Chidambarao Patil watches a young worker step gingerly on a carpet of toor dal. It is a pleasant afternoon in Gulbarga and Chidambarao weighs his words before speaking. “It has been a very difficult season and I hope it gets better,” he says, still supervising the worker who is now drying the dal.
We are sitting in a city that is often called the Dal Bowl of the south, given the large number of mills that exist here. Chidambarao himself owns three mills that clock a turnover of over Rs.40 crore. Though he also doubles up as the president of the Gulbarga Dal Millers Association, he is finding it difficult to wear both hats with ease. Once home to 250 dal mills, at least 100 mills have shut shop over the past four years. Increased competition and an oversupply of commodity from countries such as Myanmar and Kenya have contributed to a situation, which is nothing short of a crisis.
The big problem in 2016, though, has been excess rainfall, which has played havoc with prices. The average dal output was 24 lakh quintals earlier, has now shot up to 45 lakh quintals. As a result, prices have halved from Rs.8,000-10,000 per quintal to Rs.4,000-5,000 a quintal.
This has presented a paradox for farmers, who, after long periods of deficit rainfall, are now quite literally flooded with a bumper crop. Adding to their woes was the demonetisation move, which was a bolt from the blue. Payments to farmers have been delayed and all this is in the midst of peak season causing much stress and agony. With cash in short supply and poor demand, dal prices are expected to stay benign in the near term.
Give me the money
It is close to noon and Nehru Gunj is noisy. This is the dal mandi of Gulbarga and the constant flow of trucks, and farmers make for a strange spectacle. Dal arrives in large quantities from agricultural fields that are often, at least, 50 km away. Though 300 shops are spread across an area of barely half a kilometer, things are a little quiet today.
Given that the dal season starts off in mid-December and lasts till mid-March, the mandi should have been a beehive of activity. Chunumiya Tadep, a 55-year-old farmer, adjusts his glasses before saying that he has been coming here for the past one month to pick up his Rs.60,000 from one of the mill owners. “I travel by bus one way for two hours and I don’t know when my money will come,” says the farmer who owns 20 acres. The story is no different for 45-year-old Nijalingappa, who makes his way from Bannur, a village 12 km away. He owns 35 acres and demonetisation has struck him too. Prior to demonetisation, payments would be made either the same day or every alternate day. Now, it is a lag of three weeks to a month. As a result, farmers are borrowing money at 3% per month from local moneylenders.
On average, each dal mills employs about 12 labourers. Mallinath Patil, who owns Rajeshwari Industries, one that has survived, points out that at least 70% of the workers are migrants. “Most of them come from Bihar and receive salaries anywhere between Rs.7,000 and Rs.9,000 each month,” he says. And with dal prices falling, mill owners are a worried lot. “It could further fall now and that is the big worry,” says Mallinath.
Dal mills in Gulbarga work on wafer-thin margins of less than 1% compared with 10% five years back and around 25-30% in 2010. However, high prices saw too many dal mills mushrooming since 2012, besides dal imports coming from Myanmar, Kenya and Tanzania. This led to significant margin erosion. “There may be less than 100 mills next year. In the long-tem, it will be completely wiped out,” says Mallinath stoically. He adds that new dal mills are coming up in Latur in Maharashtra apart from Tamil Nadu.
Over time, the nature of the problems confronting the industry has changed. If it was inadequate power three years ago coupled with rising costs of labour, that now, has made way for other issues. For instance, the biggest concern for mill owners is the inability to get money from banks. “We pay 12-13%, while farmers get loans for 2-3%. In a bad season, that is enough to put us out of business,” he explains. Besides, overdraft limit is, at best, half of what is needed leaving mill owners and farmers to look for more expensive borrowing options. Power is no more an issue barring the half-hour cuts, while labour costs are no different from that of any other industry. “We thought this year would yield us a huge profit. Instead, we are fighting for survival,” says Nijalingappa, a farmer who sells his produce to local dal mill owners.
Apart from toor dal, Gulbarga’s economy is also driven by cement. About 10% of the country’s cement production comes from this region and its prosperity is driven largely by these two industries, with bentonite and real estate making a smaller contribution.
Gulbarga saw a spate of construction activity starting 2010. A drive through the city throws up massive structures such as the ESI Hospital and the Central University of Karnataka, which have come up during this period. In the process, the perception of the city changed from one that was quite happy with its mundane existence to now wanting to bring in big-ticket investments. Apart from health and education, the big story is cement, given the region’s proximity and access to limestone, the most critical raw material.
Over the past five years, a host of companies have either entered Gulbarga or are close to setting up manufacturing. This includes names like Chettinad, Orient and JK Cement. Sitting in his large office, Pramod Kumar Singhania, senior vice-president, Orient Cement speaks about his plans for the region. “We have an existing capacity of three million tonnes here and the plan is definitely to look at adding another three million in the near future,” he says.
Orient, a CK Birla Group company, is among the newest entrants in the region and has a capacity of eight million tonne across three plants. Manufacturing began in September 2015 at the Chittapur plant, which is an hour’s drive from Gulbarga, with a planned capacity utilisation of 60%. “We are already at 55% today and should get there soon,” says Singhania, who has spent 36 years in the cement industry.
As the discussion veers around the demonetisation move, Singhania says that it has had no impact on his company’s fortunes. According to him, cement despatches out of the Chittapur plant in December was 1.57 lakh tonne. “We have never sold this much ever since inception. In November, it was 1.12 lakh tonne,” he says. For just the first ten days of January, the corresponding number is 61,000 tonne.
Singhania feels the market is slowly recovering and that has helped in the numbers going up. A significant part of his monthly despatches — as much as 25% — comes from Hyderabad and adjoining state of Telangana, which has been witnessing a lot of construction activity. To his mind, there are not too many challenges except the rising cost of coal, the key raw material.
Cement traders, though, point out that the proliferation of more cement brands has left them with no bargaining power on the price front. When the cement price was Rs.270, the traders were making a 3% margin, which has now come down to 1.5% as brands jostle for space. Rajesh Lahoti, a multi-brand cement dealer, laments, “While the number of brands have doubled to ten leading to aggressive pricing, other costs too have increased,” he says.
Real estate slowdown
Thanks to demonetisation, construction projects are being delayed by three to six months. “Yes, there is concern but this is nothing more than a temporary setback. We are looking for stability once GST is implemented,” says Rajesh Dayama, a dealer of Orient Cement. Not surprisingly, a lot is expected from the government and Lahoti thinks, “There should be a focus on road construction, which will propel demand for cement,” he says. Dayama though has his own fears, “If there is no indication of demand recovery by March, we will start getting a little worried,” he says.
The real impact has been felt in real estate, which has left developers a harried lot. The construction boom that began in 2005, saw more developers join the fray. Praveen Patil who owns Kalyan Developers, is wistful about the past when asked how his business is faring. “Nothing has hit us as hard as demonetisation and this is the worst phase that I have ever seen in the local real estate market,” he says.
His company saw a big opportunity in the villas and resorts business. “The concept was unknown in north Karnataka and we decided to make a foray about a year ago,” explains Patil. The first phase was meant to have 100 villas starting off with a price tag of Rs.27 lakh. Located on Afzalpur Road, about 6 km from Gulbarga railway station, Patil thought he had a winner on his hands with 31 bookings coming in by the end of last November. “Ten bookings were cancelled after demonetisation,” he says.
This situation has to be understood from a time when land prices in Gulbarga were still not out of reach. For instance, land at Aland Road near the central university, was sold at around Rs.45,000 per acre in 2009. Just before demonetisation, prices had moved up to an astronomical Rs.15 lakh an acre. In many ways, it is expensive housing that has been affected the most. Sanjog Rathi, president of the Gulbarga chapter of CREDAI, says the slowdown was felt as early as September. “Demonetisation has been only a catalyst,” he thinks. His company, MG Associates, is a player in the low-cost housing segment (starting off at Rs.10 lakh), where he speaks of a drop of about 10% in prices as against premium housing where the cut could be deeper.
For someone like Patil, the total outlay for his project is estimated to be upwards of Rs.25 crore, “So far, I have put in Rs.2 crore out of my personal savings. That money is stuck and there is every chance now that I may just scrap the project,” he says. For now, Gulbarga is still watching one of its key industries, toor dal¸ even as demonestisation plays havoc with the construction and real estate industry. The fear is that things could get far worse before it gets any better.