Cash crunch hits cycle hub: no sales, production slashed, workers leave

Old inventories of small ancillary units have been exhausted, and they are yet to be paid for previous orders.

Written by Kanchan Vasdev , Raakhi Jagga | Ludhiana/chandigarh | Published:November 26, 2016 4:30 am
demonetisation, cycle, cycle industry, demonetisation effects, india small businesses, small businesses india, india economy, india cycle industry Work comes to a standstill in Ludhiana. (Express Photo by Gurmeet Singh)

It’s been nearly three weeks since Rs 500 and Rs 1,000 notes were withdrawn from circulation, and the cash crunch has severely hit the supply chain of India’s Rs 7,000-crore cycle hub in Ludhiana.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

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  1. S
    Satendra kumar
    Nov 26, 2016 at 7:59 am
    Cash crunch not only for manufacturers in India but worldwide as the businesses used to pay thier Bill payments through thier company accounts and some hard cash from thier cash box.All this business transaction where used to make payment through cash box started vanishing.All those who use to make payment through halwa system is finishing.I think will take some buying time for implementing new system of doing business worldwide.
    Reply
    1. A
      Adrian Akau
      Nov 26, 2016 at 6:59 am
      Do not make in India; the economy has crashed.
      Reply
      1. H
        harun
        Nov 26, 2016 at 7:42 am
        The insenstivity of the Middle Cl ried to the plight of those affected is embarring.lt;br/gt;lt;br/gt;Yes Unaccounted wealth ,more so that has been amed by Politicians must become worthless.lt;br/gt;lt;br/gt;But has that happenned,No.lt;br/gt;lt;br/gt;One had the audacity to splurge 500cr on a wedding and another got away with 95 lakhs of unaccounted cash in Maharasthra.lt;br/gt;lt;br/gt;None is asking if 125000 cr bank loan write off and Govt refusing to go Public with willfull defaulters of PSU as disgusting.lt;br/gt;lt;br/gt;Nothing was done about Panama Papers and those who figure in them are calling the decision momentous.lt;br/gt;lt;br/gt;India is just not about the will of those few 1000s who have refused to see the double standards adopted by the Govt in dealing with Looters as the Will of the silent Majority.lt;br/gt;lt;br/gt;Honestly a Brave decision such as this ,has not hurt those it claims to target.lt;br/gt;lt;br/gt;Whats the point in bringing down Interest rates when you say 18 out off the 22 PSU Banks have Huge NPAs.lt;br/gt;lt;br/gt;It is clear that all the Money got will Only recapitalise PSU Bnaks and lead to yet another Loan Giving spree and Write off.lt;br/gt;lt;br/gt;By the time People realise ,the impact will be permanent
        Reply
        1. J
          jaya
          Nov 26, 2016 at 7:20 am
          Supply chain in every aspect seriously hit, specially the vegetable vendors are crying in Hyderabad because after 6 months of continue rain and recent flood, a very short time the weather stabilize to give them a little relieve they are cursing modi for snatching their live hood even the wedding season no business
          Reply
          1. M
            mathimathi
            Nov 26, 2016 at 9:28 am
            CHINA has world's most poted. But 100 percent literacy of chinese. chinese 95 percent smart PHONES are produced from their and distributed throughout the world community. In our country India what about literacy rate just 74.04 %. and why can't be "Make in India"' s Smart phones in fekunomist Modi period.
            Reply
            1. M
              mathimathi
              Nov 26, 2016 at 9:18 am
              not only cycle hub. all the industries farming are in standstill without money by this feku PM.
              Reply
              1. A
                azad
                Nov 26, 2016 at 8:05 am
                Modi bhakton ko bharat se door karo
                Reply
                1. N
                  Nityananda
                  Nov 26, 2016 at 3:02 am
                  Ask the self satisfied card carrying middle cl and they'll say its an inconvenience for a matter of weeks only ! Modiji will fix everything soon.
                  Reply
                  1. P
                    Pakku Mudli.
                    Nov 26, 2016 at 8:57 am
                    Excellent review of the demonitisation farce. Keep it up
                    Reply
                    1. B
                      Babu
                      Nov 26, 2016 at 12:34 pm
                      All Indian citizens and government should unitedly and fearlessly "Boycott all Chinese products". China is helping, encouraging, finanancing and protecting stan and its terrorists, while making billiions of US dollars from Indian consumers.lt;br/gt;lt;br/gt;"Boycotting all Chinese products" will revive Indian manufecturing industries, provide millions of jobs for Indian youth and make India strong financially and militarily.lt;br/gt;lt;br/gt;China makes money from Indian citizens and then gives that same money to stan and its terrorists to kill those same Indian citizens. lt;br/gt;lt;br/gt;Therefore, all Indian citizens and goverment should "Boycott all Chinese products" for the great future of India.lt;br/gt;lt;br/gt;Jai Bharat!
                      Reply
                      1. S
                        Satish Choudhary
                        Nov 26, 2016 at 1:18 am
                        Does this paper see anything positive about India or is it a part of the group mentioned by Mr. Aziz of stan they will get in touch with who are critical of India as such !
                        Reply
                        1. S
                          shamim
                          Nov 26, 2016 at 8:57 am
                          Weldon instead of developing the country lets make it ancient land with no organised industry only agriculture and cottage industry which has huge potential for employment
                          Reply
                          1. S
                            sk
                            Nov 26, 2016 at 11:36 am
                            PM is Chinese agent. He has traveled several times to China as CM of Gujarat. He is wrecking havoc on Indian economy on the instructions of Chinese government. China was already No 1 in hardware manufacturing. Now Make in India plan is lying in the dustbin and it will help only one country - China
                            Reply
                            1. S
                              Sanjeev Mahajan
                              Nov 26, 2016 at 8:46 am
                              The so called hub needs to learn to deal in white money. What a big deal?
                              Reply
                              1. P
                                patel
                                Nov 26, 2016 at 8:27 am
                                Government wants ever body to have bank accounts simple solution is for electricity suppliers to take payments via cheques or electronic transfers
                                Reply
                                1. Y
                                  yash sehgal
                                  Nov 26, 2016 at 1:36 am
                                  Everything will be nirmal in a couple of weeks except that big shrks wud have been deprived of their black money..
                                  Reply
                                  1. A
                                    Agent lemon
                                    Nov 26, 2016 at 3:28 pm
                                    Without China India wouldbe American.
                                    Reply
                                    1. A
                                      Agent lemon
                                      Nov 26, 2016 at 9:11 am
                                      For bank accounts one needs banks, but about 100! Million people in India do not have a bank close to their living habitat. They are illiterat also. They live from day to day. DO NOT FORGET!!! Even if they had a bank account 50 - 100 km im distance for their poor income. How could they pay for the fees arising? How can they get to the bank without transport and how can tgey pay for the transport and the lost time? THINK! !!!!!!
                                      Reply
                                      1. A
                                        Agent lemon
                                        Nov 26, 2016 at 9:19 am
                                        No , no my friend. Even in Germany 88,5 ℅ of all daily small business is cash! In Cambodia(a bit like India in many ways) 98℅ is cash business. In Thailand it is about 85℅ . Card payments are for middle cl and the rich. Poor or lower middle cl will be eaten by bank fees......if they even have a bank at hand. Interesting is also, that more and more shops return from online payments to cash even in Europe due to the high fees for the systems which often exeed the span if their own profit.
                                        Reply
                                        1. A
                                          Agent lemon
                                          Nov 26, 2016 at 9:04 am
                                          The only winners here is the banking system! Most big amounts of black money is long transfered to gold already or invested abroad. Who would be so stupid to store kg of papermoney, if he could buy small goldbalt;br/gt;rs for it? Diamonds? Silver? This is were all the REAL amounts of black money is stored. The story of taking out 500 and 1000 Rupie bills to hurt black money is what it is, A BIG LIE ! It hurst only the poor and their minimal savings in paper money. My friend run (used to run )a smal w business (around 5 tonnes daily) for vergies and fruit in Delhi. Now this us dead. Because it is and was cash only. Inpossible to find new 2000 bills or old 100 bills. Business out of operation. With him 1000 s if not 10 000 others. Just a matter of time until the big cities sink in chaos.
                                          Reply
                                          1. A
                                            Agent lemon
                                            Nov 26, 2016 at 6:08 am
                                            This w action will and has destro the supply chain in many sectors already. Ignoring this fact will make things just worse. When the last 100 Rupie bills are spent and the last rice will be eaten Millions will be suffering. What does Modi expect them to do then? How can a cashless society be built if there is wide spread lack of infrastructure for this and more important the WILL of hundreds if Millions of Indians in the country side? How can the lower cl pay for bank fees? Sorry Mr. Modi. This is not working!
                                            Reply
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