India’s knitwear capital is in tatters, courtesy demonetisation

Tirupur/Bengaluru: The hum of hundreds of sewing machines at work nearly drowns the quiet laughter of the group of women, sorting through the striped orange-and-white jumpers piled high on their table. More garments in the same pattern are being knitted on the machines beyond, and the air is thick with cotton dust and the overwhelming odour of freshly dyed yarn whirling off bobbins mounted on the sewing machines.

We are at the Warsaw International Factory at Tirupur in Tamil Nadu, one of the numerous such garment units that dot the town often referred to as the knitwear capital of India. Named apparently after the Eastern European military pact that was disbanded around the same time the factory was opened in the early 1990s, it was founded by Raja M. Shanmugam, a first-generation entrepreneur.

December is usually a frenetic time at Tirupur with orders pouring in from all over the world, but Shanmugam—like most of the other factory owners Mint spoke to—is worried.

“The government’s move to demonetize Rs500 and Rs1,000 notes has obviously impacted every single individual in the country,” says Shanmugam, “but Tirupur got really badly affected because it is largely a cash-based economy. Workers here have always been paid only in cash.”

While he appreciates the rationale behind the move—“We all want to see a clean India”—Shanmugam admits that the first month after demonetisation was a nightmare. “The sudden imposition of the new rule caused chaos,” he says.

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Shanmugam, who is also the president of the Tirupur Exporters’ Association (TEA), says that he even contacted the Union finance ministry to get a reprieve with respect to the cap on the amount that an individual can withdraw from his bank account.

“I requested that they allow us to withdraw an amount equivalent to the average of the previous six months for individual concerns,” he says. “It was turned down.”

The textile industry is labour-intensive: the Tirupur cluster that has an annual business of Rs40,000 crore directly employs over 5 lakh people, according to a 25 November report in Mint. It doesn’t help that labour is already in short supply.

“There is a constant demand for workers here,” says M.P. Muthurathinam, president of the Tirupur Exporters and Manufacturers Association, adding that if workers are not paid their wages on time, they simply do not return to work the next week. In short, the cash shortage has disturbed the market equilibrium.

At another small exports unit, S. Natraj, a small man with a large moustache, is peering into the monitor of an ancient desktop. The frazzled accounts manager explains his obvious distress.

“I have to go to the bank again now,” Natraj says . “I stand there the whole day to withdraw money, but by the time my turn comes, the bank is usually out of cash.”

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According to Natraj, the unit needs at least Rs5,000 every day to pay for what are called tea expenses—a daily advance of Rs200 per worker—in addition to the couple of lakhs that go every week towards wages.

“Productivity is getting affected,” Natraj says. “Workers are taking leave and queuing up in front of banks all day, even forfeiting their wages for that day. They have to take care of their families, after all.”

Mohammed Mustafa, who owns the export unit, adds, “If I say anything to them, they will simply go to another factory.” Most employees here are contract employees who have to be paid every Saturday. If workers don’t turn up and the order is delayed, Mustafa says he will incur extra expenditure as he will be forced to send the products by air rather than by container ships as usual.

He has stopped taking fresh orders as he is struggling to finish pending ones.

Tirupur’s tragedy has left some collateral damage as well—at the markets peddling what is popularly called export-reject surplus. These are branded clothes made for exports, but do not make the international cut. They can be purchased by the value- and fashion-conscious for as low as Rs100 a T-shirt. The Khaderpettai market in Tirupur boasts of a long line of stores of this sort, most of them currently populated only by sad-looking salesmen and shop owners: the little liquid cash available must be reserved for essentials, not squandered on clothes, after all.

Suresh, who owns one such store here, admits as much. “This is a cash-and-carry business; as there is no money floating in the system, people cannot purchase anything from here,” he says.

He hopes that this will stabilize in a few months, “but it is really difficult for us. Our sales have fallen by nearly 70%”, he says.

Fortunately, regular business-to-business transactions haven’t been impacted too much. The export industry that was worth over Rs20,000 crore, according to a 2015 TEA report, is mostly cashless, says A. Sakthivel, chairman of the Federation of Indian Export Organizations.

But the cash crunch has indeed caused a lot of problems, he says. “We were in great difficulty for the first 15 days because we stopped getting money from the bank. We could withdraw only Rs20,000 a week whereas we need Rs15-20 lakh per week to pay the wages,” he says.

Like others, he hopes this will prove to be a temporary phase. “Banks have been very cooperative,” he says, adding that officials came down to factories, opened accounts for all workers and issued ATM cards. “Now, we hope to put up ATM machines in large factory premises so that people don’t have to travel long distances or wait in queues to draw money.”

Sujatha, who has worked at Warsaw International for almost 15 years, agrees it has been difficult to balance both work and ATM visits. “There are such long queues at the ATM, and even if we do manage to get money, it is usually in Rs2,000 notes. You cannot buy milk and vegetables with that. Even the landlord wants to be paid only in cash,” she says.

Noora Hasan, a migrant from Varanasi, has a bigger problem, “My wife calls me every day asking me to send money home. But how do I send anything if there is no money available?” laments Hasan, who has seven children. “This is very difficult.”

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