After Friday’s GST Council meeting, which decided to cut the goods and services tax rate on two dozen commodities and announced relaxations for exporters and small and medium companies, Prime Minister Narendra Modi said the changes brought in an early Diwali.
This ebullience is intriguing. The impact of the Goods and Services Tax is complicated. Billed as India’s biggest tax reform, GST subsumes all the indirect taxes that businesses earlier paid the Centre and states separately with the aim of creating a common market. It involves a complete overhaul of the tax filing system.
Since its implementation on July 1, as several articles in Scroll.in and other publications have shown, small and medium companies in a range of industries are struggling to stay viable while complying with the new tax regime’s requirements. That is not all. GST also affects different companies in the same industry in different ways. For both these reasons, the GST Council’s revisions on Friday deserve a closer look. How far do they go? Do they really address the major concerns of all Micro, Small and Medium Enterprises, also known as MSMEs, in the country?
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.
The street resounded with the clacketing of powerlooms – five or six machines in dark, poorly ventilated rooms with split levels. Most of these were family-run businesses. The looms were on the groundfloor with families working by day and sleeping upstairs at night.
Now, the inner city is more quiet. There are still powerlooms aplenty in the industrial clusters around the town. But within the town, they increasingly show up in junkyards and the shops of scrap merchants. The premises that used to house them now lie empty or have been repurposed. Some are used by people in the embroidery trade. Others serve as parking spaces for two wheelers.
The castes that traditionally operated these looms – Khatris and Ghanchis – have left the trade as well. Some have entered new businesses. This reporter met some driving rickshaws. Others have given out their premises on rent and live off that income.
This silence – and the departure of weavers from their traditional trade – reflects something important. Surat’s small and medium businesses were struggling even before the government announced that it would implement the Goods and Services Tax from July 1, subsuming all indirect taxes, from octroi to service tax, into one rate that would be consistent nation-wide. This reflects the situation Scroll’s Ear To The Ground project found in the other states we reported from as well. There too, small and medium enterprises were in trouble.
The second (and concluding) part of our article on Surat’s textile cluster gets into more detail — and asks pointed questions about India’s vapid claims of manufacturing competitiveness.
Until ten years ago, Mehra used to take orders from garment wholesalers in big cities like Mumbai, Kolkata and Bengaluru, buy the cloth and thread he needed from garment clusters like Silvassa, and get the blouses stitched in Amritsar.
But this business model ran into trouble when blouse-making units came up in Surat, one of India’s biggest synthetic fabric and sari-making clusters. Enjoying advantages like proximity to cloth- and thread-makers, these units made cheaper blouses than their counterparts in Amritsar.
Now, as India readies to overhaul its tax regime for businesses, replacing a welter of sales and income taxes with a single tax called the Goods and Services Tax, Mehra has run out of ideas. “Kya hoga?” he asked. “Kaise chalega yeh sab?” What will happen? How can this business continue?
No more than 20 minutes away from Mehra’s shop in the basement of a building opposite Surat’s old Ratan Cinema, in the heart of the town’s textile market, lies the soot-blackened industrial estate of Pandesara. This is where Sanjay Saraogi works.
Described by his peers as one of the sharpest minds in the Surat textile industry, he entered the family business at 14 when his father fell very ill – he would go to school in the morning and spend the rest of the day in the shop. Over the last ten years, he has steered Laxmipati beyond trading into sari manufacturing.
In 1973, this Tamil Nadu town on the border with Karnataka was chosen as the site for the state’s second industrial cluster. Through the ’70s, a diverse clutch of companies, producing everything from trucks to garments to medicines, set up factories here. Hosur began to emerge as one of India’s new manufacturing centres. In the decades that followed, however, the town did not live up to its initial promise. Its boom in manufacturing ended and was replaced by another – one that pivoted around real estate.
Hosur’s experience is relevant today. As the previous story in this series reported, struggling companies in the state’s industrial clusters are trying to cut down on their labour costs. It’s a script that played out in Hosur about 20 years ago.
As the town’s fortunes rose, fell and then rose again, one of its residents, observed the changes closely. In Tamil Nadu’s literary circles, poet and novelist Aadhavan Deetchanya is well-known for a set of satirical stories he has sited in two imaginary lands – Liberalpalayam and Kakkanadu.
The first is a land that has embraced liberalisation. “At one point, I thought we do not need to call this country India or Bharat any more,” Said Deetchanya. “We should call it Liberalpalayam – palayam means place or town.”
The ten stories he set here look at what people, government and society are like in a liberalised economy. “There is this idea that if you want a good road, you will need to pay a toll so that we can build the road,” said Deetchanya. “And so, in Liberalpayalam, the government follows the same system while building houses. It builds houses and puts up a toll-booth between the bedroom and the bathroom.”
Kakkanadu means potty land. In four stories located here, Deetchanya inverts our society that condemns scavengers as outcasts, and reimagines a society where scavenging is the most sought-after profession. In Kakkanadu, manual scavengers – who clean up human excreta – live in houses larger than the president’s. They get paid more than him. Here, it is the person unskilled at scavenging who is scorned. Unlike our society, where someone who doesn’t study well will hear: “You are only fit to clear garbage.” In Kakkanadu, people will be told, “You are only fit to be a judge or collector!” It is a society where everyone wants to be a manual scavenger. Even the president quits his job to become a scavenger.
when we started the #eartotheground project, i had planned to chronicle change in these states through interviews with writers. the plan floundered in mizoram and odisha. but worked partially in punjab — where one of our biggest insights into Punjab came out of a rum-fueled chat with writer desraj kali.
In the last 15 years, novelist and writer Desraj Kali has seen Punjab undergo some striking changes. But none is as striking as its gradual religious revolution.
A growing number of people in the predominantly Sikh state, he says, are now visiting Hindu temples. Not those of principal deities like Vishnu, Shiva and Rama, but of Shani, the elder brother of the god of death Yama, who is notorious for his malefic influence on life.
More than ever before, Kali says, people are visiting the gurudwara of Baba Deep Singh in Amritsar. According to legend, Deep Singh, a Sikh warrior, was decapitated while battling the forces of Ahmad Shah Abdali, the king of Afghanistan. In a niche in the perimeter of the Golden Temple in Amritsar, there is a painting depicting the storied aftermath: Deep Singh, holding his severed head with his left hand and swinging a massive sword with his right, continued to fight, and died only after reaching the Golden Temple.
There are more, says Kali. People in increasing numbers are placing chadars at Pirs’ mazaars. There is a “thousand-fold” increase in the number of tantrik ads in the local media. Eeven orthodox Sikhs – Amritdhaaris, who carry the sacred dagger called kirpan – have begun visiting “non-traditional deras”, religious centres with living gurus, though Sikhism expressly forbids worship of individuals.
What explains these sweeping changes in Punjab’s religious milieu? It is the rising uncertainty in people’s lives.
the second — and concluding — part of our trip down the Noyyal (see previous post).
A slum sprawled on one side of the river. In the distance, a factory belched smoke in the air. The riverbed was overrun with weeds and crammed with plastic bags that were half buried into the earth. An earthmover scooped gunk from an open drain and dumped it on top of the debris. The river itself was a thin trickle of black.
The Noyyal is a small river which starts in the western ghats and flows 170 kilometres to merge into the Cauvery. It passes through Tirupur, where factories have been emptying out effluents in its waters ever since a textile hub came up in the 1970s.
After the state failed to protect the river, in 1996, the Supreme Court intervened. It ordered dyeing units in Tirupur to shut down if they could not stop polluting the river. Fifteen years later, in 2011, the Madras High Court followed up by applying the “Polluter Pays” principle, directing the dyeing factories to become zero discharge units by recycling waste water and pumping it back for reuse.
Since then, the larger units in Tirupur have set up their own effluent treatment plants. The smaller ones have come together to set up Common Effluent Treatment Plants. In all, 18 CETPs are operating here.
Bhoday Sales Corporation is tucked inside the industrial zone of Ludhiana. A small machine tooling factory with a net worth of not more than Rs 10 lakh, it makes manufacturing equipment for other plants in the city.
Bhoday is far from being the only company that is struggling in Punjab. A story published last December in Scroll reported industrial units across the state – steel plants in Mandi Gobindgarh, sporting goods manufacturers in Jalandhar, textile units in Amritsar, bicycle-makers in Ludhiana – were shutting down or relocating to other states. A similar narrative is visible in industrial hubs in three other states that Scroll surveyed…