MSMEs taking hit

Garment makers default on loans to pay workers

Opt for RBI moratorium to retain skilled workforce

Garment makers default on loans to pay workers

Vijay C Roy

Tribune News Service

Chandigarh, May 18

In his garment business spanning over 30 years, Ludhiana-based Prithvi Raj Jairath has never seen such a slump as he is witnessing now during the lockdown. Hit by disruption, he defaulted on loan repayment to pay his employees during the lockdown period. Like him, there are many who have borrowed from banks or opted for moratorium to retain the skilled workforce.

"Being in small scale industry, I don't have deep pockets. As my inventory was blocked, it was impossible for me to pay my workers and meet other fixed costs during the lockdown. Left with no option, I defaulted on my EMIs to pay their salary," said Jairath, proprietor, Jairath International.

His son, running a different enterprise in garments sector, also opted for moratorium to pay his workers.

Prior to the lockdown, he had around 40 workers and was mostly dependent on work outsourced from medium companies. However, amid the lockdown, cancellation of orders from domestic and overseas markets came as a huge setback for the garment makers of Ludhiana. Almost 90% of the garment units in Ludhiana manufacture apparels for big brands.

With the exodus of migrants from the state, only 20 workers are coming to his unit currently.

"I don't know when the situation will improve. As I have raw material left with me, I have asked my workers to continue operations. I am not getting my receivables but my vendors are asking for payments," he said.

Like Jairath International, there are 1,200 units in micro category in Punjab which are engaged in garment manufacturing and dependent on bigger units for outsourcing work and facing hard times.

There are around 8,000 apparel manufacturers in Ludhiana which are linked with each other across the value chain. Out of this, around 90% are MSMEs.

According to insiders, the manufacturers are having a huge pile-up of inventory because of the lockdown in domestic market and several countries. The lockdown has resulted in temporary shutdown of factories and layoff of low-income employees in the apparel and textile sector.

"Our summer inventory is stuck with buyers having already cancelled the orders. We have to start winter production but very few orders are in hand and the industry is facing liquidity issue," said Harish Dua, managing director of Ludhiana-based KG Exports.

According to the industry, the cancellation of orders would lead to serious financial implications and their accounts would become non-performing assets for banks.

Dua said the industry had demanded 25% interest-free working capital for one year from the Centre, but the government had not taken any decision in this regard.

Ludhiana contributes around 10% to total exports from the country and caters to around 30% of the domestic apparel demand. 

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