07/09/2023
‘We will be finished’: Modi manufacturing plan squeezes small Indian firms
Incentives to big manufacturers aimed at challenging China are threatening small businesses, India’s economic backbone.
Until a few weeks ago, Gurmeet Singh Kular’s cycle parts factory in this northern India manufacturing hub was operating at less than 40 percent capacity. There were hardly any orders for the rims and mudguards that his family has been making since 1952 for the basic bicycles used by generations of Indians but whose sales are now fading away.
Relief came as some state governments put in orders for these bicycles, often handed out by authorities during election season, which is coming up in the next few months, or to schoolgirls from low-income families.
back. There has been a significant employment loss and loss of those products,” he added.
On a recent hot September day, a worker soldered a piece of metal into what would become a cycle rim while another smoothed the sharp edge of a mudguard.
While Kular’s industry, most of which is based in Ludhiana, saw a boost in business in the first few months of the COVID-19 pandemic as people picked up cycling as a sport, that boom has since faded and many cycling-related businesses are closing down or paring back production and the number of their employees, he said.
“There are no [loans] available to buy cycles unlike for scooters and motorcycles,” Kular said. Even though basic cycles cost as little as 4,000 rupees ($50), loans make automated two-wheelers affordable, eating into Kular’s potential clientele.
Small businesses like Kular’s make up a giant chunk of India’s manufacturing sector. The segment – officially called micro, small and medium enterprises (MSME) – provides about 30 percent of the country’s gross domestic product, produces 36 percent of the national output and is responsible for close to 45 percent of India’s exports, according to data by India Ratings, a unit of the American credit ratings agency Fitch. There are 18.9 million such businesses, employing 129 million people.
They are also important in India’s efforts to grab some of the global manufacturing market share as global brands try to diversify their supply chains to reduce their dependence on China in the face of trade and political tensions between Washington and Beijing.
But they have been buffeted by a range of shocks in the past few years, including Prime Minister Narendra Modi’s decision to remove high-value currency notes overnight, a new national tax and COVID-19, which wiped out thousands of businesses and millions of jobs.
Most MSMEs “don’t have deep pockets” and their survival depends on being able to operate every day, said Sunil Sinha, principal economist at India Ratings. “Many of the MSMEs who closed down during COVID could never come back. There has been a significant employment loss and loss of those products,” he added.
On the back of those losses some have struggled to keep up with changing industry dynamics, such as consumer preferences for higher performing or more trendy cycles in Kular’s sector, for instance.
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