Ludhiana, best known for its woolens, is now a picture of gloom post demonetisation. The city’s small and medium textile enterprises (SMEs) were one of the first victims of the systemic shock. Across the region, SMEs, which have an annual turnover ranging from Rs 25 lakh to Rs 10 crores, have seen massive dips in production, which most unit owners pegged at 80 per cent.

The demonetisation has had a cascading effect on this sector. Liquidity crunch brought on by the move caused demand to plummet in retail markets, and orders stopped almost overnight. The Rs 50,000 weekly withdrawal limit from current accounts has also made it difficult to pay workers; most of them daily-wage migrant labourers. So much so, that many of them are now leaving town.

Government data shows that the knitwear industry in Ludhiana employs close to 3,80,000 people. Between 70 to 80 per cent of all woolen garments supplied to North India comes from this town. A majority of these units deal with traders in the unorganised sector across – small retailers who do not access the banking infrastructure and depend on cash for their transactions. The traders also do not pay Value Added Tax and their transactions are therefore unaccounted-for.

The timing of the demonetisation has been fatal for the garment industry. Textile units which produce winter garments count on the September-November period to boost profits and the smaller units get 80 per cent of all their revenue in this season. This makes them extremely vulnerable to big-ticket reforms that could have a short-term fallout in these months.