Print Close

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.

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.

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."

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

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.

Print Close

URL for this article :

http://businesstoday.intoday.in/story/chinese-imports-hitting-india-msme-sector/1/203041.html

@ Copyright 2010 India Today Group.