State of the Economy 2018

Same Old Problem

Howrah’s traditional industries like jute and foundries are struggling, while younger sectors like software services face a Catch-22 situation

Sector V in Salt Lake is a maze. The narrow streets that make up the IT and ITES hub of Kolkata look nearly the same. High-rises flank the road; makeshift tea and food stalls sell everything from rolls to biryani; and a movie theatre is the go-to place for Salt Lake’s corporate crowd. Somehow, every possible structure has managed to squeeze itself into an already jam-packed setting. And the neighbourhood has only become more crowded over the years.

In fact, ask any fresh engineering graduate of their company of choice, and it will be one of the IT giants such as TCS, Cognizant or Wipro. As for their city of choice, many are willing to relocate to grab their dream job. Abhishek Rungta of Indus Net Technologies calls it a Catch-22 situation where residents promptly leave the state for better opportunities outside while IT giants refuse to expand their operations in Kolkata, doubtful about their ability to get adequate talent. 

Sure, these IT majors have been in the city for a while, which means it is incorrect to assume that the city lacks jobs. A few of them, including TCS and Cognizant have even expanded their operations to New Town, the new IT zone of the city. Infosys, too, is constructing a campus in New Town at an investment of Rs.100 crore and has plans to recruit about 1,000 people.

While that may sound promising, the talent pool is still not large enough to get big companies excited. A lot of companies started out in Salt Lake in the 1990s, given its attractive low rentals. Even today, rent continues to be as low as Rs.35-45 per sq ft a month compared with Delhi (Rs.111) or Bangalore’s (Rs.81) IT hubs, but that is no longer seen as a big attraction, given the talent shortage. Besides the bigger IT firms, Salt Lake has a host of small local players and the story is no different for them. According to industry sources, they have to spend months retraining their employees because they are not job-ready, be it for software development or other IT-related jobs.

But some local IT firms are looking at this skill gap as an opportunity. Globsyn group already has its own finishing school and skill development programme, and plans to set up an incubator centre to train entrepreneurs from the city; Arijit Paul of Met Technologies, too, has big plans to open a training centre for IT students. “We will train them for a few months and at the end of the course, offer them a job here. If they wish, they can apply to other IT firms too.”

The biggest grouse among locals is that, “the state government is lagging behind in wooing big players to expand their operations here.” As many agree, attracting biggies is the only way to build confidence among smaller players and also encourage residents to start their own venture and stay put in the city. Unfortunately, a steady number of entrepreneurs have been moving out. Globsyn founder Bikram Dasgupta elaborates, “When these entrepreneurs receive funding, they set up their offices outside Kolkata as their investors prefer it that way. Obviously, the entrepreneur has little option but to agree.”

Long slumber
On the opposite side of the Hooghly River lies Howrah, once known as the Sheffield of the East. This twin city came into the spotlight thanks to its then blossoming engineering industry. Today, the 260-280 foundry units in this dusty town are barely surviving. Be it the surge in raw material cost or the unavailability of skilled labour, this tiny industry that clocks about Rs.420 crore annually has reasons to complain.

The foundries in Howrah have taken one hit after another. For many of the foundry owners, the situation has only taken a turn for the worse since the past one-and-a-half years. Following demonetisation, there was a huge cash crunch in the sector, with liquid cash being stuck at the bank. Considering that the labourers were paid in cash, the industry came to a sudden halt: the managers couldn’t withdraw enough money due to restrictions and labourers couldn’t be paid in time. Just when the foundry units seemed to recovering from the situation, the implementation of GST created a new chaos. The rules weren’t clear and the process was tiring. 

The biggest pain point, however, is the fluctuating prices of raw materials. “Iron ore and coal prices, among others, have increased over the last two months. This is affecting our profitability even as orders are difficult to come by,” says Satyajit Kundu, general secretary, Howrah Foundry Association.

Demand, too, is a constraint. There was a time when the demand for hand-pump production was huge. But its demand has fallen now, and many of the foundries dependent on this, have also closed down.

Most of the units in this town are now dependent of dealer-driven orders. A handful of dealers visit these units across Howrah to have the most in-demand product manufactured. The deal is as follows: they’ll provide the labourers, while the units would provide the facilities and cast iron. Of course, when the time comes, the dealers are notorious for delaying or defaulting on raw materials costs. Biswapriya Mondal of Usha Foundry has been subject to it. “I know dealers who haven’t paid me for two to four years. I remind them often, but to no avail. But I still have to take up fresh work they propose.” This is not the only situation where the dealers seem to have the upper hand. At times, they also withdraw their labourers mid-way from the units.

Lately, these old units are also facing competition. The newly constructed foundries outside the district are better equipped with machinery that make all the difference in the finished good. With demand falling, a lot of these old units have cut down their production over the past few years. Abhishek Foundry’s production has fallen from 1,800 tonne in 2010, to about 1,200 tonne last year. As Kundu points out, “If there is no demand in the market, our inventory keeps piling up and our cash flow is blocked. Following GST, July and August looked up in terms of demand and sales increased. We thought that the market may finally turn around and we may get more work. But September onwards, demand was down again,” he adds.

The only way the older foundries in Howrah can catch up with these newer units is by modernising themselves. But as Amalesh Dutta, managing director, Abhishek Foundry, points out, “This requires a large amount of money that a lot of the units here don’t have. If I had to modernise my factory, I would have to demolish the entire structure and rebuild it again. Where will I get the money for that?” Many foundry owners are hesitant to modernise their factories as the pay-off in the business is so poor that leave alone new investments, even sustaining existing business is a tough task. 

Then, most of the labourers in these units belong to Jharkhand and neighbouring towns of Howrah district. Being migrants also means that most of them are hired on contractual basis. A trend, Mondal explains, that has surfaced consequently is units stealing others labourers. “Whoever pays more wages gets to retain the labourers. Sometimes, I offer the labourers more wages than the next-door unit, sometimes they do. That’s why the workers keep shuffling between units,” he explains. Unskilled workers are paid about Rs.250 an hour, while the older hands get Rs.400-500 an hour. 

Muted times
The picture isn’t any better at the jute mills scattered along the banks of the Hooghly or the handful in Kolkata. When demonetisation hit the country, production came to a halt as the mills couldn’t pay their workers in time.“Workers from UP , Bihar and Orissa have stopped migrating,” points out Raghavendra Gupta, CEO, Hooghly Group. With absenteeism plaguing many of these jute mills, some of the units have had to take the difficult decision of cutting down production. Besides, when work opportunities are better in the cities, why would anyone work at the jute factory? 

Hooghly Group, with five mills in Kolkata and Howrah — Hukumchand, Bowreah, Fort William, Hooghly Mills and Calcutta Mills — employs nearly 18,000 labourers. Yet, Gupta adds, “Our three jute mills in the city are facing a crisis.” This has forced him to reduce the number of spinning frames in his factories: from 80 to 50 in one unit, and from 40 to 26 in another. Manish Poddar, chairman of Indian Jute Mills Association, elaborates, “As there is about 40-45% absenteeism across every jute mills, they often cannot supply in time.”

Sure, there is demand for jute and jute-based goods, thanks to the government’s mandate that 90% of the country’s food grains and 20% of sugar produce must be packed in jute bags. But there is a hitch: the Textile’s Ministry’s policy to make lightweight sacks of about 580 gm requires better quality jute, as against the low-grade TD-6 variety grown in Bengal. Its price, now at Rs.2,525 per quintal, has also dropped below its minimum support price of Rs.3,100 per quintal. This has pushed the mills to procure high-grade fiber, resulting in a lack of demand for the already low-grade variety. 

Given that the mills are already in a difficult situation, disputes between the government and industry over the pricing of jute bags only adds to their woes. “The prices of the jute bags have decreased. It is not enough to cover costs,” adds Poddar, who also heads Budge Budge Mills and Anglo India Jute and Textile Industries. As of last year, jute bags were priced at Rs.70,282 a tonne and to ease the situation, the state government recently procured 120,000 bales of sacking bags.

As far as exports go, the industry overall hasn’t seen much improvement. But as far as individuals are considered, some have had good fortune. Vishal Churiwal of Premchand Jute and Industries saw his exports jump 25% last year. The company clocked Rs.170 crore in FY17, of which Rs.20 crore was export revenue. He lets us in on what worked for him, “The sales margin is almost equal for all the jute units because all of us supply to the government. The real difference in profit comes from the other sales that we do. Our timing of raw jute purchase has also been very good. We bought them at their lowest price months ahead in bulk, and managed to export it at a higher realisation,” he says. Next year, he wants his exports to grow by 40%.

From Salt Lake to Howrah, the mood varies from dull to despondent, but with a tinge of optimism about what lies ahead in FY19. The reality is that Kolkata needs to find quick answers to replace its ailing industries with vibrant growth sectors to keep up with the times.