SUNDAY TIMES OF INDIA, NEW DELHI OCTOBER 28, 2007
SPECIAL REPORT
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HIT BY THE RISING RUPEE Avijit Ghosh & Prabhakar Sinha |
TNN
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here are no signboards outside Rashid Exports. The daunting black iron gate is the signature of the factory located on Sambhal Road, off Pandit Nagla bypass. Once inside, you need to cross a narrow bridge created over an artificial waterbody and surrounded by palm trees. Then you reach a capacious hall whose double winding staircases remind you of an AVM Production film set of the 1960s. There’s an air of opulence about the complex. But first impressions can be red herrings. As co-owner Mohammed Mansoor takes us on a guided tour of the factory, one realises that truth can be far more complicated than what appears at first sight. “There was a time,” says Mansoor pointing to the polishing unit, “when we had so many workers here that there was hardly any place to stand. Now it is a different story.” Now, the polishing unit has been slashed to 25 from 400 workers. The finishing unit is down from 250 to 15 and the casting unit cut down from 80 to 20. The annual turnover, too, has gone south — from Rs 28-35 crore in the late Nineties to Rs 12 crore in 2006-07. This year so far, it is further down to Rs 4 crore. “If the business gets any worse,” says Mansoor, “I might have to lay off more.” There are no signs of improvement. Business was almost zero in the Handicraft Export Fair (Oct 1619) in Greater Noida. “In comparison, we had on-thespot orders worth Rs 3.5 crore last year,” he says. Mansoor’s shrinking business is emblematic of the crisis in the export-based handicraft industries of Moradabad, also known as peetal nagri, the brassware city. The western UP town’s products — candleholders, flower vases, bowls and decorative figurines — found lucrative markets abroad after the export boom kickstarted in 1980s. A few ups and downs apart, it remained like that for the next two decades. An estimated 600 exporters aided by 5,000 auxiliary units and thousands of contract labour churned out metal giftware in brass, aluminium, iron, glass and wood. Official business figures are unavailable but according to ballpark figures the town’s turnover had crossed Rs 2,000 crore by the turn of the century. Then the downturn began. In the early years of the new millennium, main competitor China developed a new, cheap material called polyresin, a kind of plastic mixed with mud that could act as a substitute for brass for 1/10th its price. Concurrently, metal prices began rising exorbitantly. Since January 2005, the price of brass has gone up by 120%, from Rs 115 per kg to Rs 255 per kg at present. To survive, the city shifted to other metals such as aluminium. Now, industry sources say, aluminium, steel and glass together make for around 80% of the exports. Brass constitutes only 5% of total exports. But the rise of the rupee proved to be the last straw. Since March 2007, Indian currency has appreciated by over 11%: from around Rs 44.50 to Rs 39.50
A rampaging rupee may be great news for some folks, but exporters are feeling the squeeze. Sunday Times tracks the crisis on the ground
Left to rust, men of metal turn hawkers Photos: Avijit Ghosh
per dollar, causing a sharp dip in exporters’ profit margins. Exporters say the profit margin was around 20%. But with about 15% lost to the dollar slump since October 2006 and another 5% to cost escalation, business has ceased to be profitable. “With the dollar slide continuing against the rupee, we are unable to quote a price for advance orders,” says top exporter Ajay Gupta. Gupta further explains that the value of the rupee changes substantially between the time of sending the quotation to a potential customer and till the final order is secured. Therefore, he says, even if one is ready to incur the cost to cover the depreciation in the dollar in the future, it is not possible to hedge the losses com-
MORADABAD pletely because of the rise in the rupee value in the intervening period. The overall effect is dramatic: a sharp drop in exports, squeezing out of small players and huge loss of jobs for contract labour. Iqbal Shamsi, president, Exporters’ Association of Moradabad, says the town’s export has declined to almost half in the current business cycle. The losses cut across the hierarchy of exporters. But those with US-based trade have suffered more. Small exporter Asad Jamal is a victim of the downturn. Back in 1997, he was a high flyer (“I have been to USA 45 times,” he says) with a flourishing business worth Rs 3.25 crore. “Now I have Rs 60 lakh worth of credit. And from Asad Jamal, I have become a sad Jamal,” he jokes. Nowadays he works as a daily trader in the stockmarket. His three cars, including a Hyundai Accent, have been sold off. He rides a motorbike. Falling fortunes aside, exporters have also had to adjust to a different kind of treatment from their clients. In the 1990s, exporters like Shamsi were received at the airport, taken out to dinner at swank restaurants and given bulk on-the-spot orders.
“Now they ask us to submit samples and photographs. We wait for their replies on e-mail,” he says. Gupta adds, “Earlier every quotation we sent was accepted. These days the conversion is not even 50%.” Even labour contractors are feeling the heat. Fahim Javed got work worth Rs 2 crore last year. “Work is down by 75% this year,” he says. One of Mansoor’s contractors has had to sell off his home. But the worst-hit are artisans and workers. When business was good, they earned anything between Rs 80-150 a day. Now many are without jobs. In most firms, at least 80% of workers are daily wagers. Both Gupta and Shamsi have cut down on their contract labour by 30-40%. But with many exporters shutting shop, the overall job loss is likely to be over 50%. Several villages and semi-urban clusters such as Rampur Doraya (see box), Kundarki, Kundawali and Milak functioned as auxillary units. Now they are out of work. Labour inspector Lalta Prasad says most labourers work on daily wages and cannot be protected by law. Unlike the workers and small contractors, the big exporters have diversified to other businesses. Nowadays Rashid Exports also imports Chinese glass items. They have opened a resort in Nainital. “We are also considering setting up a public school,” says Mansoor. Iqbal Shamsi has opened an eye hospital. Wasim Khan is a top paper merchant. Many of them, including Mansoor, have invested in real estate in NCR and areas around Moradabad. One exporter has bought a car agency while another has got into retailing. Local labour officials point out that a majority of successful exporters never invested in modernising their factories or in research and development. “Which is why they are unable to handle competition,” says a labour official. Exporters though maintain it isn’t easy to be competitive in a scenario where much of the work is carried out through expensive diesel generators and where costs of transportation, warehousing and inland haulage are high. If the present situation continues, says a top exporter, the industry will shrink further in the coming months. In other words, more small exporters will shut shop, contractors will have less work and more contract labour will fall on hard times. The shine had long worn off the Moradabad industry. Now the survival of thousands who lived off it is at stake. avijit.ghosh@timesgroup.com prabhakar.sinha@timesgroup.com
e ll-tim Sma rter Asad t expo l has shu Jama . Once he ars, c shop d three a e n e ow he driv s now rbike moto
HARD TIMES: Of the 60 casting pits in Rampur Doraya, only a couple are still in business
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oised languidly alongside a grimy pond strangled by water hyacinths and rife with fetid smells of rotting garbage, Rampur Doraya neither has the dignity of a village nor the claustrophobia of an urban slum. It is just a faceless, down-and-out settlement of 100-odd homes, about eight km from Moradabad town. But identity was never a problem for Rampur Doraya. Exporters in these parts of western Uttar Pradesh knew that the semi-urban dwelling specialised in casting, a process through which molten metals are moulded into preferred shapes, and was among the 5,000 auxillary industrial units that served Moradabad’s export-based metal craft industry. In fire pits, often located inside homes, metals would evolve into graceful liquid and soon be transformed into the shape of a candle stand’s midriff or a flower vase’s bottom. Anonymous men, among the lowest in the export industry’s food chain, delivered orders on time; and who, if need be, doubled up as contract daily-wage labour. That was then. Now for over a year the orders have dried up. Rampur Doraya once had 60 casting pits; only a couple of them have work now. Contract labour jobs, too, have dipped dramatically. Many are either jobless or underemployed. Most of the workers cannot read or write. Unaware of the depreciating dollar and the vagaries of the larger global economic forces that have conspired to take their livelihoods away, they are like flash flood victims who cannot find a way out. For they have neither any alternate skills nor a piece of land to fall back on. “I will get my six feet of land only after I die,” says Rahmat Ali. Like his life, the humour is black.
Small-time contractor Mohammed Kamal, also from Rampur Doraya, says that 15 men from the cluster worked for him. “Money was never plentiful but it enough to keep the kitchen fires burning. But for the past few months, there is no work at all. Many had no money to celebrate Eid,” he says. Tired of unemployment, another small contractor Rafiq Ahmed has quit the profession. He now works as a carpenter in Bangalore. A majority of the casting pits have since been covered. At the cluster’s entry point, remnants of one such shed with 10 pits are visible. “For us, this place was like a mini-factory,” says Nazim Ali pointing to the spot. “Now you can see dogs are lying there. What do we do?” With more and more workers getting laid off due to falling exports and plummeting profits, the contract workers are looking for odd jobs as rickshawpullers or hawkers. Out of work for the past six months and having not paid his rent since then, Mohammed Ashraf pulled a rickshaw on Tuesday after hiring it for Rs 30. His earnings: Rs 40. “How can I survive on Rs 10?” he asks. Nazim Ali wants to become a hawker. But setting up a cart with fruits costs at least Rs 5,000. “Where can I get the amount?” he asks. That’s the state of affairs: plenty of uncomfortable questions but no easy answers. In a small workshop inside his home, Mohammed Akhlaq, 27, is casting a few aluminium slabs. “I got three days of work after five months of waiting,” says the father of five, who also pulls rickshaw in his spare time. “Do you think there will again be a demand for our kind of work?” AVIJIT GHOSH & PRABHAKAR SINHA
Re surge: FAQ of the matter WHAT’S FUELLING THE RUPEE SURGE AGAINST THE US DOLLAR?
GATH ERIN G DU ST: E xpor t ite ms ( abov e) ha ve fe w
take rs an d co ntra ct w orke rs (b elow ) hav e no
jobs
It’s the rise of India as an attractive investment destination. In 2007 so far, FII fund flow into the stockmarket stands at $18.80 billion, more than double of $8.85 billion in the same period last year. Another $34.67 billion have come in as remittances under ‘invisibles’, which includes fund transfer by NRIs and incomes from software exports. In other words, we are flush with dollars and the rupee, which was hovering around Rs 49 per dollar in June 2002, is now up by 19% — at Rs 39.50 per dollar. Most of the appreciation (11%) has happened since March 2007. Why has the trend picked up this year? Foreign funds are flowing in since liberalisation in 1991, but most of the dollars were bought up by RBI which didn’t allow the rupee to appreciate. When RBI buys dollars, rupee supply goes up in the market, leading to inflationary trends. With inflation around 6.5% in JanuaryMarch 2007, RBI decided not to buy dollars. Now, only those who need to import buy dollars and RBI inter-
venes only selectively. So the demand for greenbacks has dipped considerably while supply has increased. Result: The dollar’s cheaper.
WHO GAINS BY THE RISE? Importers and foreign travellers. When the exchange rate was at Rs 45 a dollar, one had to pay Rs 450 to buy a $10 item in the international market. With the going rate at Rs 39.50 per dollar, Indians now have to pay only Rs 395 to buy the same item. That’s why prices of petroleum products have not gone up in the Indian market although the crude price is up in global markets.
WHO IS BADLY HIT? Exporters are facing the brunt. When the exchange rate was Rs 45 per dollar, they used to sell a Rs 450 item for $10 in the international market. Now they have to sell the same item for $11.40 to keep profit margins intact.
IS INDIA LOSING ITS COMPETITIVE EDGE IN THE GLOBAL MARKET? Undoubtedly. The international market is highly competitive, leaving ex-
GAINING CURRENCY 45.84 44.93 1/12/06 44.56 2/1/07 44.20 2/2/07 44.11 1/3/07 44.27 3/4/07 43.13 3/5/07 41.18 1/6/07 40.54 2/7/07 40.66 1/8/07 40.55 3/9/07 40.88 1/10/07 39.73 26/10/07 39.51 3/10/06 1/11/06
*Rupee exchange rate against US $
porters with two choices: either they slash their price or let the export order go. In some sectors, where they have good profit margins as in the software sector, they cut prices to stay in the market. But in other sectors like garments, where margins are lower, they cannot afford price cuts. So they are losing market share. In fact, in some sectors, Chinese imports have become cheaper than indigeneous products. For instance, made-in-China Holi pichkaris, Diwali Lakshmis and Ganeshas and children’s toys have flooded the Indian markets. As a result, thousands of artisans have lost their livelihood.
CAN THE GOVERNMENT BAIL OUT EXPORTERS? China has shown the way by protecting the yuan. The Chinese currency’s exchange rate has remained at around 8 yuan per dollar for the last 10 years despite the fact that China has compiled a reserve of over $1.43 trillion. Experts say the Indian government should have thought of a similar mechanism to prevent such a sharp appreciation of the rupee.
Boomtown in gloom: Knitwear hub out in the cold Rajesh Chandramouli |
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ruthivasan, Murugan and Balu do not know each other. But ask any of them what’s on their mind and what you get is a gloomy refrain: ‘‘It’s going to be a dark Diwali this year.’’ Blame their plight on the rising rupee which is affecting thousands of livelihoods in and around this knitwear hub near Coimbatore. For folks accustomed to dollar surges, these are unprecedented times. The initial sense of disbelief has given way to uncertainty. Says R Balu, who runs a small garment export unit: ‘‘Initially we kept doing business, running losses on practically every order. Now we have started rejecting fresh orders. I rejected orders from Orchestra of France, a marquee client for which I spent many weeks preparing. They wanted the contract to be pegged against the dollar. I have no idea where the rupee-dollar fight is headed and so decided to play it safe.” Typically, exporters operate on a net margin of 5-7%. With the rupee appreciating over the dollar by more than 14% in the past 12 months, exporters are in deep crisis. Many have politely turned down orders which are dollar-pegged. “It is better to trade
in the euro now. But it is also difficult as we are accustomed to dollar billing,’’ adds Balu. Tirupur exported knitwear worth Rs 11,000 crore last fiscal and it expects a 10% fall this year. With orders thinning down, workers like Murugan and Kruthivasan are feeling the heat. Murugan, 40, is a tailor who migrated from Ramanathapuram some years ago. “In 2002, I earned Rs 90-100 per shift and used to work 15 shifts a week. Now I earn Rs 150 per shift, but am given
Tirupur, thousands of us are going to be thrown out in the next few months. And I may have to head back to Ramanathapuram after Diwali.” Kruthivasan, 40, is already out of work. He was working in the HR department of Trikaal Garments, a garment sub-contractor in Chennai until they closed shop. “We used to do job work for Celebrity, Ambattur Clothing and Ratha Overseas, all big garment exporters. They have stopped placing orders with us, so my owner decided to close down the unit from September 30. I have to look for another job.” That’s the story in Tirupur these days. Of the town’s four lakh workers, 7,000 to 8,000 have been rendered jobless in the past three months, according to A Sakthivel, president, Tirupur Exporters Association. ‘‘The big players have started slowing down production, the medium ones have started lay-offs while smaller exporters have announced closure of operations,’’ he says. TEA expects the job loss in the region to run into tens of thousands. For Tirupur, once famous for having a job for anyone who walked into the town, times have indeed changed.
TIRUPUR work for only seven to eight shifts a week. In the meantime, my family has grown and costs have gone up,’’ he says. Now his employer has said that if rupee appreciation continues, he will close down operations. ‘‘I don’t understand a word of what these people are talking about. What is my fault if the rupee rises or falls? Why should I pay the price for it?’’ Murugan asks bitterly. ‘‘The government makes announcements that it has signed MoUs with big players to provide jobs to thousands. Here in
TAILORMADE FOR EXPORT: But this year orders are thinning down and job cuts are spiralling
rajesh.c@timesgroup.com