Mumbai, Bhiwandi & Ahmedabad: Dilapidated, dirty and depressed, a town that was once called the Manchester of Asia smells of textile starch, thinners, garbage and sewage.

Since the turn of the century, Bhiwandi, 30 km north of Mumbai, has wilted against competition from Bangladesh and Vietnam. Bhiwandi holds more than a sixth of India’s 6.5 million power looms—machines that manufacture fabric from yarn—according to this April 2016 Economic & Political Weekly report. A congested city of about 1.5 million, it was once a key link in India’s cotton economy, which employs 25 million workers alone, the second-largest employer after agriculture, according to this 2015 government report.

Bhiwandi has now been further crippled by the aftermath of the November 8, 2016, scrapping of 86% of bank notes, by value. The Indian textile industry is already challenged by falling exports, low productivity and rising prices, IndiaSpend reported in July 2016.

“Notebandi ne humko paanch saal peeche fek diya (demonetisation threw us five years behind),” said Asad Farooqi, 65, a labour contractor who has been running more than 100 power looms for about 30 years.

In this industry where son tends to follow father, Asad’s son, Aftab, 34, remembered how they lived in prosperity in his childhood, and that earning Rs 20,000 for a consignment was very normal.

“Last month, we earned Rs 17,000 from all our looms business,” Aftab said, with a wry smile. The Rs 20,000 of 1996-97 would translate to about Rs 70,000 today, after factoring in an average inflation of 6.5%.

The textile industry, of which decentralised power looms and knitting are the largest components, contributes to 2% of India’s gross domestic product. Maharashtra, with more than 1.1 million power looms, is one of India’s largest power loom hubs, providing direct employment to a million people in Bhiwandi, Malegaon, Dhule, Sangli and Sholapur.

“Only 20% of these (Bhiwandi’s looms) are running today,” said Mannan Siddiqui, president of Bhiwandi Textile Mills Association, who has spearheaded the attempt to revive Bhiwandi’s looms over more than 20 years.


THE MARKETS: Demand falls, marketing stalls

In Mangaldas market, the biggest textile market in Mumbai—a city once known for its textile mills and labour unions, both now relics of history—N Chandrakant said business was 20% less than normal for the winter-and-wedding-shopping season, which runs from November to February. There was no business in the first week of notebandi.
Kripesh Bhayani, a cloth-and-apparel retailer in the same market, is also a garment maker who runs 17 imported fabric-weaving machines in a Mumbai suburb. He said manufacturing was unaffected, but finishing of garments–such as fixing buttons and zips–had suffered. Bhayani outsources these jobs to household industries, which work on cash.
The lack of Rs 500 notes was also a big problem, said Thakkar.

At Ahmedabad’s New Cloth Market, trade had fallen by 80%, according Rajesh Agarwal, secretary of the market association. He explained why 60 of his 80 embroidery workers had returned to their villages after notebandi: When sales dropped, his cash dried up–except exports, the revenues of which he received through a bank account–so he could not pay salaries. Workers, said Agarwal, preferred to go temporarily jobless than endure the hassle of opening accounts in already stressed banks.

As a result, retailers cancelled their cloth orders from wholesale traders.

Wholesaler Sudhir Parekh explained how a boom at the start of November–when Diwali shopping season gives way to the winter-and-wedding-shopping season–collapsed after November 8.

“A lot of inventory that would have been sold by now is stockpiled at my shop,” said Parekh, who works from Mumbai’s Mulji Jetha wholesale cloth market. “My working capital is blocked—no retailer or garment maker is buying from me. My cloth, which is my working capital, is lying here, and there is no way I can purchase more from the textile mills. I am stuck.”


Parekh said he was ready to go cashless, but his ability to do so depended on retailers and customers to do so.

Cashless transactions, however, dominate the large-volume purchases of cloth that traders make from textile mills in Bhiwandi, Surat and Ahmedabad in Gujarat and Tirupur and Coimbatore in Tamil Nadu.

THE WORKERS: With business down, work is hard to find

In Bhiwandi, Suleiman Rahil and Syed Nasar Ali, both in their 40s, were doing nothing when we met them.
“Pehle jeb mein 400-500 rupaye hote the. Aaj chai paani mushkil ho gaya hai (We used to have Rs 500 in our pockets, but today, we think twice before having tea),” said Ali.

“How can a family with six children sustain itself on Rs 5,000 a month?” he asked.


THE POWER LOOM OWNERS: Varying prices before notebandi, now made worse

In Bhiwandi, Siddiqui argued that China, Pakistan and Bangladesh’s policies have benefited their textile industry, while India’s have enfeebled power loom owners like him, who must deal with not just low demand but daily price variations of yarn–the chief raw material for power looms–over the last four years.

The cost of yarn–which he buys from Mumbai–varies intra-day, “like the stock market”, said Siddiqui, as yarn traders increase or reduce the price according to daily demand.

“On December 20, 2016, after recovering from the demonetisation impact, when we were thinking of starting some of our operations, the yarn was selling at Rs 156 per kg,” said labour contractor Ahuja. “On January 4, 2016, when we were hopeful (of restarting), the rate had shot up to Rs 178.”

When Siddiqui finally bought his yarn that day, it was Rs 200 per kg.

“About 10 kg of yarn is enough to produce 100 metres of gray fabric (the unprocessed fabric manufactured on a power loom), which typically sells at Rs 30 per metre,” said Siddiqui.

A 100-metre swathe of cloth fetched him Rs 3,000, of which Rs 2,000 went into buying yarn the day we visited. With the Rs 1,000 left, Siddiqui had to pay for workers, electricity and machine maintenance.

The fabric that Siddiqui sells at Rs 30 per metre, when dyed, painted and processed–outsourced–by processing factories, is valued at between Rs 150 and Rs 200 per metre at retail shops.

“So, who makes money?” he asked.

His business had been going through a critical “hand-to-mouth” situation even before notebandi. “Now,” he said, “notebandi has broken our spine.”

THE YARN MAKER: Exports save yarn industry–to some extent

The manufacture of yarn, the chief raw material in making cotton fabric, is perhaps the only stage in the textile supply chain least hit by demonetisation, because 33% of it is exported to other textile-making countries, such as China and Bangladesh. These deals are done through bank transfers.


“After demonetisation, the overall demand has reduced, but our business is fairly undisturbed,” K Krishnamurthy, manager at Super spinning mills, Coimbatore, said over telephone. “In the textile supply chain, the first point, the farmer selling his produce to the ginning mill, and the last point, the retailer selling the garment to customer, happens solely in cash.”

“Along with farmers, businesses in the supply chain that work on a very small or household-scale have suffered the most due to the cash crunch,” said Krishnamurthy. “All the big orders have been affected only in volume, which will recover in the coming months.”


At the Pashupati spinning and ginning mill in Kadi, 50 km west of Ahmedabad, Gujarat, spindles weaving the string required for yarn did not take a break when we visited, producing 13,000 kg yarn every day, running 24 hours.

“All the yarn we produce is exported, and notebandi has not affected us at all,” said A P Patel, managing director of the spinning division.

Yet, the ginning facility of the same mill–where cleaned, seed-free cotton is obtained from raw, impure cotton–was working at half its capacity. The slowdown between November and January was because cotton farmers were not accepting cashless payments.

“About 30 vehicles with cotton come to our mill every day,” said Mukesh Patel, who runs the ginning facility at Pashupati Mills. “On January 6, we had only five vehicles coming to sell cotton. The highest number we have seen after demonetisation is 15.”

“Farmers accept only cash as they have to pay their farm labour in cash,” said Patel. “Cashless does not work there.”

“The announcement of demonetisation on November 8 has delayed cotton arrivals in the market due to the widespread prevalence of cash payments to farmers,” said this December 2016 report by ICRA, a research agency.

THE FARMER: Long waits for cash, which is required for farm labour

Outside Pashupati Mills, Vasudevbhai Chavda, a farmer who had sold his cotton to the mill, had waited for two days to collect his payment, in cash.

He explained why he would not accept a cheque.

“A cheque takes more than a week in my co-operative bank to be realised, and only then can I withdraw the cash,” said Chavda. “Farm labourers who work with me will stop coming if I pay them in cheque, and I cannot risk that. They don’t have bank accounts, so there is no question (of not paying cash).”

Patel is worried as his factory, which used to run 24 hours a day for four months, will now work only for 12 hours a day for eight months, since he will now receive cotton from farmers at a slow pace, over a longer period.

“My labour costs will be double this year, and my operational overheads will rise,” said Patel. “This year, we don’t have any option… do we?”