The State of Business 2013

Keeping up appearances

Power and labour shortage, and crumbling infrastructure spoil the party for Ludhiana’s industrial units

The drive from New Delhi to Ludhiana, the largest city in Punjab, takes six hours on roads lined with picturesque mustard fields reminiscent of Yash Chopra movies. The dream ride ends abruptly as you enter the congested city limits where traffic begins to crawl. The first thing you’ll notice here is the row of luxury car showrooms lined up with Mercedes, BMW and Audi cars, which makes you wonder about the wealth this town holds. Is business doing well, then? “We Punjabis are flamboyant people,” laughs Rahul Ahuja, managing director of Rajnish Industries and vice-chairman of the CII Ludhiana zonal council. “Punjab has the highest number of luxury cars in India. We also have the most loan defaulters.”

It is an interesting paradox, the kind you will perhaps see only in Punjab. Business may be down but for the proud Punjabi it is important to keep up appearances. Behind the glittering façade of prosperity is an industrial town that is slowly crumbling under the pressures of power and labour shortage, and government apathy. From auto components to Ludhiana’s mainstay textile industry, many units have either shut down or moved to other clusters in Gujarat, Rajasthan, Manesar, Himachal Pradesh and Madhya Pradesh.  

Clashing gears

Ask any of Ludhiana’s many auto component makers about business, and they point to a telling factoid: in the past 25 years, not a single large automobile manufacturer has set up base in the town. This, despite the presence of 10,000 micro, small, medium and large automobile component manufacturing units in the cluster. “Punjab is going backwards,” says Ahuja, whose firm makes diesel fuel injection spare parts for the domestic and export replacement market. Rajnish Industries has four manufacturing units in Ludhiana that employ 600 people. “Gurgaon became a city because of Maruti. The Punjab government should bring in a big anchor unit.” 

Logistics are not as well developed here, rues US Ahuja, managing director of the ₹250-crore New Swan Enterprises. “We supply to two and four wheeler manufacturers in Chennai, Gujarat and Rajasthan and they don’t want to purchase from Punjab because of the transportation cost involved,” he says. New Swan makes components for automobiles, bicycles and agricultural machines and has customers like Honda, Hero Motor Corp and Tata Motors; it also exports goods worth ₹10 crore to countries in Europe. “No auto component maker is expanding here. At least 50 units have moved out in the last two years to Rajasthan, Gurgaon and Pantnagar.” New Swan, too, is following suit. “After Manesar and Khushkhera (Rajasthan) we are planning to set up plants in Pune and Sanand (Gujarat) because if we don’t shift we lose business,” says US Ahuja. 

Jagtar Singh Bhambra, chairman, Gurbaksh Auto Industry and general secretary of the Federation of Auto Parts Manufacturers, cautions that not everyone can afford to move out. “Only companies with sound financials, can afford to make the switch.” Bhambra, whose annual sales of ₹2 crore has remained stagnant for the past three years, is ready to shift if things don’t improve soon. “It is not just me, many small units want to move to Gujarat to take advantage of inexpensive land, low tax rates and subsidies given on machinery. We sell our goods in the Mumbai market and that is closer to Gujarat,” he says. 

Ludhiana loses out on another important front. Its nearest airport in Chandigarh, less than two hours away, faces flight disruptions in winters because it does not have an automatic landing system yet. The Delhi airport is a good six to eight hours by road, so catching an international flight could take up an entire day of travel. “My global customers laugh at me when I tell them that I need to leave a day ahead to catch a flight,” explains Rahul Ahuja. 

An industry unravels

Auto component makers are not the only ones to move out. Textile companies such as Trident Group, Vardhman Textiles, Oswal Group and Malwa Industries have invested outside the state, in Madhya Pradesh, Himachal Pradesh and Gujarat, says Vinod Thapar, chairman, Knitwear Club. It’s estimated that Ludhiana’s textile cluster has more than 5,500 textile units and it employs about 800,000-1 million people directly or indirectly, with a combined annual turnover of ₹8,000 crore and exports worth ₹3,000 crore. While no confirmed figures are available, Thapar claims a couple hundred units have shut shop so far. Thanks to the power shortage, Thapar says the textile industry, which was operating at 90% capacity three years ago, now barely runs at 40-50% capacity. Ludhiana has been divided into four zones and every zone faces a power holiday for one day in a week. This happens for 10 months in a year except the winter months of December and January. The power cuts on other days can be for three to four hours a day. 

DL Sharma, director of Vardhman Textiles and vice-chairman, CII Punjab state council, rues that electricity is diverted to agriculture, forcing industry to resort to power backup systems. Installed power capacity in Punjab rose by 12% between FY06 and FY10 but it was hardly enough to meet the growing demand. Three new power plants with combined capacity of over 3,200 MW are expected to come up in the next year or so across the state.

For now, textile companies contend that the little power that reaches them is expensive and they are losing competitive advantage to other states. At over ₹5 per unit, power, which makes up 17-20% of the cost for spinning and dyeing units, along with labour is the largest cost component for the textile industry. Worse, rates are set to jump with the Punjab State Power Corporation’s proposed 58.59% tariff hike to cover its revenue gap. 

Another pain point is labour shortage. Traditionally, Ludhiana’s source of labour has been from outside the state. But thanks to government employment guarantee programmes, the inflow of migrant workers from Uttar Pradesh and Bihar has reduced considerably. Minimum wages increased last year from ₹4,568 to ₹5,200 a month for a worker, yet local labour is hard to find, says Thapar. “We Punjabis tend to have big egos. We can never work with each other without pulling each other down unlike, say, Tirupur’s textile cluster where labourers are organised. That’s why we have always had
migrant labourers.”

While some have opted to increase automation to offset labour shortage, the scarcity of workers has opened up opportunities for women from Ludhiana’s villages. “Punjabi men are either busy in farming or have a drug addiction problem. We hire women from villages around Ludhiana and train them,” says Sharma. Of Vardhman’s 6,000 workers across three factories in Ludhiana, about 35% are women. 

The labour shortage could not have come at a better time for 21-year-old Rajinder Kaur, who works at Shingora Textiles, a shawl manufacturer in Ludhiana. Kaur lives in Kanech village near Sanehwal, Ludhiana, and is the sole breadwinner for a family of six. If you didn’t ask Kaur her age, you could easily mistake the petite, fragile looking girl for a child. Belying her appearance, Kaur took up the tough job of operating a fabric dyeing machine at Shingora in August last year. Women in textile factories usually stay away from operating machines, considered a male domain. “I volunteered because I wanted to move up,” says Kaur, who makes ₹6,000 a month working nearly eight hours a day. 

Shingora provides transport pick up and drop facility for its 30-odd women workers at a common point near their village, and separate toilets in the factory premises. Wages are well above minimum levels, and girls like Kaur can reach out to their representative Rita Sharma, who acts as a bridge between the women and the management. Amit Jain, president, Shingora Textiles, says the arrangement has worked well so far and the company could look at hiring more women in the future. It’s a trend that’s grown over the past two years, and women constitute 15-20% of Ludhiana’s textile industry workforce now. The number is lower for the auto industry, though, at 5%.  

Chain reaction

In the Hero Cycles factory, things are a bit different. The all-male workforce puts out 19,000 cycles every day, working round-the-clock in three shifts of eight hours each. The workers — mostly migrants — are so absorbed in their work they don’t even look up to see visitors. Out in the market, sales have been flat, though, and production isn’t likely to increase next year, informs OP Munjal, chairman, Hero Cycles. For India’s largest bicycle manufacturer with ₹2,300 crore in revenues last year and a 38% share of the market, the economic slowdown has begun to take its toll. “Last year, we had a record high production of 5.5 million cycles. But this year has not been a great one for the industry,” says Munjal. “We add 200,000-400,000 bicycles (in production) every year but next year we won’t be adding much.” 

Another reason for diminishing sales is that state governments in Tamil Nadu, Karnataka, Bihar, UP and Punjab, which account for 25% of demand, have cut down on their purchases. Bicycles are given away for free to the poor during elections or under welfare schemes for certain categories of students. Large players like Hero have a way out of a domestic business rut, though — exports. Africa is Hero Cycles’ biggest export market and it’s now eyeing business from Europe, USA and Russia as well.  

The sheen has been coming off Ludhiana’s industry for some time now. But one silver lining for textile units, which already supply to the likes of Walmart, Future Group and Westside, could be the opening up of FDI in retail. “FDI rules say companies should “preferably” buy 30% of their raw materials from micro, small and medium enterprises,” says Thapar. “This will be good for our business.” Whether business is good or bad, there is plenty to keep the indulgent Punjabis busy. Consider Rahul Ahuja: his more pressing challenge today is his choice of next car — an Audi Q7 or another Merc.