Inflation Converts Manufacturing Hub Gujarat Into Trading Zone?

| Updated: July 8, 2022 9:26 am

With its countless petro-chemical units, drug labs, cement plants, iron ore processing units, cotton mills and diamond cutting and polishing enterprises, Gujarat has a traditional manufacturing history. However, recent data seems to suggest a shift to trading companies as the nerve centre of commercial activity. 

According to official data released by Ministry of Corporate Affairs, a total of 2,643 Limited Liability Partnership (LLPs) were registered in India in June, 2022. Of this, Gujarat registered 327 (12.3%) new entries. The state is now second only to Maharashtra in the registration of companies in a month. 

Over 75% of the companies in Gujarat registered their firm with over 1 lakh seed capital. Ahmedabad, Surat and Rajkot have emerged the top choices for entrepreneurship. 

Trade pundits attribute the transition to inflation, the Russia- Ukraine crisis and difficulty in getting permission to set up base for industries. 

In Maharashtra, Delhi and Karnataka, over 25% of companies fall under the category of community, personal and social service. Ventures related to the social sphere thrive in these states, the reason still not documented. However, Gujarat’s forte has chosen commercial trading over other enterprises and allied groupings. 

Among the new names figure Splendora Milltex, Craloft, JD Alliance, Shunn Energy, Rajinikanth Energy Solutions and Polygons Exports. All are registered under the Registrar of Companies, Naranpura, Ahmedabad. 

Reasoning the shift, Sunil Dave, chairman, Indo-American Chamber of Commerce shares: “The ecosystem of manufacturing units in Gujarat is shaken ever since the Rupee took a downward shift. Plus, inflation has increased. Scared that the rupee will fall further, many business houses are pre-ordering inventories from international companies. This has resulted in a shortage of machineries to commence business. Logistics and delivery of machinery in Gujarat is taking time because the geo-politics of Russia-Ukraine has sorely impacted movement of goods.” 

He elaborates on the difference between trading and manufacturing: “Manufacturing and construction are capital intensive industries. In trading, you register the business one day and start trading the next day; this doesn’t happen in manufacturing units. Registration, acquiring machinery and taking innumerable permissions take time and effort.” 

Concurring that there is a definite slowdown in the manufacturing sector in Gujarat, Hemant Shah, former president of Gujarat Chamber of Commerce and Industry (GCCI) adds: “The impact of inflation is evidently seen in textile and chemicals manufacturing industries. Forget commencing a manufacturing unit, several have shut down in the past few months.” 

To add to this, Pankaj Tibak, Gujarat Head, Federation of Indian Chambers of Commerce & Industry (FICCI) states: “Ease of commencing a trading company in comparison to a manufacturing unit is a big reason for the shift. We also have to understand that the flow of capital has thinned down worldwide. Though Gujarat is an epicentre of business, the corpus inflow is sluggish.” 

What are trading companies into?

Retail sale of jewellery and imitation jewellery, retail sale of textiles in specialised stores, wholesale of edible oils, fats, sugar and processed/manufactured spices, sale of motor vehicle parts and accessories, wholesale of other agricultural raw materials, activities of commercial art galleries, wholesale of radio, television and other consumer electronics including CD/DVD players and recorders, activities of commission agents, brokers dealing in wholesale trade of agricultural raw material, live animals, food, beverages, intoxicants and textiles. 

Registration of Companies in India in June 2022:

Sr No.State No. of companies Percentage 
1Maharashtra 79329.9%
2Gujarat 32712.3%
3Delhi 2549.6%

Various Business Sectors in Gujarat: 

Sr NoSector Number of Companies Percentage 
1Trading 6018.3%
2Community, personal, social service 4813.7%
3Business service 4012.2%
4Manufacturing machinery and equipment 258%
5Construction 247.3%

City-wise breakup of registered companies in Gujarat: 

Sr No City Number of Companies Percentage 
1Ahmedabad 13039.7%
2Surat 6419.5%
3Rajkot 5015.2%
4Vadodara 237%

Source of Data: Ministry of Corporate Affairs in June, 2022

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