State Of The Economy 2017

In For A Rough Ride

Demonetisation adds to the existing woes of cycle and auto components in Ludhiana 

Vishal Koul

 

Omkar Singh Pahwa is not a very happy man and certainly not a big advocate of demonetisation. The MD of Avon Cycles has seen his sales plunge in the rural markets and take a significant knock in the urban space. “Retail sales have been badly affected. The demand for bicycles from small cities and rural markets is down by 85%, and in urban markets it is down by 25%,” says the worried-looking industry veteran who has been in business for more than five decades. He attributes the slump in demand to demonetisation directly. India produces 18 million bicycles each year, with Punjab accounting for 75% of bicycle production. 

Ludhiana is the bicycle capital of India with over 4,000 manufacturers including Hero Cycles, which makes around 20,000 cycles a day. With most of its buyers paying cash, it was an industry that would be impacted by such a drastic policy shift. “The high-end bicycles, which are mainly used by city dwellers, hardly form about 1% of our sales. The medium and low-end variety of cycles form our bread and butter,” says Pahwa. The Rs.450 crore company depends on small cities and hinterland for 70% of its sales and sadly for them, consumers are postponing purchases till the demonetisation dust settles. 

While Pahwa feels that the long-term effect of demonetisation could be good, he is an immediate bearer of the cash crunch’s pain. “Earlier, we produced 10,000 bikes a day, but currently we are down to 8,000 units per day and that too because we have government orders. We will be able to fulfil that order very soon,” he says. Pahwa indicates that while big companies like Avon have been able to absorb the cash crunch shock, some of their small vendors have offloaded 70% of their workforce. The bicycle industry in Ludhania employs nearly 80,000 people.

The effect of demonetisation seems to have spilled on the entire industry in all the wrong ways. Maninder Singh of KS Munjal Industries that is a supplier to Hero Cycles, Avon Cycles, Safari and Neelam believes that demonetisation has shaken the backbone of the industry. But to what extent? “The impact is at two levels. Firstly, there has been a flight of employees; we lost 20% of them. Secondly, we have to deal with the demand s

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