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Photographs by Soumik Kar

State Of The Economy 2015

Handle with care
Shortage of skilled labour, power outages and environmental activism are the primary bones of contention in Naroda

Rajat Ubhaykar

Fragile: Crockery manufacturers like Shiv Shakti Ceramics have to make do with a net profit margin of 5%

Showing us around his sprawling 2,500 sq metre ceramic kiln in Naroda, Chandrakant Patel, a tall man with a poker face, is mighty miffed at the deteriorating quality of engineering graduates from local colleges in Ahmedabad. “They’re only taught copy-pasting. They’ve got their heads buried in their smartphones all the time and they show such disdain for manufacturing jobs. The situation is so bad that they can’t even calculate the volume of a cylinder,” he says, as we enter his workshop where 25 workers are engaged in making cups and saucers out of feldspar and quartz procured from Udaipur, or as local truck drivers put it wondrously, “Mitti se sona bana rahe hain” (making gold out of mud). 

Where skilled supervisors are a difficult find, skilled labour, sourced informally through labour contractors, is even tougher to get. In fact, a minor labour crisis is underway in Naroda, where almost every businessman we interviewed claims that availability of quality skilled labour is a major challenge.  

Chandrakant bemoans the absence of a ceramic course at the local Industrial Training Institute (ITI). “Productivity increases with skilled labour, so we’re doing the job that schools and institutions should do. We have no option but to take in unskilled workers and train them, which takes 4-5 months,” says Chandrakant, owner of Shiv Shakti Ceramics, an SME that manufactures crockery and distributes it under its brand. Chandrakant says there is a ceramics diploma course in Morbi, but graduates of the course typically choose to stay back, Morbi being the ceramics hub of Gujarat. Shiv Shakti Ceramics has an annual turnover of ₹1.5 crore with a net profit margin of 5% and employs around 25 people. 

Despite icreased labour costs, comapnies are optimistic about the future of their business

Chandrakant isn’t the only one facing this issue. Ramesh Patel, president of Naroda industries association (NIA) and owner of edible oils SME Apex Industries, says that the militant labour problems have gone down considerably but availability of skilled labour remains a major issue. But this doesn’t mean the government is turning a blind eye. Under the apprenticeship training scheme (ATS), the government incentivises skilling by paying a stipend to apprentices undergoing training at ITIs and employment exchanges.

According to the government, with 5,800 establishments under the scheme, Gujarat stands second in India, after Maharashtra (7,520). “At present, 42,341 seats have been allotted in 5,800 industrial establishments in Gujarat under ATS, which are bifurcated within 12 major high-growth sectors. Among them, 30,764 seats are utilised (73% utilisation of allotted seats). The percentage of successful apprentices is 87.67 % in 2012,” a government website claims.

SN Mishra, scientist-in-charge at the Central Glass and Ceramics Research Institute (CGCRI), says that CGCRI has several programmes dedicated to the collaboration of industry and academia, targeted towards SMEs. “For instance, we have helped SMEs reduce the firing temperature which saves energy and increases productivity. We also run programmes relating to the chemical analysis of raw materials so that SMEs in ceramics can become self-sufficient,” says Mishra. 

Chandrakant patelm Shiv Shakti CeramicsVicky Batra, marketing manager at Pravasi Industrial Corporation, also says that while the economic environment is stable, the availability of skilled labour is a major issue. “Wages for quality skilled labour have shot up recently. Also, unskilled labour is often fickle and opportunistic, rushing off to a job with even marginally better pay,” he says. Pravasi makes textile machinery parts, particularly spinning machinery parts, which it sells to textile mills that manufacture yarn. It has a turnover of around ₹3 crore, employs 16-18 people and has a profit margin of 15-20% of turnover. Around 20% of its revenues are derived from exports. 

In addition, technological upgrades are not an option for low-turnover SMEs, sometimes rendering them uncompetitive. Pravasi has a rudimentary workshop with some lathe machines, and it outsources some of its work. Batra admits to not being able to keep up with technological improvements such as automated CNC machines and hence requires skilled labour. “Ours is a maintenance-driven business. We cater to specific machine makes. These machines have a life of around 30-40 years, but mills are increasingly upgrading their technology, which will make it difficult for us to survive for more than 10 years now,” he says. 

Smaller industries have problems keeping up with manufacturing technology. Chandrakant admits that he isn’t able to keep up with the capital-intensive technology upgrades. “After paying for labour and other input costs, there just isn’t enough economic incentive to modernise my kiln,” he says.

Of potholes and dust

It’s a hot day as we enter Naroda Gujarat industrial development corporation (GIDC) where every second businessman is a Patel, Mehta or Parikh. The well-paved roads trail off sideways into dusty patches typical of semi-urbanised towns. On the side are makeshift tenements erected by migrant labourers and the occasional paan-beedi-chai shop. However, once we pass the gigantic Reliance textile factory established in 1977, the tarmac gives way to massive potholes filled with stagnant water, completely engulfing the road.  

The NIA acts as interlocutor between the industry and the government, communicating members’ demands — such as issues relating to VAT, excise and service tax — to the government. In addition, the NIA spends around ₹8-10 crore every year on infrastructure projects. Around 60% of this is supplied by the government under the ‘Assistance to Critical Infrastructure Projects’ scheme, while the rest is arranged for by the association itself. Seventy-five per cent of the municipal tax that is paid through the GIDC is taken back by the NIA for infrastructure projects. In total, it manages to arrange ₹3-4 crore every year, says Ramesh.

Chandrakant is contemplating shifting his ceramics factory to Himmatnagar — around 60 km from Ahmedabad — in two to three years, as he has to pay additional municipal tax since Naroda GIDC falls under the Ahmedabad municipality’s jurisdiction. He says this sentiment is shared by all the 25 or so ceramic companies based in Naroda. “My factory is around 35 years old. In a new factory, we can make modifications in our kiln layout. Land prices are also increasing here so we can make a neat profit by shifting to Himmatnagar, where land is much cheaper,” he says. 

Profit crunch

Recently, margins have come under pressure because of rising power costs. Ceramics is a power-intensive industry, with electricity and gas accounting for over 40% of total input costs. “Power costs have gone up by as much as 25%, but we find it extremely difficult to pass on the expense to the consumer because of domestic competition as well as the Chinese dumping of goods,” says Chandrakant. 

Dumping too, is a problem for companies across sectors. NIA’s Ramesh has closed his factory in the off-season, since the mustard season typically lasts from March to July. Apex Industries has a turnover of around ₹12 crore, and a variable profit margin ranging from -2% to 2%, depending on government intervention, which is often an issue for agri-based industries. Dumping by countries such as Indonesia and Malaysia has also led to a lot of price pressure. In addition, raw material costs go up because of government-supported Minimum Support Prices (MSPs), putting manufacturers in a double bind. “Import dumping must be reduced via anti-dumping duties, or the government should subsidise domestic businessmen,” says Ramesh.

Things are much better for bigger companies. Dishman Pharma, which opened its first mother plant in Naroda in 1983, now manufactures active pharmaceutical ingredients used in antiseptic and antibacterial products, with a monthly turnover of ₹12 crore. Around 90% of the products are exported to its foreign subsidiaries, which then sell the products to pharma companies. “Our competitors are big companies such as Dr Reddy’s, Aurobindo, Torrent, Intas, etc. SMEs can’t compete with us cost-wise. One major foreign competitor is China,” says Umang Mehta, human resources manager. Dishman’s plant has around 210 workers on its rolls with an additional 500 contract workers. It hires skilled workers from the nearby ITI. Mehta says a majority of industries in Naroda prefer to hire contract workers, presumably since they are easier to lay off. 

 Going green

Ramesh says that financing is another problem for SMEs. “There is no major difference in interest rates, we have 0.5-1% reduction compared to normal lending rates, in addition to which banks ask for collateral as well as personal security. Right now, chemical industries are facing pollution-related issues, while engineering companies are facing a demand crunch,” he says. 

Ashwin Sadaria, Akash IndustriesIndeed, most of the ‘polluting’ industries have had to reduce output or find it almost impossible to get expansion permits, because of the recent environmental activism displayed by the Gujarat Pollution Control Board (GPCB). The Board classifies industries into red, orange or green, depending on how polluting they are. 

Dwarkaprasad Bajaj, owner of Industrial Chemical Works, a company employing around 60 people with an annual turnover of ₹14-15 crore, says that he has had to reduce output because of an order from the GPCB. The environment seems to have taken precedence in Gujarat’s industrial corridors, with several other factory-owners running ‘polluting’ industries claiming a similar shift towards green manufacturing. 

Ashwin Sadaria, owner of Akash Industries, which makes dye intermediates by importing raw material from China and falls in the red zone, says that the GPCB won’t let him expand his unit, much like the case of the rest of the 450-odd chemical industries in Naroda. The dye industry in particular is responsible for water pollution. Sadaria has a turnover of ₹5 crore, a profit margin of around 10% and a staff of seven. “I have no business-related headaches. I have stable demand from export-oriented dye companies which export to textile companies and traders in European markets. Harassment by inspectors has also reduced,” he says. 

Ramesh concurs. “Now, inspections have been centralised because of which inspectors need permission from superiors in order to carry out their inspections. It’s not like old times, when an inspector could just walk into any factory and extort aaj ka kharcha (today’s expense),” he says. 

However, Ramesh feels that while new SMEs are being encouraged, existing ones are being ignored. “The government should simplify labour policy and give easy financial support to SMEs. Right now, single-window clearance exists only for larger corporates, but the same should be extended to SMEs,” he says. 

In spite of all their complaining, Naroda businessmen continue to remain bullish about their trade. “My son is preparing for IIT. After IIT, I’ll let him work for two-three years to gain experience and exposure. Eventually, though, he will be getting into business. It’s in our blood,” says Sadaria with a sheepish grin.  

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