In many ways this is a short story about some goods, some services and some taxes that eventually turned out to be quite a lot. This disconcerting story is about the textiles hub of Surat, one of the largest and most happening in the country-one that has been at the centre of attention since widespread protests over the goods and services tax (GST) erupted there in the middle of June. Business, across the field, has been hit, and the current d'tente can be described as tenuous at best. Subir Ghosh takes stock of the situation.
An uneasy calm prevails over the usually-bustling textiles hub of Surat. The phrase "uneasy calm" of course could well be a worn-out clich; but both the unease and the calm here are stark and for real. The calm exists because the strike and simultaneous protests have been called off in the hope that the Goods and Services Tax Council will look into the grievances of the city's traders, as well as their cousins elsewhere. The unease, on the other hand, self-perpetuates because the core issues that had triggered off the spontaneous demonstrations have not been wished away. And the hustle-and-bustle of just the other day has very unnervingly petered down into an abject disquiet. Yet, one would not have expected it to be so, considering the immediate reason for this: the goods and services tax (GST), that came into effect from July 1 this year. When this magazine had devoted virtually an entire edition to the city's textiles industry in 2016, there in fact had been a palpable excitement in the hub over just the prospects of a GST, which at that time was caught in a political limbo. All and sundry had been looking forward to the GST which, they believed, would simplify the ease of doing business. But after the second rounds of GST rates were announced, which mostly related to the textiles and apparel industry, a cloud of uncertainty initially hovered over the issue. This cloud of uncertainty soon turned into an outpouring of misgivings against the new tax regime.
It is not that traders and others have been fundamentally against the idea of GST per se; the outrage is more about the nitty-gritties surrounding compliance issues (particularly with those who are not so tech-savvy) as well as what many have described as anomalies in the GST rate slabs and the overall structure that do not do justice to the flow in the long winding chain of the industry.
But right now, everyone is dealing with the losses that accrued either because of no business during the protests, or because of the bottlenecks that got introduced following the rolling out of the GST.
Manoj Agarwal, president of the Federation of Surat Textile Traders Association (FOSTTA), summarises the state of the local industry, "Only 40 per cent of the textiles business in Surat has set back on track. It was closed during the protests, and even now a large number of traders are slowly reopening their businesses. During the protests, the Surat textiles industry incurred a loss of ₹10,000 core." The FOSTTA is an association of clothing traders comprising 180 registered textile markets, including 65,000 members of Surat. In other words, Agarwal's estimates cover a substantial spread.
The assessment of Jitendra Vakharia, president of the South Gujarat Textile Processors Association (SGTPA), is along similar lines. Vakharia says, "The business has not yet resumed in full swing, and we are in the process of clearing old stocks. Only a handful could file their returns because of the non-availability of computers. The majority in Surat are small and medium-scale traders. During the protest period of around two and half months, the loss for the textiles industry in Surat was around ₹8,000-10,000 crore. After August 15, businesses have slowly started getting back to normal."
However, PM Shah, president of the South Gujarat Chamber of Commerce & Industry (SGCCI), does not want to settle for numbers at this moment since that might be premature. Shah says, "We can't tell anything about the losses right now as everyone is still in the process of settling down. The textiles industry will definitely pick up, but as of today business is going slow because the traders are still trying to understand the implications of GST on their respective businesses."
The response of Manthan Patel, co-partner of Krypthm Tradelink LLP, is much more elaborate, but does not dwell on the impasse: "The GST will be beneficial to all small, medium, and large-scale industries in the long run. It will be beneficial to all industries. Businessmen get their taxes done on a quarterly and yearly basis; so they do not have to worry about the post-GST process. The end consumer is the one who needs to be benefitted. So the real question is how will the end buyer of a product get their returns? We would like to understand that (process) better."
His organisation had done some of the groundwork as a pre-emptive measure. "We had started preparing for the GST process well in advance when we began to hear news (about the tax regime) in the market. We haven't faced any major issues; our business has not been affected so much. We did encounter problems in the beginning. As a buyer, when I go to purchase fabrics, there are suppliers who do not have a GST number, and it is difficult for them to acquire one due to the lack of awareness of such issues among them, and moreover it is also a very lengthy process."
No other way out
It was an ironical coincidence that just as the protests over GST issues were peaking in Surat, the Textiles India 2017 event was being held (June 29 - July 1) in state capital Gandhinagar, some 200- odd km to the north. There were many exhibitors and visitors from Surat at the event, and many of them, though a tad uneasy, had felt that one would have to find a way out of the GST quagmire.
Harsh Shah, director of the Shahlon Group, had this to remark: "The GST is something that should have happened years ago. Anyway, better late than never. The GST is a good move for the Indian economy. I know it would take time for many to believe this, but indeed it is. We would not be the first country to have it, and we have seen other countries doing well with it. Yes, there may be some loopholes and required corrections, but those can always be done. It can never be easy to run a country of a billion people keeping in mind the need of everyone. It is a huge turnaround for India since Independence; and when we talk of equality and everything for everyone, the GST is what I accept with a good heart, and support, and expect the same from everyone."
Optimism drove Anupam Arya, executive director of Bindal Exports Ltd, too as he ruminated about businesses being shut down in his city: "Eventually people will have to come around. Over a long period of time I don't think it should be a matter of concern. Everyone will get used to it. Issues will arise with small traders who are not good with paperwork, but apart from them I don't think any of the mid-size or larger traders will have a problem. May be there are a couple of policy decisions that would have to be taken into consideration, or even changed, such as the GST payment mode so that it would be an easy process for manufacturers. But overall, there should not be any problem."
There were also those like Harsh Dhawan, director of Gokul Tex Print, who wish that the new tax regime could have been introduced slowly so as to avoid the confusion, "It (the GST) is one of the best tax reforms introduced by the government till date. It is like getting all the indirect taxes into one, besides reducing the sheer amount of taxes. This is a very good initiative, but it is just that the government took this decision in a rush. They could have taken a month or two to lay back, and could have slowed this so that people would have become more educated about the process. Right now, a lot of people have a lot of questions regarding the probable problems that they would be facing. But overall, the GST is great and it is good for the textiles industry."
Sanjay Agarwal, director of Muskan Silk Mill was gung-ho. "We must ignore people who are saying that it is not a worthwhile initiative. The GST would lead to development of the nation, and we must realise that 17-18 different taxes are being removed with its implementation. Previously, there used to be no precise definition for taxes, and manufacturers used to buy things on their own will and the final cost of the product kept on increasing in that way. It was like if a person used to buy product with ₹20 and if any taxes were levied on it, then he would add his own margin, and then sell the product which sometimes would even cost us ₹50. But with the GST, the end-consumer will be benefitted. I support the GST; it will smoothen the flow of business," he asserted.
Opinions differ about the way forward as well as the very concept of GST itself, but there is a broad consensus that the tax process needs to be simplified a bit. Patel is hopeful: "But if the GST process happens smoothly and if it is applied in the right direction and right way, then it will open up a lot of opportunities for India. At least for Surat, I can say it will become the next Paris. The buying capacity in India is growing, and so are the FDI (foreign direct investment) inflows to India. There are many international companies wanting to enter India, since the purchasing power in the country has been growing. The agitated classes understand the advantages of GST, but are complaining because of their lack of awareness."
Agarwal however is well aware of the nitty-gritties, "We are in continuous talks with the Union government, and they have agreed to hear out our issues at the GST Council meeting to be held on September 9 in Hyderabad. If the government does not take any step (towards sorting out the issues), we believe that around 25-30 per cent of the textile shops will shut down."
But Vakharia does not concur with this perception: "I do not think that the demand of the textile traders is valid. There is no point in protesting for the removal of GST. We just want that the process of GST should be simple and easy." Shah too believes that one needs to move on, "This is the new step taken by the government; so, one should try to incorporate these changes."
There are also those who would want to wait a bit more before drawing conclusions or passing a judgment. Ravindra Jain, director of Oswal Prints Private Limited, for instance, has this to comment, "As per the current taxation system, we expect that genuine traders are satisfied in the local textiles industry. But for exports, it will depend on the foreign trade policy (FTP) to be announced in September; and (only) then we can make an appropriate judgment about the GST."
Abhishek Pachauri, director of Reckon Industries, admits that opinions will differ: "If my perspective is sought then definitely this is going to be the biggest game-changer on a positive note. Everyone cannot be happy; some will have different opinions and views. But yes, overall as a business-person, your profits would decrease, but your clientele and modus operandi will be hassle-free."
He then speaks about his own industry segment, "As a machine manufacturer, earlier we had to do two different taxations of excise and sales tax which together comprised 17.5 per cent. The GST now is 18 per cent and an increase of 0.5 per cent won't make much of a difference. But just accumulating different taxes would ultimately lead to this-what the GST is proposing. We are not the first nation to introduce a GST; the more money that is kept in rotation, the better is the development.
"People want to do hassle-free business and they want the taxes being paid to the government to be utilised for development and for better infrastructure. Now, when tax money is siphoned out of the growth channel, it would have an adverse effect leading to tax evasion. As a citizen no one is against a rise in taxation unless and until it is returned to the taxpayers with long-term benefits."
The CEO of Prafful Sarees, Varun Agarwal, is already on track. Agarwal says, "During the protests, the entire industry was affected; we were not the only one. After regularisation of the industry, we are on a normal track now; there are no slowdowns. There are no major impacts on the sales as such." He also wants to make up for lost time and go full steam ahead, "We are not affected due to GST; it is an initiative by the government, and we are following it. We are going ahead with the expansion plans that we had planned before the announcement of GST."
So is Patel of Krypthm, as he goes on to outline, "We manufacture garments for an age bracket that is 18-40 years old. There is an increasing demand for our products. At our R&D department, we work collectively on designing the look and feel of the garments. We look forward to serving the global markets and on a larger scale in the future. The domestic Indian market also looks very promising for entrepreneurs in the garments sector."
The importance of Surat
Surat had not been the only textiles hub in the country where protests over the GST had erupted; there had been many other towns, from Amritsar to Ichalakaranji. Yet, it was the turmoil here that had remained in the limelight for weeks together. That is because Surat is not just another textiles hub; it is one of the largest in the country, and among its most diverse. The city including its outskirts is the largest producer of MMF (man-made fibre) and filament fabric with a phenomenal 40 per cent share in the country. The daily production of raw fabric here is ~30 million metres, and its huge capacity for processing fabrics boasts of a figure of ~25 million metres. Simply put: Surat matters.
The scale and diversity of the industry, in turn, has a bearing on livelihoods. Surat's textile industry employs about 1.5 million people-most of them migrant workers from Bihar, Odisha and Jharkhand among others-across the chain in the spinning, weaving, dyeing and processing, trading and garmenting sectors. There are nearly 20,000 manufacturers, including powerlooms, besides at least 75,000 traders and more than 150 wholesale markets. The majority are into spinning, weaving, dyeing and processing, as well as trading of fabrics, sarees and dress materials.
It is, therefore, only natural that what happens in Surat has a direct-or at least an indirect- bearing on other sectors / factories in other regions and corners of the country. That, of course, is well known and just as well documented. But what often misses the eye-as it happened recently- is that what happens elsewhere too can have a bearing on manufacturing and trade in Surat.
For instance, even as the industry in Surat was reconciling with the losses incurred owing to business grinding to a virtual halt , floods in a number of states and violence in certain parts of North India following the conviction of Gurmeet Ram Rahim affected business here.
One newspaper report in the last week of August said, "Traders stated that Haryana, Punjab and Delhi are major consumers of synthetic dress materials manufactured in Surat. Dress material to the tune of over ₹70 crore are supplied by the traders to these states every day. The parcels of the dress material are delivered by transport trucks and trains. Textile trading industry sources said the traders had booked huge orders for the upcoming festivals like Durga Puja and Diwali. But, the traders, especially from Punjab, Haryana and Delhi, have cancelled the orders due to the violence after the conviction of Gurmeet Ram Rahim Singh." Such unforeseen incidents, not to speak of natural disasters, are always part and parcel of the hazards that always come along.
These recent incidents, nevertheless, can serve as a wake-up call for the Surat textiles business. After all, this is an industry where one person catching a cold in one cog of the chain in one part of the country can cause the entire chain everywhere else to sneeze. The floods particularly are something to be taken into account in an ecosystem where surface transport (both rail and road) is what joins the entire chain together. With floods becoming more intense and occurring more frequently, that too in regions that have hardly had any history of deluges, it would only be in the interest of the industry to factor such natural disasters into the planning process of business.
Mind the dragon
Earlier this year, Union minister of state for textiles Ajay Tamta was in the city to inaugurate the Surat International Textile Expo (SITEX) organised by the SGCCI, when the China factor cropped up. Traders / exporters of Surat have time and again raised the issue of Chinese imports with both the textiles and commerce ministries, but this is now something that has acquired a new dimension in the GST aftermath. During his February trip, the minister of state had announced that he had directed the textile commissioner's office to gather comprehensive data from all ports across India on the volume of fabrics that are being imported into the country from China.
It was reported in the media at the time, "The import of undervalued fabrics from China has paralysed the MMF sector in the city. Around 50 per cent of powerloom weaving machines are running at around 70 per cent of their respective capacities, thereby rendering many textile workers jobless over the last few years. The production of polyester fabrics has been reduced from 4 crore metre per day to around 1.8 crore metre per day." This aspect has, since, aggravated. In the last week of July, the SGCCI and the Pandesara Weavers' Cooperative Society Limited jointly submitted a representation to the ministry of commerce and the Confederation of Indian Industries (CII) demanding imposition of import duty on Chinese fabrics to protect small and medium enterprises in Surat. The SGCCI contended that import of heavily under-invoiced fabrics from China has crossed ₹5,500 crore in the last one year alone, but could now be worth ₹10,000 crore.
Shah pointed out, "The government of China provides heavy subsidies to its textiles industry. We have provided a detailed list of the benefits enjoyed by the textile entrepreneurs in China. This further reduces the production cost per unit in China.
Thus, it has become difficult for the powerloom weavers to survive here." The post-GST slowdown has made matters worse.
The FOSTTA too has been calling for a crackdown on Chinese imports. Around a year back, Agarwal had told this magazine, "When commerce and industry minister Nirmala Sitharaman came here recently we apprised her of the fact that the dumping of Chinese fabrics, at a cost of ₹10-15 per metre, is detrimental to the growth of our industry. To restrict this, we proposed that the government should conduct strict and random checks of containers to ascertain at what rates fabrics are being imported through fake invoices. The cloth that comes in is very cheap and can be used as dress material and for furnishings, and naturally it is harming our business in a big way. The cheap fabric comes in not only from China but also from other regions-nations which import the fabric from that country and dump the defective cloth here at throwaway prices. With the help of the TUF scheme of the Union government we can make the best of cloth."
What can be done
This seemingly unsettling state of affairs needs some optimism, and that comes from Pachauri: "To criticise and blame is very easy; so, instead of talking about disadvantages, let's share the advantages and how those can be further increased to draw global attention: (i) processing units are in clusters, and there are such clusters for all the divisions of the industry-be it yarn preparatory, weaving, processing, and value addition; (ii) there are easily approachable and accessible wholesale and retail markets; (iii) the industry here is biggest innovator and risk-taker for innovations in all channels of the industry; and, (iv) on the whole it is a constantly-adapting market. All this just needs a push to operate in a little organised way, and there would no need to look back." That's what Surat would need to do.