It’s been nearly three weeks since Rs 500 and Rs 1,000 notes were withdrawn from circulation, and the cash crunch has severely hit the supply chain of India’s Rs 7,000-crore cycle hub in Ludhiana.

Ludhiana produces 1.45 crore bicycles a year, with almost 60 different parts manufactured by around 10,000 ancillary units, and assembled by about 100 other units. But now, consumers are not buying bicycles, even those that cost just Rs 800-1,000; assemblers have cut production by half; dealers are not placing fresh orders; and, big component makers are unable to source from smaller units that need to be paid in cash.

With inventories used up, and no fresh orders, units have cut working days and hours. And, almost a third of migrant workers, unable to make ends meet, have returned to their homes in Bihar and Odisha.

The disruption starts at the top of the supply chain, the assembler, and affects raw-material producers and component manufacturers.

The owner of ‘Goldman’ cycles, Surinder Singh, who also has a showroom, says: “Since November 9, I have not got a single customer in my showroom. I had booked orders from Bihar and West Bengal during my visit there in October-end. I had to deliver the cycles now. But the dealer is asking me to wait for another month. The transporter, too, is not ready to move his trucks. With nobody seeking deliveries, there is no reason to manufacture in a hurry.”

Poor demand has also killed the need for raw material, like iron and steel. “The monthly demand for iron and steel from the cycle industry is nearly 4,000 tonnes. We have not even sold 300 tonnes during the last fortnight. The market is vacant. I have material stocked, but I will not order more from rolling mills till this stock is exhausted,” says R L Singla, President, Ludhiana Iron and Steel Association.

At the tier-2 level are ancillary units making brake sets, nuts and bolts, wires, etc., who are the worst affected. Old inventories of small ancillary units have been exhausted, and they are yet to be paid for previous orders. While suppliers do give them 60 days credit, the units do not see any point in producing components with no demand. The smaller parts producers, operating on cash, are also finding it impossible to manage.

Paramvir Singh Bhogal, owner of Bhogal Cycles, says his business runs on bills but he is still finding it difficult to procure small parts that require cash. “Work is certainly suffering. But the situation is worse for small units that use cash to run their units,” he says.

“I have halved my production to 5,000 brake sets. We do not have cash to buy small parts. The work is affected. Sales have nosedived. Our retailers, who buy cycles, say they can pay only in Rs 500 and Rs 1,000 notes, which are banned,” says Charanjit Singh Vishwakarma, who owns a brake sets manufacturing unit, and is president of United Cycle Parts and Manufacturers Association (UCPMA).

Badish Jindal, who owns a wire-making unit, says the wait for payments has become longer for smaller parts-makers. “I am yet to get old payments and in the present scenario, they have told me to wait for three months. So I need to work within my means. I have cut production by 30 per cent,” says Jindal, who also heads the Federation of Small Scale Industries Association.

It’s no different for Jaswinder Thukral, who runs a small unit in Janta Nagar for making nuts and bolts. “When bicycle and auto parts companies have reduced their production, my manufacturing also needs to be slowed down. We are interlinked,” he says.

Such severe cuts in output have also impacted lives directly. The bicycle ancillary industry, which employs about 3 lakh people, has cut working hours by a third, reducing working days and stopping night shifts, and asked workers to return to their home states.

Ranvir Steels, who runs a unit making iron rods, has introduced a five-day week, giving workers two days off instead of one. He has instructed his workers to do maintenance work on the machines on the second off day.

“Our unskilled labour went back since they were finding it difficult without cash. We do not have enough cash to pay workers. Almost a third of the labour has returned home,” says Vishwakarma of UCPMA.

“The labourers have gone back saying that they will at least get rice to eat there. The poor are the worst hit. And our industry depends on labour,” says Varinder Kapoor, Ex-General Secretary, UCPMA.

Many manufacturing units get 60 days credit from suppliers of material, but owners say there is no demand. “When there is no end buyer, why should I purchase any material even on credit. We think we will not be able to stabilise even by March-end. All eyes are now on GST (Goods and Services Tax), which will be implemented in April,” says Avtar Singh, who owns Gurleen International, a component maker, and is president of the Chamber of Industrial and Commercial Undertakings.

What has been sustaining the industry so far are government orders — of the 50,000 cycles produced here every day, government tenders account for 30,000, according to estimates.

“We are making only government-tendered black bicycles. Otherwise, after demonetisation, we have got no fresh orders from the market,” says Harmohinder Pahwa, owner of Nova bicycles, which has a nation-wide distribution network.

The worst affected are migrant workers, mainly from Bihar and Odisha, who are unable to stand in ATM queues during work hours. “Migrants are facing problems in getting their money deposited in Ludhiana banks as the rush is huge. Many of them are going back to their home towns. Also, they want to be with their families during the cash crunch,” says Hargobind Tewari, President, Parvasi Mazdoor Union.

Source: The Indian Express