Chinese Goods

8/7/2019 Chinese Goods

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1. INTRODUCTION1

With the world turning into a global village and competition getting stiff, countries like China are

ruling the roost in many a market in varied spheres. India is the hub of diverse business

opportunities, and slowly yet steadily, Chinese products like electronics, crackers, idols,

apparels, etc. are predominating similar Indian products.

The festive season is the season of business especially filling the pockets of traders. But instead

of the domestic sector holding sway over the market, the opportunities are grabbed by Chinese

manufacturers with their variety of exquisite products. Whether it is SMEs ( Small and Medium

Enterprises) or cottage industries, they are not able to provide a stiff competition to the cost

effective offers provided by the Chinese. Due to these relentless import of Chinese products,

most Indian cottage industries have closed down, and the future of the existing ones looks very

bleak.

The Chinese entrepreneurs have infiltrated the market in a very systematic manner with their

well-planned marketing strategies and continuous innovations. They study the demand patterns

and the market trends and work out the lowest price that they can offer to attract a huge section

of the consumers while still maintaining a profitable margin. As the Indian market is price-

oriented, the domestic players are slowly losing their share to the strategic Chinese

entrepreneurs.

Chinese electronic goods like radio, torch, DVD players, etc. are reigning supreme in the Indian

market. Decorative items, fashion accessories like slippers, jewelries, hand bags, etc. receive

huge responses during festive seasons. This year, one saw the flooding of the Indian markets

with Chinese made idols which were welcomed with open arms by the Indian consumers.

Commenting on the change of the market scenario, Mr. S.P Agarwal, President of Delhi

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Exporters Association, said, "Chinese manufacturers have created a big problem for the Indian

manufacturers. Especially the cottage sector which produces goods like handicrafts, decorative

items, gift articles, idols etc. has been drastically affected, by the dominance of Chinese products

in the market. This has raised a question mark against the various marketing policies that the

Indian Government is making."

Even the entry of these products is questionable. According to Mr. Bikky Khosla, "The need of

the hour is to address whether the products are fully duty paid or illegally imported to India. In

the long run, with globalization and free trade becoming the norm of trade, Indian SMEs need to

buckle up and get ready to face these challenges. No doubt SMEs have been affected, yet they

need to be educated on latest market trends and technologies. SMEs should be encouraged and

guided for the marketing of their products."

Adding to this, S.P.Agarwal said, "Indian SMEs should learn from China about various

marketing strategies undertaken by them. Rather than comparing the two countries, the

Government should first focus on its policies and work on the ways to ensure that these products

from China are heavily taxed so that the Indian craftsmen's only livelihood don't get affected due

to the unrestricted import of Chinese made products."

The only way the above problem can be solved up to an extent is by introducing SME

favourable policies. The Indian Government should understand the basic fact that SMEs are the

backbone of Indian economy and their growth will in turn add to the development of

India.Indian SMEs should also continuously study the market needs and come up with

innovative and cost effective products to tackle the burning issue.

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2. INDIA AND CHINA2

China and India are, today, the engines of growth in the midst of rapid economic transformation and

make for a positive impact on the global economy. In fact, according to a report by the World Bank,

five countries – the US, China, Japan Germany and India – account for nearly half of the world's gross

domestic product (GDP).

Both India and China have also been major contributors to the global centre of economic gravity

moving towards Asia, and are expected to play a significant role in making the 21st century largely

about Asia. Naturally, when countries the size of China and India – together accounting for 2.5 billion

people – begin to unshackle their creative energies, the impact is bound to be realised worldwide.

Trade

Trade has been the integral part of the burgeoning bilateral economic relationship between the two

countries. Bilateral trade has grown by over 10 times since 2000-01 – from just US$ 2.33 billion in

2000-01, to US$ 25.68 billion in 2006-07.

India's exports to China, likewise, have grown nearly ten-fold – from US$ 831.3 million (accounting

for 1.87 per cent of total exports) in 2000-01, to US$ 8290.7 million (6.56 per cent of total exports) in

2006-07. The growth continued in 2007-08, with exports to China touching US$ 7868.6 million during

April-January 2007–08 – as against US$ 6572.8 million in the same period last fiscal. Significant

exports from India to China include cotton, organic chemicals, iron, steel and inorganic chemicals

among others.

Simultaneously, India's imports from China have increased from US$ 1502.2 million (accounting for

2.97 per cent of total imports) in 2000-01, to a whopping US$ 17399 million (9.53 per cent of total

imports) in 2006-07. Furthermore, during April-January 2007–08, imports have increased by 60.1 per

cent to US$ 22592.3 million against US$ 14108 million in the corresponding period last fiscal. On the

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other hand, imports from China are highest in the category of electrical machinery and equipment,

organic chemicals, mineral fuels, oil and oil products.

In fact, this surge in bilateral trade between the two countries has resulted in China displacing US to

become the number one trade partner of India. During April-January 2007–08, Indo-China trade was

US$ 30.46 billion against the Indo-US bilateral trade level of US$ 28.27 billion. This is no mean

achievement, considering the fact that, bilateral trade between India and China was only about one-

fourth of Indo-US trade in 2001-02.

With such rapid growth, the bilateral trade target of US$ 20 billion by 2008 was achieved well ahead

of time. Also, the next Indo-China bilateral trade target of US$ 60 billion by 2010 is likely to easily

achievable. Further, to cement the rapidly strengthening bilateral trade ties, both countries are planningto sign a Free Trade Area agreement at the earliest.

Both China and India are throwing up competition for countries like Hong Kong (China), the Republic

of Korea, Singapore and Taiwan as the main sources of FDI in developing Asia. The share of India

and China in the total global FDI outflows has been increasing continuously. While both accounted for

10 per cent of total FDI outflows in 2005 in the Asian region, it increased to 25 per cent in 2007.

India has emerged as the second most-attractive location after China, ahead of the US and Russia, for

global foreign direct investment (FDI) in 2007. According to UNCTAD's world investment report,

China is the most preferred investment location, followed by India, the US, the Russian Federation and

Brazil, the report said.

In the 2007 Foreign Direct Investment Confidence Index by AT Kearney too, China and India have

been ranked first and second most preferred investment destinations. China leads the Index rankings

for the fifth consecutive year and ranks first among Asian investors, 34 per cent of who plan to invest

there over the next three years. Significantly, India continues to occupy the second place in the Index,

a position it has held since displacing the US in 2005, as it attracts investors from more diverse

destinations (about 75 per cent of investors who plan to invest India are from outside Asia).

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Not to mention, from being a complete non entity in the Indian power equipment market only a couple

of years ago, Chinese companies will be supplying as much as 30 per cent of the equipment required

to meet the Eleventh Plan capacity addition target of 78,000 mw. Chinese companies are also bagging

large orders from private power companies in India.

Mergers & Acquisitions

Both India and China have been moving aggressively to redraw the global landscape through their

mergers and acquisitions (M&A) deals. In fact, the year 2007 has been a record year for both countries

with respect to M&A activity.

According to Thompson Financial, the value of China outbound M&A touched US$ 24.2 billion by

December 19, 2007-up 60 per cent from 2006 and seven times that of 2004. Similarly, the Indian

outbound M&A deals increased by almost five times over 2006 to over US$ 35 billion.

Simultaneously, 2007 has also been a record year for inbound deals for both countries. While, the

value of China inbound deals reached US$ 22 billion, India's inbound M&A deals value increased

much faster to US$ 31.5 billion.

Consequently, this steady rise of the Indian and Chinese economy along with their businesses is likely

to transform the global business landscape. For example, according to a study by UK-based Chartered

Management Institute, India & China (along with Brazil and Russia) would exert a greater influence

on business markets and transform the business landscape by 2018.

Both India and China provide huge investment opportunities across a myriad of sectors. For example,

they are world's top two growing major economies, are set to be the among the top two global wireless

network markets (by April 2008), are among the top three realty markets, and have the world's largest

number of financially excluded households (opening huge opportunities in the financial sector).

Consequently, these countries have been at the forefront in attracting global majors in a diverse set of

industries. In fact, according to a report by PriceWaterhouseCoopers, India is likely to become the

third largest and China the largest economy by 2050. While the combined size of the two countries is

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likely to have major influence on global economy, both the countries have also their own respective

natural advantages in a host of sectors. Certain factors that favour India include:

• The flow of European cash into Indian firms surged more than four-fold in 2007, surpassing

EU investments into Chinese companies, as per estimates from the data agency Eurostat.

• India has been ranked 25th in terms of economic transformation (Transformation Index 2008),

way ahead of China's 85th position, by German Bertelsmann Foundation.

• Indian business leaders – in a survey by Korn/Ferry International – are found to be more

entrepreneurial than their Chinese counterparts, owing largely to their strong language skills

and association with a society that encourages entrepreneurship.

• In a survey by the US-based business magazine Fortune, Indian products were found to be

more preferred than Chinese products.

• India has fared better in providing social security like healthcare, education and child welfare

to its people, compared to China and Malaysia, as per a new index brought out by the Asian

Development Bank.

• India has overtaken the US and China to emerge as the largest developer location for Sun

Microsystems.

• IT spending in India is estimated to record the fastest growth rate in the world in 2008,

according to global research firm IDC.

• According to a survey by global consulting, technology and outsourcing services major

Capgemini, India is all set to threaten China's position as the world's backyard for

manufacturing in the next 3-5 years.

• In less than a decade, as per a study by the Barclays Wealth and Economists Intelligence Unit,

Indian millionaires will hold more than double the wealth of their Chinese counterparts.

411,000 Indian households will be worth US$ 1.7 trillion in 2017. In contrast, 409,000 Chinese

millionaires will be worth US$ 795.4 billion.

• A report by Barclays Wealth, ‘Evolving Fortunes’, signals the rise of emerging markets such as

India, displacing more developed economies, with China, Brazil and Russia also making it to

the ranking of the world’s top 12 wealthiest countries.

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• And, according to a recent Boston Consulting Group report, India has the second-largest

number of homegrown corporate champions holding their fort against the might of

multinational giants. The country was ranked second behind China among the ten rapidly

growing economies.

The India and China juggernaut

As Bill Gates, co-founder of Microsoft, the world's largest software company, summed up for the

students at the University of California, Berkeley, ‘China and India are the big change agents for the

years ahead.’

India's growing consumer market, skilled human resources, and software excellence together with

China's own large market, its manufacturing prowess and cost competitiveness provide a strong

platform for exponential growth of their bilateral economic ties.

Simultaneously, the unprecedented growth stimulus in two of the world's largest countries is expected

to boost demand in the global economy and open up massive market opportunities for trading partners,

especially neighbouring Asian economies. Moreover, the rest of Asia is also being energised by the

boom in China and India.

The two countries will also make a mark in the global tourism industry as they become the new global

players competing for a huge chunk of tourists, and transforming the geopolitical landscape by 2010.

The US, though a key factor, will have less influence, according to researchers from the University of

New South Wales, and 3Australian School of Business among other universities.

To cite an excerpt from Globe and Mail, Canada’s most respected newspaper: The genius of its

business leaders will be India's ‘knockout punch in the title bout 21st century business.’ Though China

was way ahead of India in exports, infrastructure development, foreign investment and energy

consumption, India might surpass it in the long run because of its ‘smart, ambitious, and forward-

looking’ business leaders. Interestingly, the newspaper also said that Indians were now accumulating

money faster than the Japanese did in the 1980s and the Chinese in the 1990s.

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industries with a turnover of about 348,059 crores currently. The domestic talents are put to good use

to produce commodities that have found market worldwide.

Small scale industries to a degree avert needless urbanization. The number of people migrating to

cities in search of jobs shrinks by the employment options domestic industries create thereby reducing

pollution and over population in cities and also helps in decentralized industrial expansion.

The main reason of a small scale industry is to achieve self reliance by utilizing the resources

available and harnessing the skills of local people to lay a platform that yields a steady income.

The industries are characterized by the wise utilization of labor for the commodity production and the

advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the

large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale

Industries help the financial system in promoting evenhanded development of industries across all the

regions of the economy and also in the efficient distribution of money.

Thanks to the measures of the government which have always supported the small scale industries.

Government has reserved certain products for manufacture in the small scale sector in areas where

there is an economic justification for such an approach to encourage these industries, there are about

675 items reserved for the small industries presently.. There are about 115.2 lakh small scale industries

in the country which have influenced the economy of the country by a great deal. Victory stories of

countless women who held on to small scale industries are widespread in recent times. Physically

handicapped, abandoned and even illiterate inhabitants have found new lives by means of the small

scale business.

Commodities form foreign countries like china and Singapore have hit the small domestic industries

with cheaper price and superior quality goods. With the rise in the costs of raw materials it is intricate

to maintain the unwavering manufacture and sustain domestic industries complain many small

industry holders; nonetheless they are doing an enormous trade in promoting export and international

relations with their “Desi” caliber and talents.

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2.2 DUMPING BY CHINA5

The government has set up the Tariff Commission to go into the issue of cheap import of Chinese

goods which are adversely affecting domestic industry. The Commission is also to suggest measures.

The issue came up during question hour on December 15 in Parliament when members. cutting across

party lines. expressed grave concern over the matter and said that the government seemed to be doing

little to check clandestine import of Chinese goods. Items like toys, shoes, batteries, among others are

available at very cheap prices. If the trend is not checked, members said the domestic industry would

face extinction.

The Minister of State for Commerce. Dr. Raman Singh said the Directorate General of anti-dumping

and allied duties had recommended final duty in 25 cases against China. Provisional duty has been

recommended in three cases and another six cases have been initiated against China. In three cases

relating to dry battery, toys and sports shoes. investigations have started.

The Minister said that the government has not constituted any assessment committee to evaluate the

impact of price differentials between Indian and Chinese goods as official data is not available. He.

however. said that reports from all apex chambers including FICCI and CII on increase in Chinese

imports were available and that the government has taken note of their suggestions. Earlier the Prime

Minister had assured leading industrialists that effective steps would be taken to face the dumping of

goods.

Besides initiation of anti-dumping investigations. the government has taken both tariff and non-tariff

measures to protect the domestic industries. Import duties on a number of items were already

increased. For example. the duty on arecanut and poultry products has been increased from 35 per cent

to lOO per cent. wheat from zero to 50 per cent. on skimmed milk powder from zero to 60 per cent

and rice from zero per cent to 80 per cent.

Import of 131 products was also subjects to compliance of Themandatory Indian quality standards as

applicable 10 domestic goods. In order 10 comply with this statutory requirement of the government.

all manufacturers and exporters of these products to India will be required to register themselves with

the Bureau of Indian Standards.

According to economists a hazy picture has engulfed the actual impact on the domestic industry.

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Import trends show a different scenario as compared to the ground realities in the marketplace. There

is no correct estimate on the extent of smuggling and opinion is divided on whether the competition is

unfair or not. No one has an idea about the level of under invoicing. and questions have arisen about

the sustainability of government's Operation Salvage. In shan, Chinamania is now getting as complex

as it can. Just like a Chinese puzzle, keeping everybody guessing. Cracks have emerged within the

ranks of domestic industry, too, with some sections feeling that the chambers and the government are

overreacting.

The quantum of increase in imports from China is likely to be only around $380 million (a little more

than Rs 1,600 crore) during the current financial year, going by current trends. Chinese imports

increased by about Rs 400 crore ($95 million) during the first quarter.

According to official data, Chinese imports stood at $3 I 9 million (Rs 1,435 crore) during April-June

this year as compared to $223 million (Rs 1.(00) crore during the corresponding period of the previous

year.

Therefore, the import bill for Chinese goods is likely to be around $1,200 million (Rs 5,400 crore)

during 200001. This will be only a small fraction of the country's overall imports which stood at

$46,154 million (Rs 200.062 crore) during 1999-2000. The counter view is that growth in import of

select items from China has increased by 43 per cent in rupee terms during the first quarter while the

overall trend in non-oil imports is a marginal decline.

Moreover, the growth in Chinese imports during the first quarter is over and above the 21 per cent

growth wit• nessed during 1999•2000. So how justified is the outcry about industry getting knocked

out by Chinese imports? Those opposed to the Chinese invasion say that the future is threatened even

if the impact is not acute now. Apart from imports reflected in the official data. a lot comes in through

smuggling. Add to this the impact o(underinvoicing and the picture is different, chambers like Ficci

and Assocham feel. Their viewpoint is that Chinese imports are threatening vulnerable sectors

dominated by small-scale units. However, members of CII hold a different opinion. One should

remember that Indian companies import quite a bit of raw materials and intermediates which go into

production of items which are meant for the export as well as domestic markets, they point out.

The sectors where Chinese imports have grown in a big way include coke, ores, chemicals, raw silk,

fertilisers and non-ferrous metals. In any case, economists say that since we are moving towards a

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liberal trade regime and domestic industry should learn to fight overseas competition. According to Dr

Bibek Debroy of the Rajiv Gandhi Foundation, industry is in the midst of a slowdown and this is being

confused with lack of protection. In fact. CII seems to concur with him since its findings on Chinese

imports have been dovetailed with a report on industrial slowdown.

If so, why is the marketplace full of Chinese items now? The current flood of imports consist of a

large volume of consumer goods (which were under import curbs earlier) and this has led to high

visibility in the marketplace. Imported consumer goods are getting 'showcased' now, while imports in

the past comprised primarily of raw material and intermediates, say officials. That explains a 28 per

cent spurt in import of electronic goods and over 45 per cent growth in import of machinery.

Then how justified is the government in launching Operation Salvage - suo moto anti-dumping

investigations on three items from China, hike in duty on various items and stipulating Bureau of

Indian Standards norms for 131 products sourced from other countries. The anti-dumping cases are

specific to China but the BIS norms will apply for imports from all countries, according to Mr Omar

Abdullah, the Minister of State for Commerce. His view is that India

should not become a dumping ground for overseas producers and the genuine grievances of small units

should be redressed.

The feeling among trade analysts is that if China methodically starts swamping the Indian market, then

there is little that the government could do about it. Six years ago, US garlic producers suffered the

onslaught of cheap Chinese imports. Hardly six months ago, Australia imposed at 51.74 per cent anti-

dumping duty on the Chinese apple juice concentrates to protect its apple growers. Konka of China

sells TV sets the world over at less than $100. If they do it here, the domestic industry will be in a jam.

Even if one sets dumping aside, Dr Debroy feels the Indian industry is not in a position to

compete with the Chinese who work on global-sized capacities, efficiencies and technology.

Telecom sector under strain

China's accession to the World Trade Organisation (WTO) has become certain. With its entry in the

WTO, fears are looming large over the fate of the Indian telecom industry as China will be forced to

open its door for foreign enterprises in telecom services. Till now, China had banned foreign

investment in it, telecom services industry although there has been significant foreign investment in

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the telecom equipment industry and some investment in grey areas such as Internet services.

Presently, China offers ten times bigger market for telecom services than India. Its teledensity has

reached 13 per cent and its total number of fixed line subscribers had climbed to 108.8 million in

1999, behind the US. The growth of fixed line (basic services subscribers) and mobile were highly

elastic in China during the past 5 years. Now the moment China opens its door for telecom services the

foreign investors are bound to flock into that nation. The fixed line services in China increased from

4.0 million in 1995 to 108.8 million in 1999 and that of mobile phones from 0.3 million to 4.3 million

during the same period.

Contrary to this, the Indian telecom sector reels under deplorable situation even though she opened her

gate to the foreign enterprises and private sectors six years ago. There was a slender growth in

teledensity from one per cent to 2.5 per cent during the past five years and the number of fixed service

subscribers have reached only 27.4 million numbers by July 2000, leaving a large number of aspirants

lurching for connection, even though the National' Telecom Policy (NTP) committed telephone

connection on demand by 1997.

As a matter of fact, Indian telecom turned a graveyard for the MNCs which flocked into this nation

hoping to reap rich benefits after NTP in view of the vast potential that existed in the country. Most

MNCs, which tied up with the Indian telecom companies, walked away from the struggle to revive

their ambitions.

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3. MADE IN CHINA6

MADE IN CHINA ->> the label has caused a sense of fear and anxiety among the Indian business

houses. China opening up and operating on socialist market economy principles is a tough and

competitive China; a dragon which is all set to sweep the world markets with its various goods, goods

which are of good quality and are surprisingly priced at a low rate, which is something that baffles the

world community.

The low rate comes due to the fact that the Chinese Government lends a subsidy ranging from 30 per

cent to 100 per cent. The Chinese made goods, of better quality and low rate, have flooded the Indian

market in hordes encompassing all types of products – chocolates, toys, garments, computer hardware,

and so on, and are finding ready and eager takers among the Indian consumers and this is the factor

which has caused a great sense of uneasiness among the Indian industry community.

The goods coming in from China are through two sources – direct and indirect, the direct one pertains

to the goods coming through proper channels and in a legal way and finding its way into the Indian

shops. In competition with Indian make goods, the Chinese goods are finding ready acceptance among

the Indian consumers due to its superior quality and low price. The indirect path relates to the goods

being smuggled in through the border areas of India with Nepal, which is a porous one, and this

coupled with poor policing plus the officers manning the border areas are themselves prone to taking

bribes and other forms of gifts (the officers are by and large corrupt to the core). So, with all these

factors, smuggling goes on a large scale and has become an alarming problem. What happens is that

along with genuine make goods, fake makes goods also find their way through the border areas and

land up in the Indian markets. Another pointer to be made is that large scale under invoicing of goods

takes place resulting in the goods being priced at ridiculously low rates. A large number of Chinese

made goods are flooding in this way the Indian local markets and have caused a lot of upheavals,

which has dislocated the functioning of the Indian industry in their normal way. A lot of Indian small

scale and medium sized industries have closed down their shutters due to their goods being not sold

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and left lying in the godowns, this has caused loss of employment to people who are dependent on the

industry. Some of such industries have taken recourse to smuggling and selling Chinese make goods to

sub stain themselves.

Naturally, this has sent alarming signals among the Indian business houses and they are in a state of

panic unable to make out as to how meet the threat. Two kinds of views have been expressed, totally

different views. One camp comprising of industry leaders, through the President of All India

Association of Industries Vijay Kalantri they have urged the Government to impose strong dumping

duties on the Chinese make goods on the grounds a great majority of them are coming in through

smuggled route and have caused enormous harm to their business as their products no longer find

ready acceptance among the Indian general public. Another view expressed by the Infosys Supremo

Mr N R Narayana Murthy has castigated the demand for imposing dumping duties and said that the

mess has come about due to the inability of the Indian industries to come up with products that are of

high quality and are able to find a place in global markets in competition with world leaders. He also

said that the Indian goods by and large are of shoddy and poor quality and unfit to be used by the

consumer. He asked the Indian industrial houses to instead come up with better and superior make

goods and benchmark themselves with the best of the world leaders. Instead of hiding behind closed

doors, he urged them to produce quality stuff and compete in the global markets on their own. Coming

to smuggling issue, he said that the problem has to be tackled by the Government with an iron hand,

loopholes plugged, the menace wiped out and stop finding scapegoats.

Coming to conclusion, it should be stressed that the days of molly cuddling and pussy footing are over,

the days of protections and trade barriers are over, it is an open world, a competitive world in which

one has to stand on his own and compete with the global leaders. If the Chinese make goods are

finding good demand among Indian consumers, it is because they are of better quality and meet global

standards and are priced competitively. The Indian industries should focus their energy on coming up

with better, superior and world class products, earn popularity from the sale of the same and spread the

brand name of ‘MADE IN INDIA’ far and wide.

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4. CHINESE GOODS INTO INDIAN MARKET

Chinese exports are competing with goods produced by industries in several countries including India

. Many of India ’s small-scale industries are either under threat or facing stiff competition of cheap

imports from China . These industries manufacture a wide range of consumer products (electrical

goods, batteries, toys, watches, pharmaceuticals)and intermediates (chemicals.) All these goods are

allegedly ‘dumped’ by China in India and other countries, who are initiating investigations in terms of

the antidumping legislation of the WTO.

The WTO agreement defines ‘dumping’ as export of a product, whose the export price is either

below the price charged in the exporting country’s home market or the average cost of production.

Such ‘dumping’ may be done with a predatory motive to drive, where the importing country’s

industries of the market to raise the market share of the dumping firms. WTO antidumping legislation

prohibits such ‘unfair’ trade practices. The importing country is also permitted to impose an

antidumping duty or get a price undertaking from the dumping firm to raise the import price and

reduce competition for domestic competing firms. But ‘dumping’ has first to be proved with

evidence.

Indian industries, being organised , are reasonably prompt in voicing their concerns and filing

complaints against Chinese imports. Provisional antidumping duties are also being levied alongwith

initiation of antidumping investigations against Chinese producers. It is yet to be proved that China is

actually discriminating in prices between the two markets or selling below cost. China might just be

producing at lower cost than India and other countries. Firstly, China ’s per-capita foodgrain

production is well above India ’s. Secondly, since the decade of the 1980’s China ’s labour

productivity has increased tremendously, due to its favorable fiscal regime. Thirdly, China has a

growing domestic demand to supplement the export market, which has provided Chinese industries

with economies of scale. Fourthly, a high rate of FDI inflows, alongwith an rich mineral base has

further reduced the cost of capital and raw materials. The socialistic accounting procedure, which

excludes the price of raw materials, like minerals, from the production costs, contributes to lowering

the production cost. Overall, the large stock of agricultural ‘public goods’ created by the communes

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which provides, a vast pool of cheap labour, a large and rich expatriate community and a rich mineral

base, supplemented by large FDI inflows has contributed to lowering production costs. Yet, this does

not pre-empt the possibility of price discrimination by Chinese firms. It is known that we have a

paucity of relevant information and data from China . It is reported that, very often Chinese firms

neither respond to questionnaires sent, nor are they present during hearings.

It is also important to distinguish between dumping and smuggling through Nepal . The Indo-Nepal

trade and transit bilateral treaty, as altered revised in 1996, makes Nepal a potential transit country for

third country exports to India at zero import duty. If Chinese goods being smuggled through Nepal ,

then antidumping or other duties will only lead to more smuggling.

Now there are two issues to address – determine how far India is being adversely affected by cheapimports and address the problem of industries being shut down, unable to face price competition from

regular imports and smuggling.

Once India opted for a liberalised trade regime, it has made a choice between low-priced imports

over high-priced domestic products, given no price discrimination by exporters. Consumers are better

off by having a wider choice and lower prices. Antidumping duties protect producers at the expense of

consumers. If the Chinese goods are not proven to be dumped, antidumping duties can be a very short-

lived protection for Indian industries. The only way to fight competition is by cutting costs and

improving quality or by forcing China to increase its production costs. Foreign investment makes up

for China ’s shortage of capital and brings in foreign technologies, which reduces production costs.

Cutting into China ’s share of FDI by competing with China in the capital market can possibly cause

the production cost of Chinese industries to rise via the cost of capital.

4.1 LACK OF REGULATION PUSHES LOW-QUALITY CHINESE GOODS

INTO INDIA7

China today said that lack of regulations in the country (China) is facilitating entry of sub-standard

goods into the Indian market. “Small business (small entrepreneurs) from India frequently travel to

7 http://www.indianexpress.com/news/lack-of-regulation-pushes-lowquality-chines/445664/

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China and source cheap goods from small rural manufacturers (there). They then bring such goods to

the Indian market. We don’t have any regulation to prevent this practice,” China consul-general Mao

Sewei told reporters after addressing members of the Bengal National Chamber of Commerce and

Industry here yesterday.

Admitting that such Chinese goods imported to India were of very poor quality, he said, “Even people

in China do not buy goods of such poor quality. Chinese goods are sold all over the world and enjoy

goodwill everywhere.” Mao, however, denied that China was resorting to dumping. “Exports, which

contributed 40 per cent of China’s GDP over the last few years, had seen a steady decline since last

October owing to the meltdown. As a result, the economic growth slowed down to 6.8 per cent” he

said.

4.2 INDIAN FIRMS WANT TOUGHER QUALITY NORMS ON CHINESE

GOODS8

Hit by the influx of cheaper Chinese goods in the domestic market, India’s small and medium

enterprises (SMEs) want tougher safeguard duties and quality norms to be imposed on imports from

the neighbouring country, say an an industry lobby survey.

Chinese goods are 10 to 70 percent cheaper than their Indian counterparts and the flood of such

products in the domestic market have affected companies across sectors at a time when demand is

already low due to the global slowdown, said the survey conducted by the Federation of Indian

Commerce and Industry (FICCI).

Nearly 70 percent of the participants said they were feeling the heat in the domestic market due to

rising imports from China.

Among the industry segments that have been impacted by this onslaught are processed food items,

light engineering goods, heavy engineering goods, chemicals and chemical products and metal

products.

8 http://blog.taragana.com/n/indian-firms-want-tougher-quality-norms-on-chinese-goods-81121/

18

http://blog.taragana.com/n/indian-firms-want-tougher-quality-norms-on-chinese-goods-81121/






While competing with Chinese products on the price front may not be an easy task, many Indian

SMEs said imports from the Asian giant must clear quality and safety norms before these are allowed

to be marketed in India.

“The price gap between the Indian products and Chinese products is huge. Interestingly, India has not

offered the ‘market economy’ status to China, as there are serious distortions and lack of transparency

in the pricing of products that come out of any Chinese factory,” FICCI said in the report.

Immediate imposition of severe testing requirements on Chinese goods is a must as these include basic

items of consumption and even vaccines, the SMEs said.

The companies also expressed concern that imports from China were likely to go up further as Beijing

was giving incentives to boost exports.

“Companies are apprehensive that as the Chinese government gives more incentives to boost exports,

which are the mainstay of the Chinese economy, imports into India and other neighbouring countries

would only go up,” FICCI said.

To deal with such a scenario, India should beef up its anti-dumping investigations on Chinese goods

and take quick decisions, it added.

4.3 MEASURERS AGAINST CHINESE DUMPING OF GOODS9

India and China have been caught in a diplomatic showdown over the dumping of Chinese consumer

goods into Indian markets which has raised cries of ban from many small industries and the

Government has proposed a series of measures to respond to the call.

Joining the issue, the Chinese Ambassador to India, Mr. Zhou Gang alleged that a campaign had been

waged against Chinese products by India. Gang, whose interview appeared in a major business daily

ins New Delhi on Nov. 30, said that he would take up the issue with the Indian Government.

Reacting to the interview, an External Affairs Ministry spokesman said, India has made no moves to

"boycott" Chinese goods. However, he said, India would take anti-dumping action on goods that did

9 http://news.indiamart.com/news-analysis/measurers-against-ch-7336.html

19



not conform to multilateral trade agreements, including those of the World Trade Organisation. He

claimed that consumer goods from many countries, including China, are often brought through "third

party" channels and goods without price tags attached would invite action u under existing laws in

India.

The Chinese Commercial Counsellor to India, Mr. Du Chengping, said his country has initiated anti-

dumping measures against companies indulging in such practices. He emphasised that China was

against dumping, but added that it was also the duty of India to check dumping.

Meanwhile, speaking in a different context, the Defence Minister, Mr. George Fernandes recognized

the progress made by China in all fields which, he said, poses the greatest challenge to India in its e

endeavours to lead the world in the new millennium. Reacting to his remarks, Chinese Foreign

Ministry spokesman said, "China's development does not constitute any threat to any country,

including India. We are confident that India's development, similarly, does not constitute a threat to

China".

In initiating action, the government seems to have finally accepted arguments for greater protection of

Indian industry from the flooding of cheap but poor quality Chinese products. The Government has

launched a fresh round of anti-dumping investigations and set up a strategic management group

headed by Mr Brajesh Mishra which will recommend higher levels of import duties than those existing

now. There is also an attempt to introduce non-tariff barriers through insisting on maximum retail

prices and registration with the Bureau of Indian Standards. As with many NTBs, such measures

sound reasonable, but can be used for protection.

After furious lobbying by the domestic industry, the Government has ordered that 131 items imported

into this country must carry, first, Bureau of Indian Standards certification and, second, information on

maximum rupee retail prices.

There is also talk of anti-dumping investigations and cracking down on under invoicing of good sand

smuggling. Arguing that clauses in the India-Nepal trade agreement unable the diversion of goods to

the Indian market, industry is pressing for a review of that treaty. Nothing is being left to chance.

Mumbai even witnessed raids on shops this week. No illegal goods turned up by the action is being

seen as a message to retailers to be wary of stocking anything Chinese.

The Indian industry is paranoid about Chinese imports and the government finally seems to be taking

20



cognizance.

Official imports from China are, of course, less than $750 million, but what is also true is that there are

at least three routes for imports from China smuggling though the Indo-China border: smuggling

through Central Asia and smuggling (or legitimate trade) through Nepal and Bangladesh. From

batteries to consumer electronics to stuffed toys, the Chinese are everywhere. Not only are Chinese

products cheaper, they are often of better quality than corresponding Indian products. The price

differential is anything from one-tenth to one-fifth. Two factors complicate the picture. First, industry

faces slowdown, and problems that should be described to the downturn are ascribed to Chinese

imports. Second, many of these consumer goods categories are items reserved for the small-scale

sector. Industry has argued that Chinese have an unfair playing field. Labour laws are more flexible

there, infrastructure is better and cheaper and the Chinese use non-transparent export subsidies. These

are valid arguments. However, China is on its way towards becoming a member of the World Trade

Organization and once this happens, un- warranted cross subsidization of exports will cease. Economic

observers ask, will Indian industry then be in a position to compete? Given Chinese upgradation of

quality, productivity levels and economies of scale, the answer is in the negative.

Observers say, it is illogical to expect that Chinese imports can legally be prohibited. Even if this is

attempted, arbitrage will take place because of low import duties in Nepal and Bangladesh, and it is

impossible to monitor this even if one has requirements on local content and rules of origin. It is high

time Indian industry recognized that there can be no permanent protection. There is no alternative to

satisfying consumers through higher productivity and better quality. Blocking Chinese goods is

certainly not in the interest of the stoic Indian consumer. There is no good reason to deny consumers

products which anecdotal evidence shows are generally well-designed and well-made and priced on

average 20 to 30 per cent below domestic equivalents. They keep costs down by being labour-

intensive and they add value by using technologies, product designs, market information, management

techniques that come along with or are embedded in the foreign investment in their enterprises.

21



5. SMALL SCALE INDUSTRIES OF PUNJAB10

Falling demand for their products, globalisation, acute cash crunch and availability of cheap chinese

products are crippling medium and small scale industries in Punjab and Haryana. The worst affected

are engineering, hosiery, worsted spinning and re-rolling industries which are concentrated in the

major industrial centres, including Ludhiana, Gobindgarh, Mohali, Amritsar and Faridabad.

As a result, scores of medium and hundreds of small units have already closed down. The state

government is taking several measures including continued subsidy on loans for technology

upgradation to enable small scale units to become competitive.

Two other major factors aggravating the crisis are a liquidity crunch which has become acute and

reduced purchasing power, particularly of the middle class. Bank credit isn't readily available to the

medium and small scale units. Although Punjab farmers have earned heavily from their paddy

production, it has not had any visible impact on enhancing their purchasing power. This is mainly

because a bulk of the money has been utilised for paying back loans.

Laghu Udyog Bharati has been demanding a level playing field for SSIs. To enable the units to

become more competitive, incentives like cheap loans and uninterrupted power supply are needed.

Liberalization and Globalization has led to significant changes across the globe with varied effect. But

in India, liberation loosened the control of the centre. State level initiative, governance and

infrastructure became more important determinants of sub national growth. Rapid growth of

agriculture and small scale industry has been behind the success story of Punjab development. The

post-militancy period in the state accompanied the change in policy regime to liberalization,

privatization and globalization. During this period, the growth rate of Punjab economy decelerated

and the dynamism of the Punjab economy was lost. Many terms have been coined to depict the

phenomenon such as: A Success Story Turning into a case of Failure, Economy at Cross Roads,

Paradoxical Experience of Development, A Successful Past but an Uncertain Future , are some

such phrases. Economic viability of small and marginal farmers is threatened due to falling profit

10 http://www.cosidici.com/newslettmay-dec/newlettjan-feb/SScaleINDUSTRY.html

22



margins. Increasing indebtedness and lack of alternative enterprises are the prime reason for the

suicides of the farmers in the state. Small scale industry is facing problems of severe competition, lack

of infrastructure and outdated technology. As agriculture and small scale sector continue to be major

employers in the state, there need to be protected rejuvenated and developed. Linkage between

agriculture and industry need to be strengthened. The book is based on selected articles (24 in nos) of

the two national level seminars organized by Punjab School of Economics , Guru Nanak Dev

University, Amritsar. Besides a leading article on Punjab economy by Dr (Mrs.) Isher Judge

Ahluwalia and proceedings of her interaction with small industrialists of the region have also been

included in the volume. The book covers broad spectrum of issues relating to agriculture, rural

development and small-scale industry. The book will be useful for the policy makers, teachers,

research scholars, students and those interested in rapid growth of Punjab economy.11

5.1 SMEs TO FUEL ERP GROWTH

Though large organisations now display greater awareness about adoption levels regarding enterprise

resource planning (ERP), it is the SME segment that is expected to fuel its growth. The awareness

level increases from about 31 per cent in the SME segment to over 88 per cent in large organisations.

Among SMEs, the awareness level regarding ERPs is the highest in the services segment. Among the

larger organisations it is the IT sector that scores on this front. About 1.4 per cent of SMEs which are

aware of ERP have already implemented it while about 19 per cent of them are in various stages of

implementation.

5.2 12 PERCENT CAPITAL SUBSIDY FOR SSIs

The Tamil Nadu government has introduced a capital subsidy scheme for SSIs in select sectors for

technology upgrades. Under the scheme, a 12 per cent back-ended capital subsidy will be admissible

on loans advanced to SSI units by banks, designated SFCs. The scheme will be in operation for five

years beginning October 1, 2000 to September 30, 2005 or till the sanctions of capital subsidy by the

nodal agency SIDBI, reached Rs.600 crore, whichever is earlier.

11 http://www.shvoong.com/books/1735947-globalization-punjab-economy-issues-agriculture/

23



6. SMALL SCALE INDUSTRY AND CHINESE GOODS12

While the value of the small scale industry sector in the Indian economy is well recognised, yet there

seems to be no let up in the woes of this sector, thanks to the lack of adequate policy support by the

government and hordes of restrictions imposed on SSIs.

This has not only eroded the competitiveness of the SSI sector but has also made the sector unviable

due to the outdated technologies, low labour productivity and weak processing capabilities.

Talking to The Times Of India, Deepak Goyal of McKinsey says ‘had India replicated China's strategy

in the SSI sector, it would not have missed the opportunity to generate foreign exchange and attract

foreign direct investments (FDIs)’.

The downslide in growth of SSIs in India is the fall-out of the lopsided policies, lack of proactive

technology upgradation, flexible labour and exit policies, believed Goyal.

The current rate of growth in Indian SSI sector is estimated to be around 5.5 per cent which is almost

half the required growth rate. According to a recent survey, there are an estimated 5 lakh sick SSI units

across the country and the bank credit locked in these units was estimated to be over Rs 7000 crore.

Apart from this, the study indicated that over 45 per cent of all SSI units in the country are sick and an

equal number may be managing with just hand-to-mouth existence.

According to Keshav Kamat President of Goa Small Scale Industry Association (GSSIA), in last one

decade, the economy of China has grown at much faster rate than India with the result that in 1990’s

GDP of China and India were almost the same but China’s GDP is currently estimated to be around 60

per cent higher than India.

This growth has been mainly driven by its manufacturing sector and in order to achieve faster

economic growth, India urgently needs to strengthen its own manufacturing, admitted Kamat.

12 http://timesofindia.indiatimes.com/news/city/Small-scale-industry-sector-woes-continue/articleshow/38783253.cms

24



According to Goyal there are myths that China’s economic growth was due to increase in investment

and not so much by productivity but the fact is that the Chinese labour is 30 per cent more productive

then India’s labour.

It is also commonly believed that Chinese manufacturing has driven primarily by exports but the

reality is that Chinese domestic sector is huge and is growing at much faster space. The high

consumption of China is due to low prices which are on an average of 30 per cent lower than Indian

prices across most products, said Goyal.

There are lower import duties in China and much lower government taxes. Against an average tax of

30 per cent in India, the average taxation in China on different products is 14 per cent. This is a major

factor contributing to lower cost in China and needs to be urgently addressed in our country, said

Goyal.

The other myths that Chinese exports are growing on the back of marginal pricing is incorrect as the

Foreign Direct Investment (FDI) was a major driver of Chinese exports and the multi-national

companies are the main exporters of Chinese manufacturing goods. This also accounts for Chinese

goods being world class quality, contrary to the belief that Chinese products are of poor quality.

Goyal strongly advocated for the need for restricting central and state government taxes. Introduction

of VAT to make Indian products globally competitive is likely be a complicated mixture of various

demands made by the states to suit their respective compulsions and convenience and it is not going to

do India much good.

It is also important that import duties must be reduced to a single rate of 10 per cent latest by 2006.

The necessity to simplify labour laws by repealing section 5B of Industrial Disputes Act and allowing

flexibility in the use of contract labour are other important factors of all India’s industrial growth, said

Mr Goyal.

25



The report also talks of creation of Special Economic Zone’s (SEZs) which allow sales of domestic

market on payment of duties. Goyal said that that there are over 350 SEZ’s in China and stated that

one particular small SEZ of 10 SQ KM generates FDIs of around $3 billion annually.

According to Mr KG Gupta, Chairman of Confederation of Indian Industry (CII), there is a need for

de-reservation of small scale industries and should have no incentives for remaining ones also.

Meanwhile, there is a need for Indian manufacturing industry to come out of its indolence and take

lessons from the developments in China and learn to have policies that focused on higher growth to

attract greater foreign investments by facilitating the relocation of industries from around the world in

the country.

26



7. CASE STUDY

7.1 CHINESE DIWALI

Even as the earthen diyas and traditional candles are fast losing out to artificial colourful lights, the

impact of Chinese gadgets can be easily felt in city markets. 13

Chinese products are dominating Diwali shopping this year. From gifts, candles, lights and flowers,

everything is “Made in China”. Due to their low rates and easy availability, Chinese products are

becoming popular in the city.

Even the traditional lampshades, a symbol of festivity in every house during Diwali, have been

replaced by Chinese ones. People find Chinese lampshades more attractive and cheap. Besides,

decorative lights, flowers and even idols of Gods and Goddesses are Chinese.

These coloured lampshades that are usually hung outside the house during Diwali are made of

coloured transparent sheets. While the Indian lampshades are usually made of paper, the Chinese ones

are available in various attractive colours. Available in different hues like red, yellow, blue, orange,

magenta and pink, these lampshades are more attractive than the Indian ones.

Same is the case with artificial flowers and decorative lights. Chinese products are more fancy. “Lights

in the shape of candles and lamps are a hit. People buy these for decorating the place near the idols,”

said a shopkeeper selling fancy lights.

“Though the Chinese lampshades and lights seem to be costly, but they are available at very nominal

rates. Starting from Rs 30, these shades go up to Rs 250. While the traditional lampshades are used

only during Diwali, but Chinese lampshades also serve the purpose after the festival is over,” said

Ramesh, a shopkeeper at Ghumar Mandi.

While the Chinese traders are making quick bucks, the Indian artists are bearing the brunt. “It is only

during Diwali that we use to make some extra money by selling colourful lampshades, but now with

13 http://www.tribuneindia.com/2009/20091016/ldh1.htm

27



the invasion of Chinese products, we have lost our share,” said Kishore Chand, an artist sitting at a

roadside at Ferozepur Road.

A customer buying Chinese lampshades agrees that though a few years back she was fond of the

traditional lampshades but now she has switched over to the Chinese ones. “These lampshades do not

look odd even if they are hung after Diwali. The rich and fast colours with laces and dragons make

them more attractive," she said.

7.2 CHINESE GOODS, IRON FURNITURE HIT KARTARPUR INDUSTRY14

Kartarpur, a small town popular for furniture making for decades is now virtually on the verge of

closure due to several reasons including import of Chinese goods and wrought iron furniture gaining

popularity among buyers.

Its lucrative edge is now a matter of past. People engaged in this business now witnessing losses and

mass unemployment. Even those with generations of experience in this business are talking

increasingly about “other options”.

Most of the carvers who had enriched this traditional craft hail from the Uttar Pradesh’s Saharanpur

district and after the partition they conferred it in the hands of Sikhs as a souvenir to keep the tradition

alive. The furniture has Mehrab, jail and grapevine motifs. Be it a chair, a bed, a sofa or a dining table,

the furniture is made of pure sheesham, teakwood or Sagwan. Kartarpur furniture’s unique selling

point is its durability.

At present ,60% of this region’s population is employed in various branches of wood furniture

manufacture. There were earlier about 450 units, mostly small and medium scale in size. Swaroop Rai,

whose manufacturing unit is facing acute crisis said, “The industry had burgeoned despite the fact

Punjab does not have many sources of wood.

14 http://www.financialexpress.com/news/chinese-goods-iron-furniture-hit-kartarpur-industry/429509/

28



7.3 CII PUNJAB PRESENTS PRE-BUDGET MEMO TO NEW CS15

A delegation of the Confederation of Indian Industries (CII), Punjab State Council, presented its pre-

budget memorandum to the new Chief Secretary, SC Aggarwal, as wishlist of the industrialists.

The delegation was led by MC Munjal, former chairman, CII Punjab State Council, and Managing

Director, Majestic Auto Industries Ltd. While presenting him CII’s wish list, Munjal stressed on the

need for authorities to ensure time- bound implementation of projects as per set standards.

Akshey Bector, Vice-Chairman, CII Punjab State Council, and Managing Director, Mrs Bector’s Food

Specialties Ltd, apprised the chief secretary of disadvantageous position that the industry of Punjab

found itself in because of disparity in VAT rates and other taxes vis-a-vis neighbouring states.

The need for the government to align its VAT rates, especially in food processing and light

engineering sectors with neighbouring states, was emphasised by the delegation members. The need to

strengthen the urban and industrial infrastructure of Punjab so as to create a conducive environment

for the world-class industry to set up its base in the state was also brought to the notice of Aggarwal.

Munjal also sought the state government’s help in bringing a major investment in engineering, white

goods or FMCG sector to the state so that small scale industry of the state gets much-needed fillip.

7.4 CHEAP CHINESE IMPORTS HURTING THE FORGING SECTOR 16

Even though the auto industry is finally getting back on track, the forging sector is still facing hiccups

in tiding over the economic crisis. Majority of the forging units in the country are still struggling to get

buyers for their products as the customers are opting for low-cost imported Chinese products.

The double whammy of declining sales and cheap imports in the domestic market has pushed several

small forging units to the verge of closure.

15 http://www.indianexpress.com/news/cii-punjab-presents-prebudget-memo-to-new-c/484458/16 http://www.articlesbase.com/business-articles/cheap-chinese-imports-hurting-the-forging-sector-1195584.html

29



Hit by cheap imports

The resurgence in the demand for auto parts has done little to improve matters for the small-scale

forging units as the sales volumes and profit margins continue to remain muted. The stiff competition

posed by the Chinese counterparts, coupled with the high input costs has raised concerns among SMEs

about their competitiveness and sustenance.

“The dumping of low-priced goods in the domestic market by Chinese manufacturers is alarming since

it is eating into the market share of the small-scale forging units. Consequently, a large number of

SMEs are incurring huge losses,” says Barun Kumar Ghosh, Proprietor of Asiatic Steel Enterprises,

mid-sized forging company in Kolkata.

The influx of cheaper Chinese forged components in India has not only cast a gloom over the profit

outlook of the domestic small-scale industries but also posed a threat to the foreign direct investment

(FDI) inflow into the Indian forging sector. Forging units across India, which witnessed a 45% drop in

revenues in 2008-09, are anticipated to witness further fall in their margins during the current financial

year on account of cheaper imports. “Sales of forged parts have gone down drastically in the domestic

market as cheap imported goods are readily available. Therefore, earnings of small-scale forging units

are unlikely to witness a major improvement even though auto companies are reporting growing

sales,” said Pran Bhalla, Spokesperson of DRP Metal Work, a small-sized cock and valve

manufacturer in Ludhiana, Punjab.

The Association of Indian Forging Industry (AIFI) has also expressed deep concern over the issue of

dumping of cheaper Chinese goods in the Indian market. In order to resolve this issue and prevent

further losses, SMEs in the forging sector are seeking imposition of stringent anti-dumping laws and

more tariff barriers on Chinese goods.

30



With government support and introduction of new technologies, the SME forging units can expect to

counter the stiff competition posed by their Chinese counterparts

7.5 PUNJAB RUBBER UNITS HIT BY RISING PRICES AND COMPETITION17

Rising prices and stiff competition from other states has put the rubber units of Punjab in jeopardy. A

majority of units especially in the SME sector has either closed down or are resorting to layoffs.

A few years back, the state had 400-450 rubber-based units, most of them in the SME sector.

Jalandhar was famous for its chappal industry. The city now has just 50 units.

Rubber prices are escalating with RSS 4 ruling at Rs 126 per kg at Kottayam in Kerala and Rs 136 per

kg in Delhi. During the last year, raw rubber prices have increased from Rs 90 per kg to Rs 136 per kg

in Delhi. Sources said there was an acute shortage of natural rubber in Kerala, the only state producing

rubber in the country, due to growing demand.

Prices of other inputs like chemicals escalated by 35 per cent in the past one year. Export of natural

raw rubber had further aggravated the situation, sources added.

Mukand Rai Gupta, chairman, Jalandhar Rubber Goods Manufacturer's Association, said, "Our input

cost pushed up significantly in the recent past compared with our counterparts located in tax-free zone

and closer to the raw material centre. Unable to survive in the domestic market, where our product is

dearer as compared to the competitors, many of the units in Jalandhar have closed down. We pay 27.5

per cent tax (12.5 per cent sales tax and 15 per cent excise duty) on tread mill (used for resoling tyres)

while a manufacturer sitting in the tax-free zone can avail tax exemptions."

Jalandhar was the only destination for finished rubber products in India. The mushrooming of units in

every state posed tough competition, an industrialist said.

The Jalandhar rubber industry manufactures mainly rubber footwear hawai chappal, canvas shoes

and transmission belts among other products. While canvas shoes are fast becoming outdated with the

advent of sports shoes, the hawai chappal is losing out in competition as well.

17 http://www.business-standard.com/india/news/punjab-rubber-units-hit-by-rising-pricescompetition/324447/

31



Echoing similar sentiments, Freedom Industries Ltd (manufacturer of cycle tyres and tubes in

Amritsar), managing Director, Harminder Singh, said, " The transportation cost and incentives given

by other states have made the rubber industry of Punjab unviable. The landed cost of products from

Punjab after paying central sales tax and freight is higher than that of products manufactured in other

states, further the escalating rubber prices has made our product cost very dearer in export market

compared to China."

Another Industrialist, Ushan K Jain, Export Director, Navkar Tyres (P) Ltd, said, " The irony is that

prices are increasing unabatedly day by day jeopardising the interests of the rubber manufacturing

industry, particularly units in the small scale sector." This price increase is hitting the SSI sector very

hard. Under the present circumstances, they are not in position to fulfill their export obligation." The

company is based in Jalandhar.

Experts are of the view that the production of natural rubber in the country is hardly sufficient to meet

the requirements of domestic rubber units manufacturing fininshed rubber goods products. Under such

circumstances, there is no logic in allowing exports of natural rubber at the cost of the domestic

industry.

They also opined that although the recent ban on future trading of rubber is a welcome step in the

direction but it fails to impact the escalating prices to the much desired extent due to inflation and high

demand of rubber in the domestic market.

In order to counter the problem, Gupta added that the government has to temporarily suspend export of

natural rubber, and import rubber apart from making arrangements for distributing the same to the

small scale industry at the prevailing local Kottayam prices.

Secondly, it was necessary to reduce import duty on natural or latex rubber to 0 per cent from 20 per

cent, so that the prices of natural rubber in the country were stabilised and the availability of natural

rubber or latex was ensured.

32



7.6 VALVE AND COCK INDUSTRY DENTED BY SLUMP

The ongoing economic deceleration and the resultant decline in industrial output have severely

affected the valve and cock industry in Punjab. Domestic sales of SMEs in the sector have fallen by

25% to 30%, while the export growth has continued to take a plunge, falling by over 80%.

A steep decline in both domestic and overseas sales has dented the margins of nearly 300-350 valve

and cock manufacturing units, mostly belonging to the SSI sector.

"Margins of small-scale cock and valve units have significantly eroded as demand in the international

market has taken a big hit. Punjab valve exporters are also losing their competitive edge due to the

cheaper products from China," commented Pritam Sharma, CEO of Moudgil India, a small valve and

cock manufacturing and exporting unit in Jalandhar and a member of Punjab Valves and Cocks

Manufacturers Association.

Both India and China procure raw materials like brass and gun metal from European countries.

However, China has an edge in the international market since it provides finished products at

subsidised rates, while India's products are 25% to 30% costlier.

The high custom duties and tax levies on Indian import of raw materials increase the input cost

significantly, pegging them behind their competitors in the global market. In view of the worsening

market scenario, industry associations are seeking special packages to bail out the small-scale units

from the crisis. "The valve and cock industry of Punjab needs tax concessions and special benefits so

that it can maintain its competitive edge. The lowering of excise duty from 7%-8% to 4%-5% will help

small units cope with the ongoing downturn," commented Pran Nath Bhalla, President of All India

Valves and Cocks Manufacturers Association.

A number of valve and cock units in Punjab are planning to set up units in the cluster recently

approved by the Ministry of MSMEs in order to enhance their competitiveness.

CONCLUSION

Falling demand for their products, globalisation, acute cash crunch and availability of cheap chinese

products are crippling medium and small scale industries in Punjab and Haryana. The worst affected

33



are engineering, hosiery, worsted spinning and re-rolling industries which are concentrated in the

major industrial centres, including Ludhiana, Gobindgarh, Mohali, Amritsar and Faridabad.

As a result, scores of medium and hundreds of small units have already closed down. The state

government is taking several measures including continued subsidy on loans for technology

upgradation to enable small scale units to become competitive.

Two other major factors aggravating the crisis are a liquidity crunch which has become acute and

reduced purchasing power, particularly of the middle class. Bank credit isn't readily available to the

medium and small scale units. Although Punjab farmers have earned heavily from their paddy

production, it has not had any visible impact on enhancing their purchasing power. This is mainly

because a bulk of the money has been utilised for paying back loans.

Laghu Udyog Bharati has been demanding a level playing field for SSIs. To enable the units to

become more competitive, incentives like cheap loans and uninterrupted power supply are needed.

34



REFERENCES

Books and Journals

• Hammel and Prahalad, “Competing for the Future”, Harvard Business School Press, 1994

• Frankel, Francine R., and Harry Harding. The India-China Relationship: What the United States

Needs to Know. Columbia University Press: 2004. ISBN 0-231-13237-9.

• Garver, John W. Protracted Contest: Sino-Indian Rivalry in the Twentieth Century. University of

Washington Press: 2002. ISBN 0-295-98074-5.

• Lu, Chih H.. The Sino-Indian Border Dispute: A Legal Study. Greenwood Press: 1986. ISBN 0-

313-25024-3.

Internet Websites

• http://www.tradeindia.com/newsletters/trade_news/interview_24_oct_2006.html

• http://www.ibef.org/Archives/ViewArticles.aspx?art_id=19056&cat_id=348

•http://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india

%E2%80%99s-economy/

• http://news.indiamart.com/news-analysis/dumping-by-china-cau-7273.html

• http://www.echarcha.com/forum/showthread.php?t=1613

• http://www.indianexpress.com/news/lack-of-regulation-pushes-lowquality-chines/445664/

• http://blog.taragana.com/n/indian-firms-want-tougher-quality-norms-on-chinese-goods-81121/

•

http://news.indiamart.com/news-analysis/measurers-against-ch-7336.html

• http://www.cosidici.com/newslettmay-dec/newlettjan-feb/SScaleINDUSTRY.html

• http://www.shvoong.com/books/1735947-globalization-punjab-economy-issues-agriculture/

• http://timesofindia.indiatimes.com/news/city/Small-scale-industry-sector-woes-

continue/articleshow/38783253.cms

• http://www.tribuneindia.com/2009/20091016/ldh1.htm

35

http://www.asiasociety.org/publications/indiachina01.html


http://en.wikipedia.org/wiki/Special:BookSources/0231132379





http://www.tradeindia.com/newsletters/trade_news/interview_24_oct_2006.html


http://www.ibef.org/Archives/ViewArticles.aspx?art_id=19056&cat_id=348


http://theviewspaper.net/small-scale-industries-an-important-catalyst-for-the-growth-of-india%E2%80%99s-economy/



http://news.indiamart.com/news-analysis/dumping-by-china-cau-7273.html


http://www.echarcha.com/forum/showthread.php?t=1613


http://www.indianexpress.com/news/lack-of-regulation-pushes-lowquality-chines/445664/






http://www.cosidici.com/newslettmay-dec/newlettjan-feb/SScaleINDUSTRY.html


http://www.shvoong.com/books/1735947-globalization-punjab-economy-issues-agriculture/


http://timesofindia.indiatimes.com/news/city/Small-scale-industry-sector-woes-continue/articleshow/38783253.cms
























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