TN Losing Its Mojo as Manufacturing Hub? Power Tariff Hike Costs MSMEs

Owners of MSMEs have decided to hold a state-wide protest on 20 September demanding a rollback of the tariff hike.

While consumers and large-scale industries are yet to feel the impact of power tariff hike, MSMEs are feeling hopeless.

(Image: Deeksha Malhotra/ The Quint)

Twenty years ago, Sajiv Badhra left Kerala's Kozhikode to settle in Coimbatore in Tamil Nadu. He ran a successful business supplying machine parts for companies dealing with pump sets. With a 10-member team, he had an annual turnover of Rs 30 lakhs.

However, with demonetisation, the pandemic, and rising prices of raw materials, he had to send all his employees, except for one, away. He thought he would eventually be able to revive his company but the recent hike in power tariff has pushed Badhra to become a worker rather than a business owner.  

“My turnover had already come down by 50 percent in the past two years. I was earlier paying electricity charges of about Rs 18,000 and now it will go up to Rs 27,000 which I just can't afford. I was only mulling over quitting but now I am done. I am giving up.”

Sajiv Badhra, MSME Unit Owner

After 15 years of running a business, Sajiv has now decided to shut shop owing to rise in production costs.

(Image: Deeksha Malhotra/ The Quint)

Several owners of Micro, Small and Medium Enterprises (MSMEs) in Trichy, Tiruppur, Tiruchengode, Gummidipoondi, Coimbatore, Madurai, and other districts in Tamil Nadu have expressed dismay over the steep increase in power tariff mooted by the Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO).

For the first time in eight years, the TANGEDCO has proposed an annual increase of tariff by 6 percent. 

Considering TANGEDCO’s financial health is reeling under the weight of mounting debts and long-pending payments to generators, this was a much anticipated step.

For consumers under Low Tension Tariff, who consume up to 500 units bi-monthly, the revised energy charges will push electricity bills up by nearly 53 percent to Rs 1,725 from existing Rs 1,130.

TANGEDCO will gather 25 percent more energy charges for commercial consumers through the new framework as the duration of peak hours has been changed. 

While consumers and large-scale industries are yet to understand the impact of this on their bills, MSMEs are feeling hopeless.

Several MSME Units in Coimbatore & Trichy Have Already Become Non Performing Assets

The story of almost every MSME owner in Coimbatore, the manufacturing hub in the state, is quite tragic. For instance, A Ravi's business is turning into a colossal failure.

For the past two decades he has been running a small-scale factory with his wife, brother, and three male workers, making couplings for automobiles.

Ravi breaks down saying, “I was living as a proud middle-class man and today, my life is just sinking. And I am taking those who were working with me down.”  

Ravi might have to let go of two workers from his firm as he can no longer afford to pay wages.

(Image: Deeksha Malhotra/ The Quint)

With an annual turnover of Rs 22 lakhs, he was able to afford the electricity bill of Rs 20,000, pay Rs 700-800 per day as salaries for the workers and make a profit of Rs 23,000. However, now his electricity bill will rise to Rs 33,000 which means his profit will be down by 56 percent.

“Every morning, we start work at 8 am and now because of the peak charges, we will have to pay the hiked fare for eight hours a day. There is already a 40 percent rise in prices of raw materials and the number of orders we get has gone down by 50 percent. My wife doubles up as an accountant and manager and I work two extra shifts every day but still I don't think I will be able to make a profit," he added.

With eyes welled up he said, “I loved the idea of running my own business and wanted to pass this on to my son. But I don't want him to be upset in life so I've sent him off to do a corporate job. I can’t believe I am pushing him to work for someone else and not be his own boss.”

As much as 70 percent of the 1.5 lakh MSME units in Coimbatore are reeling under heavy losses and unemployment since the pandemic.

(Image: Smitha TK/ The Quint)

Ravi is among the 70 percent of the 1.5 lakh MSME units in Coimbatore that are reeling under heavy losses and unemployment since the pandemic. However, after the second wave of COVID-19, the pace picked up; but now with the price hike, the slump is back, said J James, President of Tamil Nadu Association of Cottage and Micro Enterprises (TACT).

Over 25 percent of the MSME units in Trichy have already become Non Performing Assets, said a senior union leader to The Quint.

Over 35% Of MSMEs in Tamil Nadu Have Already Shut Shop

MSMEs have had a great share towards making Tamil Nadu one of the top 10 automobile hubs in the world.

(Image: Smitha TK/ The Quint)

These MSMEs have contributed towards Chennai being informally named ‘Detroit of India,’ since the 1990s, and making Tamil Nadu one of the top 10 automobile hubs in the world. But the state is soon losing its foothold. Over 35 percent of MSMEs in Tamil Nadu have already shut down in the past three years, said senior MSME association leaders in the state.

Owners of MSMEs have decided to hold a state-wide protest on 20 September demanding the rollback of the price-hike or at least a reconsideration of the rates. But when The Quint spoke to business owners, they said that the protest would only further affect them as losing even a day’s work would mean huge losses.

The MSMEs have called for a strike on 20 September.

(Image: Smitha TK/ The Quint)

"Pre-pandemic, my monthly turnover was Rs 10 lakhs and now we are struggling to make even Rs 2 lakh. This hike will push my production costs up by 55 percent. If the government doesn't help us, we will choke and die."

J James, President of Tamil Nadu Association of Cottage and Micro Enterprises (TACT)

MSMEs Disappointed That State Leaders Failed to Factor in Their Concerns

Power has been a long-used political key card when it comes to drawing popular support. Both All India Anna Dravida Munnetra Kazhagam (AIADMK) and Dravida Munnetra Kazhagam (DMK) have assured that they would wave each consumer's electricity charges of up to 100 units for two months.

MSME owners pointed out that the biggest concern has been rising raw material prices to the tune of 55 percent, that has taken a huge hit on their production.

(Image: Smitha TK/ The Quint)

Those who use more than 500 units (who account for only 3 percent of 2.37 crore domestic consumers in total) will now experience a higher impact of the hike.

A senior official told The Quint, “We are able to provide these free units only if we have middle-income and high income consumers paying for their electricity. However, it doesn’t make up for the cost difference so we hope this hike will help us recover our losses.”

“I am being asked to pay for the free units that are being given for political benefits. Who are you to take my money and lend it to others? Unfortunately, the state government has inflicted this upon businesses that are already sitting on a mound of losses. We suspect this to be a ploy to privatise the power sector."

KE Raghunathan, Convenor, Consortium of Indian Associations (CIA)

Several have abandoned their businesses as they can't afford to even buy raw materials.

(Image: Smitha TK/ The Quint)

Several MSME association leaders expressed disappointment over the fact that they had met with political leaders several times but their concerns were not factored in.

"Most MSMEs are family-owned. Our industry is also quite resilient. But only a small percentage with financial discipline can manage to stay afloat with this power rate hike. This increase needs to be carried over to the customers but that means taking the risk of losing them to competitors from other states. We are in a tricky situation," said Srikanth Krishnamurthy, CEO at Alfa Rubber & Springs (P) Ltd.

A senior officer in TANGEDCO told The Quint that they are assessing the concerns from the MSME sector but that "it is quite unlikely" that there will be any rollback.