Gujarat elections 2017: Good days yet to come for Patel heartland’s industrial clusters
Businessmen say GST has hit the cotton sari printing and dyeing industry as well as ceramic tile units. Both businesses are spread across Patidar-dominated region.GujaratElection2017 Updated: Dec 02, 2017 07:26 IST
For two months post GST implementation, Vishal Gadhiya was forced to shut his cotton sari dyeing and printing unit in Gujarat‘s Rajkot district as orders had dried up.
Reason — “The entire supply chain has been taxed (5% at every stage). So, GST gets built up and passed on to consumers,” he said.
When he resumed the unit in October, business had taken a 50% hit. “There is also confusion about the taxation system and so demand is low,” he pointed out.
Gadhiya’s factory is one among the 1,500 small units employing 20,000-odd workers having an annual turnover of Rs 2,000 crore.
In Rajkot’s Jetpur taluka, primarily an agriculture belt, the cotton sari printing and dyeing industry is nearly four decades old and has been supplying low cost clothes to domestic and global (Africa) markets. Majority of the unit owners had entered the trade to augment their farm incomes.
The high GST and the apparent confusion has led to discontent against the ruling BJP, and Gadhiya hopes Prime Minister Narendra Modi’s party will “do more to protect small businesses like ours, not just big corporate houses”.
HT spoke to influential leaders in the three business clusters — sari printing and dyeing (textile processing), ceramic tiles, road engineering and agriculture implements — spread across Rajkot and Morbi districts in Saurashtra region and Mehsana in North Gujarat, all dominated by Patidars to gauge the mood of the industry.
Morbi, the ceramic cluster built largely on Patel thrift, is among three of the biggest such manufacturing hubs in the world after China and Italy, and employs over 13 lakh people, and had a turnover of Rs 25,000 crore in 2016-17.
But trade was hit on account of 28% GST. The governing council later reduced the rate to 18%, but all tile producers are not happy.
A ceramic tile producer, not willing to be named, said despite the rate reduction, stockists were not taking their supplies, forcing him to halve production. “Post demonetisation and now GST, we have suffered, and the trust factor with BJP is low,” he said.
“Despite government’s efforts, GST implementation has not been smooth. I am paying advance taxes of Rs 2 crore and I am not sure when this will be offset,” owner of six ceramic tile factories, Rajubhai Patel told HT.
However, others like Vipul Lokhil of Selza Ceramic believe their industry will see a turnaround due to the rate reduction.
“Those who complain have other political agendas. The BJP government has been very supportive towards the industry,” he said.
Mehsana’s road engineering and agro implements cluster, also dominated by Patels, is divided over support to the ruling party.
While the large and medium road engineering firm owners had no complains about either demonetisation or GST, small fabrication unit owners are wary of the government as they did not pay any tax before and have to do so now. They are also in a limbo over how much to pay.
Maintaining that they did not face any trouble due to demonetisation or GST, Ramesh Rajput, founder and CEO of Himalaya Engineering Company, a major manufacturer in the cluster, said, “In fact, for our industry, the single tax has been a boon because it replaces Value Added Tax (VAT) and excise, besides arbitrary demands made when our goods cross state borders.”
“The road engineering cluster here supports Prime Minister Modi,” Rajput asserted.
The smaller steel and engineering fabrication units, part of Mehsana cluster, however, are not on the same page, and say the GST is the second blow to them after demonetisation.
“We are reeling under a tax regime that we cannot understand,” lamented Bharat Patel, a farmer-turned-fabrication unit proprietor.
“Post demonetisation, many of us were out of business for three months. It took six months for the business to recover, and now it seems we are back to the square one,” he said.
The mood is also glum in the agriculture implements sector despite the reduction of tax rates on tractors from 28% to 18%. Manufacturers say there still needs to be more clarity on which components of tractors will face less tax and which won’t. Prior to GST, the central and state VAT worked out to around 17.5% roughly.
“The agrarian sector is not doing great across the country. Demand has dropped by more than half over the last one year since demonetisation,” said a founder of one of the big agro firms based in Mehsana, wishing anonymity.
He also pointed out that there was not enough clarity about this slashing of the tax rate so far.
There is an indication that election spoils could get split between the BJP and the Congress in these traditionally BJP dominated constituencies. In Rajkot, out of the eight constituencies, six are with BJP and only two with the Congress. In Mehsana, BJP has five of the seven seats and Congress has two, and in Morbi, two out of the three seats are with the BJP.