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“I used to run 36 looms on rent, but my business tanked after GST came into effect. After incurring a loss of over Rs 2 lakh, I am out of the business and have resorted to selling tea,” said an exasperated Nikul Patel, who runs a tea stall right next to the industrial estate where he ran his loom unit in Pandesara area in Surat, Gujarat. Nikul is one of many unit owners in Surat who’ve been forced to shut shop within a year of the introduction of the 5-18% Goods and Services Tax (GST).
Often called the ‘Manchester of India’, Surat is the textile hub of India and houses small and large zari, embroidery, cloth and textile industries. The Quint travelled to Surat to understand the impact of a major tax overhaul in India’s once-booming textile sector.
No Input Tax Credit Refund for Looms
Kalpesh Patel is a loom owner and somehow manages to keep his head above water but claims that his turnover has dropped from Rs 50 lakh per month to a paltry Rs 2-3 lakh per month – a whopping 96 percent drop.
“The problem is with power looms being denied input tax credit refund. We pay 12 percent GST on raw material (yarn) and get a 5 percent GST refund when we sell them the‘grey state’ (un-dyed fabric). But we still need refund on the remaining 7 percent else our capital to stay in business gets wiped off. Especially because the cost of raw material has spiked, again due to GST. GST has had a compounding effect on our businesses. Problem is I have loans to pay off, so I cannot shut my mill. I have to pay the supplier, the bank and the labourer, but my take-home earnings are next to nothing.”Kalpesh Patel, Loom Owner
As per the GST law, power looms have been barred from seeking any input tax credit refund. Last year’s protests stalled all work for a period of 20 days leading to a loss of over Rs 100 crore across the market. The Modi government at the time was undeterred but announced a cut in GST rates just days ahead of the Gujarat elections in December. However, the blow did not soften.
Power loom units in Surat’s Pandesara area are either partially operational or running below capacity. Others are being sold in scrap.
“A loom unit like the one behind me with 70 machines can manufacture over one lakh meter of cloth. But many unit owners have sold their loom machines as scrap”, says Kalpesh Patel.
“Machines that cost lakhs are going for Rs 20-30,000. Can you imagine state of affairs in Surat where there are well over 75,000 units crammed into industrial estates like the one where we are standing? Even if someone tries now, the situation will be difficult.”Kalpesh Patel, Loom Owner
Zari Crushed by GST And Taxation on ‘Job Work’
Zari, which goes into making expensive Benaras and Kanchipuram sarees has also been burdened by GST.
The industry which is indigenous to Surat, was taxed 12 percent and the rate was kept uniform for both genuine and imitation zari. After several sittings, the GST council reduced the 12 percent tax to 5 percent GST on genuine gold and silver zari. But, the manufacturer still has to pay Rs 2000 as GST on every 1 kg of zari which costs roughly Rs 40,000.
“Earlier,we used to pay only a 2 percent sales tax. But now, the high tax rate impacts the producer and the consumer. As a result, demand is reduced and consequently, we’ve had to let workers go. Over 70 percent of our employees are women who are from very poor backgrounds. Women who were once supplementing their household incomes are now unemployed because we simply cannot afford to keep them all.”Shantilal Jariwala, President of the All India Jari Federation
Another set of people who’ve been badly hit are people who were working from home. There are two types of workers in the textile business – those who work in individual units and earn daily or monthly wages, and workers who are given raw materials to process from home. In the industry parlance, this work-from-home system is referred to as ‘job-work’.
And the GST did not spare them either.
With GST on job-work, labourers and workers who never created a receipt in their lives now have to calculate and pay GST according to the goods he produces. Since these labourers don’t even have a GST number and their turnover is nowhere near Rs 20 lakh a year, we bear the tax burden and pay less to the labourer who does job-work. Now they are phasing out of the business because of poor returns.BipinJariwala, secretary of the All India Zari Federation
“The government should either phase us out of GST, since we already pay close to 18 percent GST on raw material such as copper or keep it as low as 3 percent, else our businesses are doomed,” Bipin Jariwala added.
Seven Lakh Embroidery Workers Out of Jobs
The dingy alleys on AK Road, behind Surat railway station are now quieter with the shutting down of thousands of embroidery units. Just like the power loom sector, unit owners here are selling their machinery for scrap as they are not able to manage the GST burden. As a result, an industry that paid wages to a million labourers, today employs only around three lakh workers.
Rajni Patel, treasurer of Embroidery Association said, “Today our employees are sitting at home in their villages, and unit owners are opening shop twice a week. Those who cannot keep their businesses running are selling their machines for cheap. Machines costing Rs 10 lakh are being sold for Rs 2-3 lakh. That is a 70 percent capital loss.”
“Worse, now we cannot bring cash into play, as all payments are made through cheques. Here in this industry we must pay the labourer every day. There is no guarantee on cheques and when they did bounce earlier, the trader paid us cash, now we have to wait for the cheques to be cleared.”Rajni Patel, treasurer of Embroidery Association
Bhola Singh hails from Bihar and works in Surat at an embroidery unit. He tells his friends not to return to Surat as there are no jobs for them here.
“We get paid once in 2-3 months. There is no guarantee when we will get paid. What we earn we must spend frugally and manage our expenses and our homes back in our village. In a month we work for 7-8 days, that’s about two days in one week and then the unit shuts for 5-6 days. That’s how a month goes by here. Where else can we go? We don’t know any other work. I’m an embroidery worker, it’s the only thing I know. How do I even go about getting another job?”Bhola Singh, 31, Embroidery Worker
No Respite for Traders
There was a time when the Surat Ring Road near the railway station had to deal with choc-a-bloc traffic on a daily basis as reams of cloth and other finished products entered the massive markets from godowns across the state and the country. Now traffic outside the market flows smoothly while the businesses inside stand stifled.
Pawan K Chaudhury is a textile trader from Surat Textile Market and had entered the business only five years ago.
“Around 200-350 shops have shut down. All we can think of is saving every penny and completing the paper work, which in itself is a herculean task. I was employed elsewhere earlier, but then I decided to start my own business. It was challenging, but fun till about two years ago. But everything changed with demonetisation and GST,” he says
Under the current regime we must make bill-to-bill payments. Earlier, if the buyer made payment within 20 days we gave them a discount and charged them in full if they paid back in 90 days. Now with GST that system has been scrapped as all payments have to be made bill-to-bill. We used to have a strong turnover of over Rs 4 crore. These days it has gone down by more than half. We traders keep saying, as long as PM Modi ji rules India, our vikas is impossible.”Pawan K Chaudhury, Textile trader, Surat Textile Market