US President Donald Trump ordered the killing of Irani military chief Qasem Soleimani. Could this cause instability in the Middle East?”
“What will come out of US-China trade war, eventually?”
These are not from discussions with a strategic affairs expert at a think tank in New Delhi. These are from conversations we had with owners of micro, small and medium enterprises (MSMEs) in Moradabad, in western UP. The fortune of this handicraft capital of India, which produces 40% of the country’s annual handicraft exports, generating Rs.60 billion in revenue, fluctuates with global events. “When the US forced India to downgrade trade ties with Iran one year ago, this city lost business to the tune of Rs.5 billion,” says Sanjay Gupta, president, Parkland Exports.
Moradabad, named after Shah Jahan’s son Murad, has always been closely integrated with the world economy. Known as ‘pital nagri’, it is known world over for its brass industry, which was set up by the British. Ever since the 19th Century, the British had begun shipping pieces moulded and carved by local artisans to Europe. The exports market flourished even post-independence but, over time, global demand began to fall. Brassware was found to be chemically reactive to food, was expensive to make and looked old-fashioned. By 2000s, brass started giving way to aluminum first and then stainless steel, iron, wood and glass.
Today, this industry is made up largely of small and micro units, about 5,000 of them. The larger units are about ten in number. While the businesses here are still focused on exports, they are not insulated from domestic upheaval. The handicraft industry’s revenue has fallen from Rs.80 billion a year ago to Rs.60 billion. This is largely due to the “lousy” implementation of GST, according to Shailendra Aggarwal, Secretary, Indian Industries Association (IIA), Moradabad Chapter.
Aggarwal speaks passionately when he talks about the future of Moradabad’s industry. We drive with him through the city, and he points out every area of trouble here. For example, we are stuck in a traffic jam, which does not break up for long. “This double-laning of a flyover over a railway line has been going on for two decades. It must a record,” he says, laughing. The point he is trying to make, not so subtly, is the neglect Moradabad has to be consigned to.
But poor infrastructure is a known devil. And, the entrepreneurs have learnt to get around it. What has caught them by surprise is the new taxation system. Aggarwal says that exporters’ GST refund has become impossibly difficult to claim. It requires diligently uploading invoices that record payment of taxes for inputs. “The micro suppliers are not very educated, also not tech-savvy. They have not kept records in the past. If they cause a delay in compliance, it holds back the working capital of exporters,” he adds.
“20% of our working capital is blocked because of GST,” says Gupta, adding, “since there has been a decline in orders, our worker count is down from 400 to 270.” Aggarwal says that there are 1.5 million people dependent on Moradabad’s handicraft industry, and he believes that over 100,000 are out of work now. The employment crisis had really begun over six months before the GST rollout, when the small and micro units suffered a body blow with demonetisation. Since large part of the system runs on cash, it suddenly came to a halt with no currency to pay salaries and therefore complete orders.
Gupta comes from a business family, but they trade in textiles. He had dropped out of the chartered accountancy course in 1995 to set up a handicraft unit here. “I got my first order from the US, for table lamps. It meant a lot to me then,” he fondly recalls. Moradabad’s main export market is the US, where 50% of its wares is sent. Europe buys 25%, and the remaining goes to the Middle East.
He is not new to crises. In fact, when Gupta started out, the industry was going through a short upheaval. In the early nineties, China’s special economic zones (or SEZs) rampaged every market. Mass-produced goods in these zones that enjoyed big tax breaks became a threat to many players. But, staying small is what helped the handicraft industry then. “We managed to survive because units here take even small orders, for even 100 pieces. We don’t even charge additional tooling costs when the order size is low,” he says.
Bigger players such as Rajnish Agarwal, director, Om Sons India Group, are faring better this time around. This Rs.500-million company has six diversified handicraft units, employs 700 workers and sells in many countries. If one geography has been troublesome, another has been profitable. “Due to Brexit, we lost the England market, and Syria and the Gulf region are seeing little business activity because of the conflict. But we have gained because of the US-China trade war,” says Agarwal.
Joginder Gandhi is also keenly looking at the US-China trade war. His company Dewan & Sons was founded by his father in 1967 and exported goods worth $40 million in FY19. Gandhi has been travelling to China for some time now, and has noticed the gloom that has set in there. China’s handicraft industry, like its other manufacturing industries, is heavily dependent on exports. With sales to the US disrupted, a part of its companies’ capacity is idling away. “The units which had workers doing several shifts, run only till lunch now,” says Gandhi. International buyers now flock to this city in UP to scout for suppliers.
In his Moradabad facility, Gandhi walks through an expansive hall strewn with firepits, beverage dispensers, party tubs, showpieces and what not. Some of these will end up at a Walmart soon. Like many others in the cluster, his unit supplies to many big brands such as Harrods, Williams-Sonoma, H&M, Ikea and Pottery Barn. Gandhi stops at one of the copper firepits, to narrate a story of victory over Chinese manufacturers. “We snatched this deal from China seven years ago. We outbid them,” he says, adding, “but there is more”. As soon as the bid was won, copper prices shot up. This meant the quoted price wasn’t viable anymore. But the company still honored the commitment and it has been selling the product for seven years now.
Larger manufacturers such as Gandhi and Agarwal are ahead of the curve with the automation trend that is disrupting this industry. Gandhi’s unit in Moradabad SEZ has installed robots for polishing. They started mechanising their processes a while ago and, five to six years ago, the small and mid-sized units joined in. While a lot of units still craft artefacts with hands, using basic tools or machines, they are deploying more automation for processes such as casting, moulding and painting. Even with just 30% manual input, a product can be classified a handicraft.
Oswal Metals, which is located about four kilometres away from Gandhi’s unit in Moradabad, is on the cusp of this change. Its director Manik Sagar Jain warmly welcomes us. His company fabricates stainless steel for handicraft units. He says that his company introduced laser machines right in time, when the industry was transitioning from brass to stainless steel and aluminum. Even though brass-based products make up for only 20% of the region’s total exports today, Moradabad will always be known as pital nagri. “Ten years ago, the city’s requirement was 50-60 million tonnes steel (MTS)/month. Now it has jumped 10x, to 500 MTS/month,” he says. He supplies 120 MTS/month to units now and runs a Rs.150-million business with eight to nine workers.
Jain believes that the future is not bright for the older generation of karigars and microunits. “They have to upgrade their skills and adapt to modern ways of manufacturing,” he says.
Few things can worry Raghav Gupta, director, CL Gupta Exports. There is reason for him to be cheerful. His company is the largest handicraft exporter in Moradabad, and unlike mid and small-sized units, it hasn’t seen any dip in trade this year. Revenue went up from Rs.4.9 billion in FY18 to Rs.5.7 billion in FY19. But Raghav is not patting himself on the back; he knows that it has come from the US-China trade war. He knows that the neighbouring country has a bigger advantage, one that is more lasting, that of skilled labour.
CL Gupta Exports employs over 5,600 people and the company is still short of skilled labour. “The vocational training schools teach them basic things such as cutting and welding. But technology is changing now. We need people skilled in casting and packaging. China trains its people in casting. Here, the manufacturers have to train their employees and then they leave, and we have to start all over again,” says Raghav. His unit runs at 80% capacity now, mostly unaffected by the widespread slowdown in the city.
The ones in the league of CL Gupta Exports and Dewan & Sons are largely insulated from the industry’s woes, of cash crunch and technological lag, but IIA’s Aggarwal says that the current government’s regulations are affecting every enterprise big or small. They are disruptive and not in keeping with the times, he says. His grouse is particularly about the pollution-control regulations. “The charcoal-based bhattis (kilns) are to be closed, according to an announcement made six months ago. But the government has not readied any alternative infrastructure such as a gas pipeline for the industry,” he says, adding that this cluster has traditionally been coal-based and gas isn’t a viable option because of its price. Charcoal costs Rs.15/kg whereas gas will cost Rs.45/kg. The industry is still trying to negotiate an interim deal with various government agencies. Small units are still using charcoal and there is talk of supplying gas to this cluster in the future.
Despite these annoyances, his and other businesses here agree that the road connectivity to Moradabad has improved over the past year and so has the quality of power supply. They hope to see a functional airport in the city soon, especially since it is an export hub.
To usher the industry into a new age, the state government had announced a tie-up with e-comm players. The business people see it as a positive step but doubt if it will help them significantly. From karigars and medium-sized to large units, all work as an ecosystem to serve an export-oriented machine. Direct-to-customer sale has never really picked up, and they doubt moving online will change that much.
Moradabad is no stick-in-the-mud. The enterprises here have changed its material and processes to stay relevant. But now they are caught in the middle of an opportunity and threat — the US-China trade stand-off, and the shortage of skilled labour and technology to make the best of it. They have proved their mettle in the face of every crisis and now it is time for the government to show its support. A global market is waiting.