Demonetisation effect: Nearly 50% of small businesses in Mumbai’s Dharavi shut shop

Many small factories and tanneries in Asia’s largest slum have closed in the past six months, though the bigger businesses have managed to keep afloat

mumbai Updated: Nov 08, 2017 10:15 IST
Eeshanpriya MS
Eeshanpriya MS
Hindustan Times
Dharavi,small businesses,cash flow
Many tanneries that operated on cash-based transactions have downed their shutters following demonetisation. (Kunal Patil/HT)

An old name plate outside a warehouse in Dharavi’s Kala Killa identifies the structure as a tannery. However, it is now occupied by dealers of a food business. The tannery owned by JK Enterprises closed three months ago owing to a severe cash crunch following demonetisation announced exactly a year ago. The owner, Kavita Kharat, said she had to wind up her business as she had no money to pay her workers or procure raw material.

Like Karat’s tannery, nearly 50% of the estimated 8,000 small factories have shut in Dharavi in the past six months, said micro-unit owners, blaming Prime Minister Narendra Modi’s decision to scrap high-value notes on November 8 last year. The shock announcement prompted a shortage of cash, a mainstay of businesses in the informal sector.

Dharavi — one of Asia’s largest slums — was a self-sufficient powerhouse until recently. But demonetisation has proved to be a death knell for many factories there.

Before the note ban, the area was home to around 2,000 plastic factories, 3,000 cloth units and 3,000 leather factories. They functioned from rickety shanties measuring 10X10 feet in size. According to owners of these units HT spoke to, at least 50% of the total 8,000-odd business have shut in the past six months.

On the contrary, owners of bigger units and workshops have been successful in keeping their business afloat.

For instance, Ataullah Ansari, who sews children’s clothes with 10 other tailors in a small shanty at Kadar Maidan, said most of his colleagues had left Mumbai to go back to their hometowns. “Work days are fewer. Earlier, we would work over time. Now, the clothes we make are lying in the room. There is no demand for our goods,” he said.

Zuber Shaikh, who is one of the luckier garment businessmen, admitted that nearly 40% of the 3,000-odd cloth factories downed their shutters in the first three months of demonetisation as they were cash strapped.

“We trade in cash. After demonetisation, we did not know what to do with so much money so we paid our debts. Since then, we have not been able to restore earlier levels of liquidity,” Shaikh said.

A owner of a small leather business in Kala Killa, who did not wish to be named, said, “I had to close my business in April. It was not registered and all transactions used to take place in cash. Since demonetisation, dealers of raw materials insist on cheque transactions and receipts for all payments. I could not sustain it. Now I have taken the dealership of an electronic store. Earlier, I was feeding 10 families and now just one.”

The roll out of the GST, according to Dharavi traders, has also contributed in making the unorganised sector more sluggish.

Taufik Khan and Ansar Khan, who make plastic goods operating from a makeshift warehouses near Mahim station, said, “Our sales have decreased by 50% after the notes band and 80% after GST.”

Until February 2016, Taufik employed five workers and then fired three of them owing to a fall in revenues. He said, “Owing to sustained cash crunch, I have pending payments from as far back as March 2017.”

The disruptions however have not affected a few registered companies trading in the leather business. These continue to thrive because they are able to produce receipts of all transactions, whether it is procurement of raw material, or sale of finished goods. Wahaj Khan, owner of Wahaj Khan and Sons Leather Goods, said, “Our business has not been affected by GST or demonetisation as it is registered and I pay taxes.”

First Published: Nov 08, 2017 10:14 IST