The silence at Jolly Spinning Mills is punctuated by workers’ chatter as they unload bales of cotton from trucks in the courtyard, adding to a giant fluffy white heap. It’s the peak season in Gujarat, India’s largest cotton producer, and unusual for the factory that runs round the clock to be so quiet at noon. The mill now clatters for barely 12 hours a day.
Business is not as usual, said Dilipbhai Umaraniya, chairman, Jolly Group of companies at Chotila, 50 kilometres east of Rajkot in Prime Minister Narendra Modi’s home state. “We don’t have enough working capital after the GST was implemented.” India is the world’s second-largest exporter of cotton—raw and textiles. The 12.3-billion industry, like other export-oriented businesses, is yet to recover from disruption caused by the July rollout of a nationwide sales tax. The biggest tax reform yet in Asia’s third-largest economy subsumed a web of levies to make business easier. But it taxes every level of the supply chain to increase compliance. Companies then claim refunds.
Yarn makers pay 5 percent tax while procuring cotton. Earlier, there was no such levy. Other inputs like dyes and chemicals are taxed at 12 percent and 18 percent. They also pay a 5 percent tax at the time of exports. Together, that blocks working capital as refunds take time. Umaraniya says his Rs 8 crore is blocked. Sureshbhai Patel of Rajkot-based Siddhnath Cotex Mill awaits Rs 4 crore.
The industry won’t exist for long if this continues, Patel said. “Earlier my turnover was Rs 350 crore. Now it looks like it won’t go above Rs 150 crore because I operate only one shift now.” Invoice-matching is a key aspect of GST compliance. Two separate invoices showing sale and purchase of goods uploaded on the GST Network portal must tally for them to be considered. The government was struggling with this, according to Suresh Rohira, partner at Grant Thornton India. Documents were filed but invoices were not matching, he said. Refund applications were rejected for issues like an ‘s’ missing in ‘yarns’ in two returns that needed to match, he said. The government recently allowed exporters to ship products without paying the Integrated GST after submitting a letter of undertaking in lieu of a bond or a guarantee. “Hopefully, that will help us get refunds quickly,” said Vijay Mehta, a manager at Siddhnath Cotex Mill.
The GST also increased paperwork. Businesses have to file three monthly returns—on sales, purchases and a summary of accounts. Accounting work has doubled, said Mehta. “The paperwork needs to be reduced. There are not many educated people in the industry.” Emailed queries to DS Malik, spokesman for the Finance Ministry, on delayed refunds and compliance remained unanswered. November to April is the peak season for ginning, or separating cotton fibre from the seed, as the kharif crop arrives from the fields. The output this year is expected to stay around last time’s 350 lakh bales of 170 kilograms each. And there is demand overseas. “But we need to have capacity to export so much,” said Umaraniya. With mills running for only 12 hours a day, capacity utilisation has also fallen by half.
Mill owners are even sceptical about applying for new loans. Banks are wary of lending more as bad loans are rising, said Umaraniya. “If we don’t have the money, how will we work? The problem is huge.” Patel said a fourth of his loans could sour as he wouldn’t be able to repay on time if the situation doesn’t improve.
Lower Wages For Workers
The textile industry is among the largest job creators in India. But workers at spinning mills are not earning enough during the peak season—the best time of the year for them. Gabru Ganghad, 30, a labourer employed at Siddhnath Cotex Mill, says since the factory runs for half the time and fewer trucks of cotton arrive at the mill, his daily wages have fallen from Rs 200 to Rs 150. That’s not all. Ganghad gets work on 15 days compared to the whole month earlier. “The money is barely enough to buy food.”
The mill laid off half the labourers as it struggles with a cash crunch. “I had no other option,” said Patel. Parab Jhokra, 22, who also works at Patel’s factory, said he has to support a family of eight. “It’s difficult to survive like this.”