State of the Economy 2018

Betting on Better Times

After the initial struggle with GST implementation, SMEs in Noida-Ghaziabad are hoping to get business back on track 

The onset of winter, in Delhi, also means threatening levels of air pollution. It has been the same story for years, but for the first time in November 2017, the district magistrate of Ghaziabad ordered closure of 65 industrial units in view of the alarming air pollution levels. A few days later, the Uttar Pradesh Pollution Control Board ordered another 90 factories in different industrial areas of Ghaziabad to stop production till further orders. The most polluted city and one of the oldest industrial belts in the NCR region, Ghaziabad houses 356 polluting units according to official records. But Pradeep Kumar Gupta, chairman of Indian Industries Association, Ghaziabad chapter, questions the knee-jerk reaction, “National Green Tribunal shut down all the industries here for a week when the pollution levels were high. Did that change anything? The levels are still the same, so what was the hasty measure for? There is large unplanned construction happening and the traffic congestion generates heavy dust. All that is ignored and we get targeted,” fumes Gupta suggesting that the measure was an eyewash.

Ghaziabad is known as the gateway to UP owing to its proximity and its location on the main route from Delhi to UP. According to official data, it houses 14,305 small, medium and heavy units that employ over 100,000 people. It houses major players like Coca-Cola, Dabur, Mother Dairy and Atlas Cycles. Manufacturing is the biggest revenue driver for the region, with the steel sector generating 25,000 jobs. While the units have been clocking modest revenue growth in FY18, businessmen say the implementation of GST meant they spent more time on paperwork rather than focusing on business.

Getting noticed
Talk within the industry circles is that it is not difficult to set up a business here, but the hard part is to keep it running because getting served with a shutdown notice is an everyday affair. Jokes apart, the SMEs complain that they have no avenue to explain their position and solve issues, but are simply slapped with notices. Commitment failures, salary delays, raw material wastage, loss in productivity were some of the repercussions of the seven-day closure in November. Gupta vouches for the compliance of most units with existing norms and has already started to see some companies migrate to Greater Noida where the ecosystem is believed to be better and authorities more supportive.

Saket Aggarwal, director of the Rs.3 crore Rashmi Electricals, says, “Here all our energy is wasted in doing everything apart from our business. We discourage people from setting up new plants because we know the issues here,” he says.

One perennial problem that has been troubling Ghaziabad is the lack of connectivity. Satish Kumar Sharma, proprietor, Rolax Home Appliances, says, “A lot of business takes place between Delhi and Ghaziabad, but there is no alternative road for heavy vehicles. There is an alternate option for Noida, but for Ghaziabad there is only one entry point and limited time for entry and exit. There is no free movement of goods from Ghaziabad to Delhi. An entire day gets wasted for travelling to Delhi due to bad roads and traffic.”

Cost of doing business
Roughly 20 km away from Ghaziabad, Noida or New Okhla Industrial Development Authority was set up as an experimental industrial township in 1976. Auto components manufacturing and engineering, garments, packaging material and plastic products are some of the major industries here. Noida, which is home to over 6,000 manufacturing units employing over 100,000 people, boasts of big names such as HCL, Alstom Systems, Adobe, and so on.

Though the electricity and water supply scenario has improved in Noida, a very different problem keeps companies vexed here. Vipin Malhan, president, Noida Entrepreneurs Association, explains, “There is a department called Noida Development Authority which deals with us directly. We have to go there every time we need some approval.” Malhan as well as other industry heads say in unison that getting work done from the highly corrupt department is not easy. “One has to give them bribes for every little thing. They demand money and harass people. This has been our biggest problem and this cuts across industries,” says Malhan.

Getting plots for business from the Noida Development Authority has almost become impossible. “If you wish to set up your business here, you have to wait for their schemes. When it is declared, there will be 100 plots and over 2,000 people applying for it. Most of the land goes to the builders,” says VK Seth, partner, Priya Plastics. According to NEA, apart from builders, no major units that can feed MSMEs have come up in the cluster. On the other hand, infrastructure issues like bad condition of roads (which the new CM had promised to rectify by Dec 31, 2017), encroachment of roads by street vendors, illegal parking and non-functional street lights have been falling on deaf ears. The annual budget allocated for Noida is around Rs.8 crore-Rs.10 crore which the unit owners feel is sufficient if utilised properly, but as per NEA estimates around 60% of it gets siphoned off.

Noida and Ghaziabad share similar woes when it comes to the law and order situation. When Malhan says the present condition seems to be even worse than that during the SP government, Varun Khanduja, CEO of fabrication raw material wholesaler Best Strips, nods in agreement. “In the past one year, I haven’t seen any significant change for good in Noida,” he says. Meanwhile in Ghaziabad, salary distribution day is a nightmare for employers as well as employees after multiple instances of theft. “We don’t feel secure and our labourers also feel insecure. We planned to employ women in several sections including accounting, but did not as providing security is an issue here,” says Gupta.

Double whammy
Post-demonetisation, SMEs in Noida and Ghaziabad crawled their way into the new financial year. “Demonetisation affected small scale industries in Noida in a bad way, but we were still hopeful that this was happening for a good reason and that they would be able to cope up with the loss. By the time things started to become normal, there was GST. The GST software was not ready and we were unable to file the returns and that created problems,” says Kishore Kumar, proprietor, Neha Industries, which is into manufacturing of  electrical cables and wires. According to Kumar, he was more affected by GST than demonetisation. Suggesting that it should have been implemented in phases owing to the diversity of industries in India, he shoots a slew of questions, “For a commodity with a tax slab of 28%, more than one fourth of the sales value is GST, which the industry had to deposit by 20th of the next month. A normal credit period is 90 days, if we receive the payment only after 90 days, so how can we deposit the money by the 20th? If you are in the manufacturing sector, most small-scale companies have a margin of 10%. And when you have a 10% margin, how can the industry pay a tax of 28% ? I either have to borrow from the banks or will not pay GST. This will result in NPAs or non-compliance.” 

Seth says exporters have been most impacted since they have not been getting refunds. “Exporters are totally dependent on refunds as the parties fix the prices on the basis of these refunds and when they don’t get their refunds, everything is in disarray,” he adds. In many instances, the GST portal reportedly displayed PAN numbers different from the actual numbers registered. So people were not able to file their returns in these situations and they were penalised for the same. “If they are not able to improve the system, they have to extend the date. We waste most of  our time in checking whether the portal is working properly or not, instead of utilising our time in production,” says Seth. According to NEA estimates, there has been a 25-40% reduction in business across industries in Noida in the immediate aftermath of GST. But they are confident that business will bounce back after these initial hiccups since demand has been stable. 

It has not been very different for Ghaziabad either. While MSMEs working with big companies were in a better position, those working with dealers directly faced problems. “Many dealers were not ready for the transition fearing the paperwork and the tax that they would have to pay,” says Aggarwal. Gupta notes that initially, the return filing for GST took up to 10 days and a lot of time was wasted. However positive signs are being seen now with officials taking feedback and resolving issues.

Looking ahead
After years of only grievances and no redressal, Malhan says he has no more expectations. “The Modi government promised to change things, but after three years nothing has changed. There is no change in law and order and corruption. The rate of unemployment has increased, whereas the opposite was promised,” he says. Gupta, on the other hand, is more optimistic and lists his demands for the next Budget. “The government should ensure that we don’t have to waste our time just doing paperwork. Under Make in India, there should be separate incentives for MSMEs. There should be provision for our insurance, both health and education. There is ‘kisan credit card’ for farmers, a similar one should be made available for us also.”

Even as the chinks in GST implementation are being ironed out, the SMEs in Noida-Ghaziabad are hopeful that the next year will be a better one as they get back to tending to their business. They are betting on the fact that there will be no surprises from the government. As Gupta puts it, what they want is not a government that rules them, but a government that can work with them.