TIRUCHY: The lockdown may have left the world topsy turvy but the Micro, Small, and Medium Enterprises (MSMEs) in Tiruchy’s Thuvakudi industrial estate surprisingly do not feel the pinch. Well, not entirely surprising as they have been teetering at the brink of a collapse for the past six years; what could six month’s of pandemic rob them of when they already had lost everything! “Our units have been in the ICU for the past six years. What worse could this lockdown wreak,” a cross-section of manufacturers TNIE spoke to said.
Swift and sudden
The downfall of the MSMEs from pink of health to terminally-sick status was sudden and dramatic. It was triggered by both national and international occurrences: The hiatus in coal mining in northern India since 2014 (Coalgate Scam), and India ratifying the Paris Climate Change Agreement. The combined effects of these two developments robbed the MSMEs of their thunder, forcing a majority of them to go out of business.
The halcyon days
Till 2012, the Thuvakudi MSMEs were a thriving lot. Spread over 850 acres, this MSME cluster was home to around 450 units, employing over 40,000 people, both directly and indirectly. These units were predominantly ancillaries to the Bharat Heavy Electricals Limited (BHEL) here. Back then, happily burdened with enormous orders, all these units functioned round-the-clock. Buses to Thuvakudi were always jam-packed with workers, while the lorries swarmed in and out, bringing the raw materials in and carrying the finished products out.
Cut to 2020
An eerie calm envelops the estate. The bustle is conspicuous by its absence. And for ominous reasons. By 2018, 84 units had turned non-performing assets (NPAs); 250 were stressed. Treasurer of the Tamil Nadu Boilers Association and an MSME owner, Rajappa Rajkumar, recalls: “The industrial estate began with four units manufacturing low-tech items. More units mushroomed and by 1978, 200 were functional.”
Watershed
The year 2012 marked a watershed moment for the Thuvakudi cluster, with the combined production of the units touching 3.5 lakh tonnes a year. “Had you sought an interview back then, we would have refused point blank,” said P S Karthic, an entrepreneur whose unit’s offerings included gun components. So what happened between 2012 and 2018 to shatter the units? When did the downfall begin?
Power play
The State was reeling under power shortage at the turn of the decade. There were talks about several power plants coming up to bridge the demand and supply gap. Rajkumar says, “Expecting a hefty spike in business, and based on the BHEL’s projection, the MSMEs buckled up to raise the production of components to seven-lakh tonnes a year. This was almost the double of our existing capacity. This demanded doubling the investment.
So, we took loans to increase our production capacity... The promised boom never came.” Rajkumar attributes two reasons for the fizzling out of the predicted boom. First, the Supreme Court cancelling allocation of 214 coal blocks to mining companies in 2014. Secondly, India’s ratification of the Paris Agreement on Climate Change. These two factors bore heavily on the fortunes of the power sector in India. Consequently, no thermal power plant installation or expansion took place. This resulted in a downturn in the orders for the BHEL. And once BHEL was affected, the shock percolated to the ancillaries in Thuvakudi, crippling the MSME units, which had taken hefty loans to augment production.
Punished for what?
“We do not know whether the politicians or the officials accused of the irregularities in the coal block allocations ever got punished. But for no fault of theirs, the MSMEs were punished,” Karthic says.
The result: Production plummeted by 50 per cent, resulting in the meagre output of only 1.7 lakh-tonnes in 2015. Rajkumar says that the production currently stands at 80,000 tonnes a year. “As a result, 32 units became NPAs in 2016. Another 52 units turned NPAs in 2018.
At present, 270 units are stressed,” he says. With several units shut and thousands of jobs lost, the transformation was drastic. In some cases, employers became employees. Senthil Rajkumar, who owns an MSME, says, “In 2012, there were 100 people working in my unit. Now, I am all alone here. If I get any orders, I engage four or five contract workers to complete the job. That’s about it... I took over a unit in 1999. Later, I developed it by investing `1 crore. In 2012, I invested `3 crore expecting growth. Now, my unit is an NPA,” Senthil says.
GST, the David slayer
While talking about the factors, one cannot forget the impact of the Goods and Services Tax (GST) on these units. While the effects of 2016 demonetization were not felt much, the introduction of GST a year later rocked the boat that was already in choppy waters.
The Summing up
“Most of us started the units when we were living in rented houses. Through hard work, we earned money and bought new houses and moved in. We request the governments to ensure that we do not have to move back to rented houses,” is how Karthic sums up the predicament. His unit once had 85 employees. Now there are only three.
The double whammy & unwitting victims
Treasurer of Tamil Nadu Boilers Association and an MSME owner, Rajappa Rajkumar attributes two reasons for the fizzling out of the predicted boom. First, the Supreme Court cancelling allocation of 214 coal blocks to mining companies in 2014. Secondly, India’s ratification of the Paris Agreement on Climate Change. Consequently, no thermal power plant installation or expansion took place. This resulted in a downturn in orders for the BHEL. And once BHEL was affected, the shock percolated to the ancillaries in Thuvakudi, crippling them
From where would the fresh lease of life come...
PS Karthic of Essess Toolroom Services says, “GST piled on the burden the MSMEs. There is this factor of delayed payments from customers that the computerized GST does not take into account. We are forced to mobilize funds to pay up the GST dues in time.
During the Excise Duty and Sales Tax regime, there was at least some flexibility.” Rajappa Rajkumar says, “Our main demand is that the Central government and the RBI take measures to establish a rehabilitation cell in banks to deal only with the MSMEs. This cell may help many sick units to stage a comeback.” “Secondly, the Centre recently announced a Rs 20,000 crore Credit Guarantee Scheme for Subordinate Debt for MSMEs.
As per its guidelines, units that became NPA after March 31, 2018, alone can avail of the benefits. It should be extended to the units that turned NPAs from January 1, 2016. This would benefit many units at Thuvakudi,” he adds. They also have a demand that requires State’s action. “It should the necessary initiatives to bring business from defence and railways by forming a special committee. This committee may act as a bridge between the MSMEs and the potential customers,” the entrepreneurs say.
Current status
As many as 32 units became NPAs in 2016. Another 52 units turned NPAs in 2018. At present, 270 units are stressed. With several units shut and thousands of jobs lost, the transformation was drastic. In some cases, employers became employees
Micro, Small and Medium Enterprises (MSMEs) in the Thuvakudi industrial estate were in the pink of health. The production was on an upward spiral and good days were seemingly ahead. The prospects had never looked brighter. But then came...