September 26, 2017

Why small businessmen in Gujarat are quitting industry and turning to financial speculation

When key industrial sectors such as textiles, metal products, automobiles and chemicals suffer a slowdown, small enterprises supplying to them also struggle. A slowdown in demand is not the only factor weighing them down, though. Take Surat. The textile cluster is under pressure from Chinese imports and the entry of larger companies, both of which are putting margins under pressure. This feeling of insecurity has been exacerbated by demonetisation and the GST, resulting in many units shutting down.

Why is business profitability falling? The fundamental problem  is lack of growth in domestic demand. This has created an outcome where, according to S Ananth, a researcher based in Vijayawada who studies India’s financial markets, companies are sitting on unused capacity, margins are falling and profits are under pressure.

The fallout? Even large companies, said Vipparthi, are investing in financial instruments. Investments in the stock market, directly and through mutual funds, are giving annual returns above 20%, he said. In contrast, industries are generating returns of about 11% and debt instruments such as bonds and debentures are yielding around 6%-7%.

Read more at https://scroll.in/article/851343/why-small-businessmen-in-gujarat-are-leaving-industry-for-financial-speculation

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