Wednesday, 16 November 2016

Textile and leather industries hit by demonetisation as companies fail to pay wages

Textile and leather, which are labour-intensive industries, are facing the heat of centre's decision to demonetise the Rs 500 and Rs 1,000 currencies. Companies are not able to pay wages to workers and not able to procure raw materials.

While agreeing that the centre's move will stream line the system, it will increase the cost of doing business.

Tirupur Exporters Association (TEA) welcomed the government's move, but requested to allow withdrawal of higher amount, based on the average amount they have been regularly withdrawing from the banks for the past six months, which would help them to meet the payment of weekly wages and other sundry expenses without having any difficulties.

Of the around six lakh workers, 40-50 per cent are migrants. Many of these workers don't have bank accounts. These workers usually get paid an amount of around Rs 300-400 a day.

“We are ready to open accounts, but bankers are burdened with heavy load ever since demonetise came into effect and in one go bankers are not able to thousands of accounts,” said an exporter.

The challenge is that while we require around Rs 10-15 lakh a month in cash to pay to the employees, the banks are only allowing withdrawal of up to Rs 20,000, added Sabu M Jacob, chairman and managing director of Kitex Garments.

"Every month we have around 150-200 new employees joining and they may have to be paid in cash till they get a bank account and given that even normally it would take around 15-60 days to open an account for the migrant workers, now the opening of new accounts has now come to a standstill," he added.

The leather industry has impacted 10-12 % business, since 90 per cent of the units are SMEs.

The major problem is sourcing of raw material, which are supplied mostly from the rural parts, said Rafeeque Ahmed, Chairman, Council for Leather Exports (CLE).

“Everybody is confused and don't know what to do since they don't have cash,” said Ahmed.

Almost 20 per cent of the around 2.5 lakh workforce in the leather industry are temporary workers and each has to be paid around Rs 400 a day. The pressure will be build on every week till the issues are addressed.

He added that many of the employees don't have proper address proof and despite the units are ready to give letter, banks are not willing to open accounts for them.

While welcoming the centre's decision, Ahmed said such things cannot be implemented over night.

The positive side of the story, according to a senior official from the industry, is many of the units in the traditional clusters were not recording PF and other employee benefits properly, since most of the transactions has been in cash, they will either pay less or wont show them on records. Now, all this will not be possible.
http://www.business-standard.com/article/economy-policy/textile-and-leather-industries-hit-by-demonetisation-as-companies-fail-to-pay-wages-116111600850_1.html

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