up an expert committee, chaired by a retired judge, to identify the regulatory lapses that allowed illegal mining. It also directed the Union government to review the National Mineral Policy, 2008, in order to bring in greater transparency, environmental protection and more social and economic growth.

Accordingly, the Ministry of Mines set up the KR Rao Committee on August 14. The committee is expected to submit its report on October 31. Its composition, however, raises questions on whether India’s mining sector will see a fundamental overhaul or more of the same.

Two months in, How is GST affecting Surat’s textile hub?

Three months ago, when the central government was getting ready to roll out the Goods and Services Tax, the textile industrial cluster of Surat, Gujarat, India’s biggest manufacturer of synthetic fabrics, was distinctly nervous.

At play were two conflicting views of how the new tax regime would affect India’s predominantly informal business sector. The government said GST would make it impossible for firms to evade tax. Even small companies would enter the tax net, boosting both the formalisation of India’s economy and tax revenue. Companies in the Surat cluster, however, were unsure if they could pay these taxes and remain competitive.

Such fears, dismissed by GST supporters as no more than a desire to avoid paying taxes, resulted in the industry petitioning the government several times. When that failed to deliver relief, they went on a general strike in mid-June. The government still did not yield. There was a police crackdown, and the strike petered out. GST was rolled out as planned on July 1.

Two months on, where do things stand? What do these early days of the new tax system tell us about which scenario is playing out? Are businesses formalising? Or are they heading into trouble?