Textile hub in tatters as cash crunch takes a toll on production in Tirupur
New Delhi: The year-end is normally a cheerful time at the textile hub of Tirupur in Tamil Nadu, when holiday orders pour in from the US and Europe. This time, there is gloom.
The cash crunch triggered by the sudden withdrawal of high-value currency notes has crippled the economy of Tirupur that depends on thousands of labourers who earn their wages in cash.
“I am sitting with 10 workers of the 90 I deploy,” M.P. Muthurathinam, owner of Rooban Clothing Co., said over phone from Tirupur. “I have no cash for my workers and they are either on leave or have left jobs due to the cash crunch.”
Muthurathinam now worries his clients may cancel a chunk of his export orders since he won’t be able to deliver the goods on time.
“Generally, November and December are happy months for us as good business order flow materializes due to the Christmas and New Year season abroad,” said Muthurathinam.
The textiles cluster of Tirupur employs some 500,000 people directly and does an annual business of nearly Rs40,000 crore. While Rs25,000 crore comes from exports, the rest comes from the domestic business.
Muthurathinam said many factory owners like him will not be able to pay their workers or fulfil orders, resulting in a loss in revenue.
Muthurathinam is one of the hundreds of textile factory owners in Tirupur who are facing up to a 40% decline in their annual business due to the cash crunch and the unavailability of labour following demonetization.
The textiles belt, often referred to as the Manchester of south India, has remained crippled over the past 15 days and its impact will be felt for at least three to four quarters, factory owners and their association said, disputing claims that the pain will be short-lived.
Credit rating agency Moody’s Investors Service on Thursday said in a report that the decision to withdraw Rs500 and Rs1,000 notes—approximately 86% of banknotes in circulation by value—will have credit implications for every sector of the economy. “However, uncertainty about the short- and medium-term quantitative impact of this unprecedented move is very high,” it said.
So, why is Tirupur getting impacted severely?
Factory owners said that though business-to-business transactions are mostly cashless, payments to labourers are predominantly in cash. In Tirupur, at least around 75% of the over 500,000 workers base are paid weekly in cash and the rest are paid at the end of the month. In the absence of cash, production has been significantly affected, said G.R. Senthilvel, owner of Tremendouss Exports.
“Our export business is purely cashless. But the portion of our domestic business is cash-dependent. Moreover, the labour dealings are purely in cash as these people are largely unbanked due to their low education levels,” said Senthilvel. He has now written to clients in South Africa requesting an extension of delivery deadlines due to the production loss.
He says clients can do one of three things: slap a penalty, cancel the order, or blacklist them for a certain period. “In either of the case, it’s a loss of revenue,” Senthilvel said.
“Though the government’s intention to curb black money is good, its poor implementation has hit companies like ours and the working class the most,” he said.
Meanwhile, the Tirupur Exporters and Manufacturers Association has written to the Prime Minister’s Office to take note of the situation and help them with more cash.
Senthilvel said while they support the fight against black money in principle, poor implementation of the demonetization will impact Prime Minister Narendra Modi’s Make in India campaign and hit job creation. “If business gets hit, it will have a direct impact on employment,” he said.