Companies in India’s former shoe capital squeezed by falling costs and demand

  • Rising costs and weak demand add pressure on small businesses
  • India’s manufacturing industry contracts in Q1, GDP growth slows
  • Small businesses contribute 45% of manufacturing, employ 110 million

AGRA, India, June 2 (Reuters) – At his small shoe factory in the Indian city of Agra, Rajesh Kumar, his two brothers and three workers sat idle for a week, facing a shortage of new orders and the growing pressure from soaring material costs.

“The cost of synthetic leather, chemicals and other raw materials, mainly imported from China, has increased by more than 20% in the past three months, while the price of the final product remains the same,” said the 60-year-old in his dimly lit two-room factory in the congested back streets of the Taj Mahal.

“We are now unable to earn even Rs.10 ($0.1) markup on Rs.200 shoes due to rising costs,” Kumar said. Before the pandemic, he could earn 20-25 rupees on a pair of shoes.

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Agra has been India’s biggest shoe-making center since the Mughals ruled the city centuries ago, but Kumar’s small businesses and thousands of others like her across the country are now working on declining margins, squeezed by rising commodity prices and weak consumer demand. Read more

India’s economy grew at its slowest pace in a year during the first three months of 2022, according to data released this week, hit by a decline in manufacturing and weaker consumer spending. Read more

Manufacturing contracted 0.2% year-on-year, after expanding 0.3% in the previous quarter.

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Small businesses, which employ around 110 million Indians and account for 45% of manufacturing, have been hardest hit, casting a cloud over the economic recovery.

“Life has become miserable for small businesses,” said KE Raghunathan, head of the Consortium of Indian Associations, which represents nearly half a million businesses.

He worries about a 30% increase in costs for the auto parts, textile, footwear, food processing, engineering and packaging industries.

“Unlike large companies, small companies – which have little bargaining power and depend on intermediaries – are unable to pass on rising costs,” he said.

More than 72,000 small businesses in the southern state of Tamil Nadu have closed in recent months with many more at risk of closure, he said.

In the industrial hub of Ahmedabad in western India, Nirav Trivedi’s metalworking business has faced a 60% rise in steel and gas costs over six months, forcing it to reduce its production and workforce by a third.

“Although we have more work in relation to the pandemic, profits have fallen below 8% compared to margins of 20 to 22% before,” he said, adding that some projects had become economically unstable. viable.

Following the GDP data, economists lowered their growth forecast for the fiscal year starting in April to around 7% from 8.5% to 9% previously.

To rein in inflation, which hit its highest level in eight years in April, the central bank raised interest rates last month. He expects the tightening to dampen cost pressures and improve business prospects. Read more

While Indian factory activity increased in May, according to a Purchasing Managers’ Index, soaring prices remain a major concern. Read more

“TOO LITTLE RELIEF”

To ease the burden on households, Prime Minister Narendra Modi has offered pandemic relief with free food grains and easy bank credit.

However, the manufacturers say the state aid was “too little” as energy and raw material prices are soaring with taxes.

Tek Chand Chibrani, secretary of the Agra Shoe Factories Association, said the local industry, which employs 400,000 workers, is facing falling rural demand and rising costs, although sales are picking up abroad has partly helped the big manufacturers.

The more than 4% drop in the rupee against the dollar this year has also made imports more expensive, he said, adding to the burden of rising interest rates.

According to market researcher NielsenIQ, rural consumption fell 5.3% in January-March, the biggest drop in the last three quarters, hurting small factories.

“There is an increase in the output of small manufacturers in the January-March period due to high input cost pressures and the inability to pass costs on to consumers,” NielsenIQ said.

India is the world’s second-largest footwear producer after China and according to industry estimates, Agra supplies almost 65% of domestic footwear demand and accounts for over 25% of the $2 billion footwear exports. from the country.

Ashok Kumar, 45, a worker at another small factory in Agra, said he was now working longer hours to earn around 12,000 rupees ($155) a month while cutting back on food expenses, children’s education and other expenses.

“I cannot feed my five children despite working 12 hours a day,” he said.

($1 = 77.5780 Indian rupees)

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Reporting by Manoj Kumar; Additional reporting by Aftab Ahmed in New Delhi and Amit Dave in Ahmedabad; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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