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Chinese imports hitting Indian smallmanufacturers hardTaslima Khan February 13, 2014
We were working on very low margins and finally could not continue any more. There is no support from the government:
Manubhai Patel, Owner, Anil Manufacturers, has closed his diesel engine business Photo: Shailesh
Raval/www.indiatodayimages.com
Rajiv Gupta, proprietor of Delhi-based Roxy Gifts and Novelties, is going on vacation for a
few days. He says he needs a break from the bad business run he's had lately. Gupta makes
gift items such as wall clocks, pen stands, photo frames, diaries, calendars and wrist
watches - and sales have been slow the past few years because of a flood of cheap Chinese
imports in the market. But once he's back, the Delhi businessman is hoping to change his
fortunes: he is thinking of sourcing from China and trading himself. "My friends tell me
Chinese goods can easily fetch me 20 to 30 per cent margins, instead of about seven that I
make with my products," he says.
Gupta is not alone. After dealing a blow to small-scale industries such as toys and crackers,
Chinese imports have now hit hundreds of small manufacturers making a range of products
from diesel engines to ceramics and bicycle parts. Many have either shut shop altogether or
are turning into traders themselves. To add to their woes, many small manufacturers say
they are also grappling with rising production costs, high taxes, duty-free imports and lack of
scale in manufacturing. "A lot of people, like me, are thinking of becoming traders," says
Gupta.
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The numbers are telling. According to government figures, Chinese imports leapt from
$32.45 billion (Rs 146,005 crore) in 2008/09 to $52.25 billion (Rs 3,13,500 crore) in 2012/13.
A 2009 report by industry body FICCI based on a survey of over 100 small and medium
companies listed 22 product categories imported from China which were 10 to 70 per cent
cheaper. Industry organisations also complain about government apathy, saying their
Chinese counterparts have an edge because of cheaper land, regular electricity, cheap
finance and good roads. "A lot of factors add up to give them an efficiency gain of 20 to 40
per cent," says Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small &
Medium Enterprises (FISME). "In recent years, imports from China have changed from low-
value, low-cost products like toys and crackers to high-value items like electronics and
machinery. The import portfolio has also expanded across product categories like gift sets,
glasses, bathroom fittings, builder hardware, furniture and ceramics."
Machinery imports such as textile machinery are one of the biggest threats to small domestic
manufacturers. India has about 1,500 manufacturers whose range extends from spinning
and weaving machines to knitting or processing machines. According to the Textile
Machinery Manufacturers Association (TMMA), imports of low-cost and low-tech textile
machines from China have increased in the past few years because they are between 30
and 50 per cent cheaper. The value of textile machinery imports from China grew from Rs
1,636 crore in 2007/08 to Rs 4,300 crore in 2012/13. "The only hope for companies is to
upgrade to high-tech machinery and command a better price so as to compete with China,"
says S. Chakraborty, Secretary General, TMMA.
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Diesel engine pump makers are also struggling in the face
of cheaper Chinese products. Sardhara Engine
Manufacturers from Rajkot, Gujarat, has seen profit
margins fall by at least five to seven per cent in the past
three to four years. His diesel engine brand, Chetak, priced
between Rs 15, 000 to Rs 17,000 is about 50 per cent
more expensive than those from China. But he can't reduce
prices because the cost of major raw materials such as
cast iron and pig iron has escalated by 14 per cent in the
last few years. "Low-cost pumps are popular with farmers,
who cannot afford quality products," says Kishan Sardhara,
proprietor of the firm. He adds he does not plan to cut his
manufacturing capacity for now.
Companies like K. Rasik Lal & Sons and Anil
Manufacturers shut down some years ago because of
multiple problems. "We were working on very low margins
and finally could not continue anymore," says Manubhai
Patel, owner of Anil Manufacturers. "There is no support
from the government. Earlier we used to get subsidies, but
then they stopped, so did loans and advances from banks."
According to the Rajkot Engineering Association, the
number of diesel engine manufacturers in the area has
fallen from about 400 to 500 to around 70. Another 500
units make parts of diesel engines. "Demand has been
affected due to some farmers shifting to power-run
submersible pumps, but China is the biggest reason so
many have gone out of business," says Dheeraj S. Bhatt,
Executive Secretary of the association.
The condition of small ceramic tiles manufacturers in Morbi
in Gujarat is a classic case of a small industry struggling for
survival in the face of Chinese imports. The removal of anti-
dumping duties on many ceramic products has added to
the problems of the industry, which accounts for about
eight per cent of the world's ceramic demand. K.C. Patel,
Director of Angel Ceramics, says he may be forced to lock
up his factory for a second time because of the pressure of
rising natural gas prices as well as high VAT (value added
tax) and excise duties. "Our cost of production is at least 15
to 20 per cent higher than China's which shows up in
market prices also," says Patel. "The industry is breaking.
It's better to buy from China and start trading."
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Several small manufacturers in the LED industry have also shut shop with most components
coming duty-free from China. Some have started importing parts and then assembling for
the local market. Ramana Rao, President of the LED products Manufacturers Association
(LEDMA), says 20 to 30 such companies have shut down in the past few years. Sumant
Sharma, proprietor of Chennai-based Sangeetha Enterprises, who used to make LED
displays, shut shop about seven years ago. "We used to source our raw material (LED
chips) from China, the price of which was equal to our selling price of finished displays in
India. Adding raw material costs to labour, power and other overheads, our products cost 20
to 30 per cent more than Chinese displays," he says.
The sharp price difference is the reason many import instead of manufacturing on their own.
"The LED components industry in India has been waning ever since free import of
components like diodes, drivers, and components of drives was allowed since 2005 under a
WTO free trade agreement," says Vijay Kumar Gupta, Managing Director at Kwality
Photonics, one of a few Indian companies that make diodes for LED lights. Others agree.
"What is the fun in making a fixture for Rs 350 if the same you can import from China at Rs
80," says Venkat Nagesh S., Senior Manager at Hyderabad-based Sujana Energy. The story,
however, is different for large manufacturers.
Bicycle part imports from China have also shot up in the past few years, dealing a huge blow
to local small industry. The city of Ludhiana in Punjab, the hub of the country's Rs 7,000-
crore bicycle manufacturing industry, has seen a reversal in fortunes in the past few years.
"Five to six years ago, the total volume of exports from Ludhiana was about Rs 1,500 crore.
Now it is the reverse. Export volume has been replaced by imports which range from Rs
1,500 to Rs 2,000 crore now," says Charanjit Singh Vishkarma, President, United Cycle and
Parts Manufacturers Association.
Industry officials say parts such as hand levers, spokes, hub cones and chain wheels from
China are 10 to 15 per cent cheaper because of China's manufacturing scale and lower
production costs. Indian industry cannot compete despite a 20 per cent import duty on parts
and 30 per cent on bicycles from China. Rising competition, acute labour shortage and rising
raw material prices have forced about 100 units to shut in the last few years. "The local
cottage industry is on a ventilator," says Vishkarma.
While India has an edge in handcrafted products, small and medium-sized companies are
losing out in areas where the Chinese use better machinery. India's sports goods industry is
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an example. Companies that specialise in hand-made products like cricket bats and footballs
are relatively unscathed. But imports of machine-made items such as skating boards,
swimming accessories and badminton racquets have increased. As a result, many
companies have cut their manufacturing to sell Chinese products instead. Jajandhar-based
Kumar Sports, which retails sports products under its brand Kamachi, has cut its badminton
racquet production and imports swimming accessories, basket balls, tennis racquets and
cricket accessories.
Many companies are also importing high
quality fitness and gym equipment from
China. "Mid-range Chinese badminton
racquets priced between Rs 700 to Rs 800
or those between Rs 10,000 to Rs 12,000
for professional use are very popular.
Companies in Jalandhar cannot compete
with their finish and quality," says Gaurav
Gupta, Managing Partner, of Meerut-based
Greenland Enterprises which makes carom
boards, cricket bats and footballs.
Small Indian electronic component makers
are also on edge because of the deluge of
cheap Chinese imports. Umesh Anandani,
Additional Secretary at the ELCINA
Electronic Industries Association of India,
says the component industry has suffered
since duty-free imports of about 217
categories of electronic components like
capacitors, resistors and transformers were
allowed from 2005 under an information
technology agreement with the World Trade
Organisation (WTO-ITA1). Many of India's more than 1,000 small companies manufacturing
electronic components have shut operations.
No doubt, many in the industry are also taking steps to revive manufacturing. The ELCINA
Electronic Industries Association of India is trying to promote manufacturing in electronics by
setting up electronics manufacturing clusters under the National Electronics Policy, 2012.
The first such cluster is coming up in Bhiwadi, Rajasthan, and will provide tax concessions
and incentives such as cheaper land and electricity. "We really need to check, if we need
manufacturing at the small level. If we do, there should be incentives in place," says H.R.
Vaish, Managing Director at Gurgaon-based Instapower, an LED manufacturer.
Experts say manufacturing has several instances of dumping but small industries are too
unorganised to build a case against dumping. Government officials say their hands are tied.
"We can act only when we have data and proof, which we don't have. Industry associations
should update us on a timely basis," says Madhav Lal, Secretary at the Micro, Small and
Medium Enterprises (MSME) Ministry.
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