Do Indian manufacturers lack regulatory support?

A single-colour mini-offset Itek 985, 1989-make, imported from Japan, landed at Kolkata seaport on 14 February. Its price was a meagre Rs 56,000. A mini-offset machine made in India is dearer by almost seven or eight times as compared to these second-hand machines. In the same week alone, from 12 to 18 February 2014, 15 offset machines (a mix of single-colour and multi-colour) hit the shores of India.

 

Across several segments of the printing and allied machinery manufacturing landscape, the tale is similar: imported pre-owned kit, or a brand new Chinese or Taiwanese machine cost, lower to import than to manufacture in India. So what then is the need to set up a factory in India that can build the whole product from scratch? The local businesses prefer to be a dealer of these Chinese or Taiwanese players.

 

Industry body Indian Printing Packaging and Allied Machinery Manufacturers’ Association (IPAMA) says it wants the government to impose a ban on import of old machines because domestic firms are facing challenges from cheap, low quality imports.

 

Stating that the biggest challenge is from China, from where low quality machines are being exported, IPAMA said anti-dumping duty must be imposed on import of machinery from that country.

 

Experts cite instances of dumping. They add that small industries are unorganised to build a case against dumping.

 

However, there are a few segments like web offset machines, perfect binders, exercise notebook plants among others that don’t see imports from China. KC Sanjeev of Welbound Worldwide says, “These are segments where Indian manufacturers have done very well – and have established products that are real value for money. Why would an Indian buyer then import from China?”

 

Taxing troubles

Experts argue that while manufacturing in India is competitive and the costs compare well with other Asian markets, it’s the taxes and levies that make the final product unviable locally. And so, a post-press kit manufactured in India attracts a 10.30% excise duty, making it costlier than an imported Chinese one. Besides, the cost of finance in India is 11–12%, compared to 5% in China, Taiwan or Thailand.

 

Narinder Singh Manku, managing director, Joy-D-Zign, says, “China can undercut on costs dramatically, making its landed product cheaper than a locally made one.”

 

Besides the taxation structure, manufacturers blame government policies for lack of an ecosystem. Says Manku, “In 1994, as an encouragement to SMEs, the government declared exemption in excise duty for the units with annual turnover below Rs 50 lakhs; gradually the limit was upped to Rs 1.5 crore over the next few years. Now, for the last eight years it has stagnated at Rs 1.5 crore.”

 

So, for a manufacturer like Joy D-Zign whose turnover exceeds this limit, it has to compete with small non-excisable units, which according to Manku, are multiple companies (with turnover below Rs 1.5 crore). In most cases, all the firms are owned by one owner in order to avail excise exemption.

 

Manku explains “Every invoice that I issue from day one of the year has to be with excise of 12.36% (now 10.30%). Plus you add 5% VAT, so I become 18% expensive from day one.  Even if there is an apple to apple comparison– same equipment, same configuration is offered–I stand to lose when you compare a Joy machine with one from a non-excisable unit.”

 

5% excise duty for everyone

Last year, IPAMA had aswked the government to increase the turnover limit to Rs 10 crore to protect the interests of the SMEs.

 

This issue was discussed and deliberated upon during the manufacturers’ roundtable discussion organised by PrintWeek India and IPAMA on 20 January 2014 in Faridabad. The panellists came up with a few suggestions: Either connect the excise with currency fluctuations or let everyone come under the same blanket and charge a 5% excise duty on everyone without any limit.

 

Poor business regulation, tardy procedures to obtain government approvals have placed India at the bottom of World Bank’s annual ranking of ease of doing business. Atul Gandhi of Pune-based Macart, manufacturer of wide-format digital presses, says, “In China if you start a manufacturing company the government will offer incentives such as cheap loans, subsidies, land and less taxation, but in India instead of all these incentives we have to pay duties for manufacturing.”

 

APL Machinery’s CP Paul, also general secretary, IPAMA points to increasing volumes in order to stimulate manufacturing businesses. “Volumes will come if the prices of Indian products in domestic and international markets are less than Chinese products of comparable quality. The best way will be to decrease import duty on electronics and electrical components and giving incentives to MNCs and patent holders so that they are motivated to manufacture in India. This is what China is doing; and it is how they are selling to developed markets,” explains Paul.

 

Human resource, an asset

Some economists insist that unless India changes its labour laws, manufacturing will not grow. Manufacturers have been demanding more flexibility in the labour laws.

In a recent letter to labour and employment minister Oscar Fernandes, chairman of National

Manufacturing Competitiveness Council (NMCC), V Krishnamurthy has said that the existing labour laws are “dated” and are acting as a disincentive to SMEs’ growth.

 

 “Wages in Delhi have risen by 45% in the last two years. Also, the existing labour laws are exploited everywhere. For instance, the manufacturer cannot fire a worker who is good-for-nothing even if he is offered a fair compensation. If a person shows good work, he forms a competitive advantage for the company; we are more than happy to retain him as an appreciating asset,” says a manufacturer who did not wish to be named.

 

India United

Ashok Singh of Samnik Graphic Systems believes the problem does not entirely lie in policies or competition from Chinese players; local competition is also to blame.

He explains, “What happened to Faridabad, once a hub of sheetfed press manufacturing, with over 50 manufactures. Today, there are hardly four players. The reason is: around 80% of them were copying others machines without any technical background. The prices were not hiked due to the fear from local competition and this led to an erosion of sheetfed printing press manufacturing.”

 

Faridabad has been notorious for copying of machine design. Manku says, “We have 28 players who are copying our machines. Hence there is no level-playing field. Industry suffers. End-user suffers because he has to buy a sub-standard product from a non-recognisable source and the quality is compromised and price remains the only factor.”

 

“It is high time that the government at least takes steps against those importers who are under invoicing and avoiding custom duties,” adds Gandhi.

 

Collaborate or perish

Says Bal Krishan Khindria, managing director, Memory Repro Systems, “Collaboration is the need of the hour.” He quickly adds, “We need to collaborate, especially for the products which can be introduced by global players.”

 

Naveen Gupta of Prakash Webtech seconds Khindria’s opinion on collaboration. “During my visit to Taiwan, I realised that the manufacturers in Taiwan work together. They are competing against us as one, while we are fighting among ourselves. This is the reason why our printing presses are costlier,” argues Gupta.

 

The survival strategy for Indian manufacturers of printing and allied machines requires thought. According to experts, working in collaboration is the way to go, and associations like IPAMA should play a vital role in shaping this.

 

Today, every CEO we interact with speaks about the buzzword of innovation. To ensure that Indian printing machinery manufacturing sector realise its innovation potential, there is a need that all the stake holders embark on collaborative innovation. This is the one way to create a successful ‘Made in India’ brand. 

 

KC Sanjeev, Welbound: The Excise Exorcist

Excise duty is currently 10% - plus sales tax varying from 2 to 12% (in the latter case, it is so where Modvat can be claimed) cannot be called as the highest rates of taxes in the world. These are moderate. Import duties applicable are on and above this, thereby making domestic products more attractive.    Excise duty is modvatable. So for a manufacturer, its only the value addition that gets taxed. This means, if you use standard inputs from a reputed manufacturers, then this does not affect costs.   Indian manufacturers cannot place all the onus on Government and the market for improving the state of affairs. There are segments where Indian manufacturer’s have done very well and established products that are real value for money.    Innovation needs a lot of investment, passion and consistency; and its easier said than done. But that’s the only way of keeping ahead of the competition and on top of the wave of change.  We must not only improve our standards of manufacturing; but also standards of safety, health and environment around us. We should also improve compliance of laws of the land including IPR.    The wages are following the costs of living and we cannot blame it on the labour. Being efficient is the need of the hour. This cannot be achieved without the support of the team of employees. Unless we recognise human resources as the most crucial resource for the manufacture of machines, we will never make innovative, efficient and state of the art machines. This is, after all, a knowledge-based industry like IT and pharmaceutical manufacturing. We need to learn from them: how much importance these industries give for human capital.