Politalk: Keeping Pace with the QR Deluge

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Keeping Pace With The QR Deluge

For the small-scale sector, the writing on the wall is clear. With the floodgates for cheap imports opened up, survival will be tough.

By Ashish Gupta

It's bound to turn into another war between India and China. Only, this time, it will be fought on the economic turf as manufacturers on both sides slug it out to capture marketshares in the Rs 500-crore domestic toys market. The immediate provocation: removal of Quantitative Restrictions (QRs) on imports of soft toys. Over the years, China has captured nearly 40 per cent of the $100-billion (Rs 4,36,600 crore) global toys mart. That makes Raj Kumar Dhingra, the 64-year-old President of the Toys Association of India, a worried man. And he is not the only one.

K.K. Aggarwal, the 58-year-old Managing Director of Alps Industries-an export house, selling handloom and powerloom products-is also thinking about his survival strategy after handloom products become freely importable in 2005, that is, once the Multi-Fibre Agreement expires. Faced with the prospect of Chinese imports in low-end handloom products, Aggarwal is shifting to only powerlooms. And joining in his woes are scores of marble producers in the unorganised sector, who too are faced with the import threat due to the removal of QRs this year.

The Import Threat is Real...

For the small-scale sector in India, the writing on the wall is clear. Although the Government Of India (GOI) continues with its policy of not allowing big business to manufacture certain items reserved for this sector, it is opening the floodgates for imports. Bound by the World Trade Organisation's (WTO) schedule, the GOI has been forced to remove QRs on 58 items this year, and will also remove restrictions on 178 items next year. In fact, over the past decade, the government has lifted import controls on 634 items, which are mostly manufactured by the small-scale sector.

Says Dhingra: ''We are fighting a losing battle against cheaper imports.'' Even a study by the Indian Institute of Foreign Trade (IIFT) has stated that imported toys are at least 25 per cent cheaper than locally-manufactured ones. The study stated: ''It would be a formidable task for the Indian toy industry to compete with China.''

Similarly, in the case of textiles, the IIFT study concluded: ''As and when QRs on textile products (apart from handloom), including ready-made garments, are phased out, it will be a tough task for the Small Scale Industries (SSIs) to compete.''

What complicates matters are the GOI's lopsided policies. For instance, the cumulative import duty on inputs for soft toys like pile fabrics, nylex, and velboa is 77 per cent, compared to 44 per cent on the finished products. And, while the former category is in the restricted list, the finished products can now be imported under the Open General Licence.

What is even more worrying is the fact that products might be dumped in India, especially given the country's poor record of resolving a mere 50 anti-dumping cases in the last nine years. Add to that the fact that transnationals can easily set up manufacturing facilities in the South Asian Association for Regional Cooperation (SAARC) countries, from where India allows imports at much lower duties under the South Asian Preferential Trade Agreement. For example, most of the imports from Nepal attract a duty of 15 per cent only. S.K. Tuteja, 54, Development Commissioner, SSIs, denies this. ''Even if that happens, it will give time to Indian manufacturers, since establishing a production base will take a few years,'' he says.

...But There Are Opportunities

Does that signal the death of the SSI? Not really. Between 1990-91 and 1998-99, the number of registered units in the small-scale sector has gone up from less than 20 lakh to more than 31 lakh, and their turnover has gone up by as much as 90 per cent to Rs 2,88,807 crore. Says Tuteja: ''The sector has the resilience to withstand the impact of the removal of qrs.'' According to him, the threat will become real only when import duties are further pruned. For, the effective import duty on items like refrigerators and washing machines is still as high as 60 per cent.

In fact, a few of the small-scale manufacturers view the removal of QRs as an opportunity for growth. Says Jagjit Singh, 54, the CEO of the Mohali (Punjab)-based Weldmesh Industries, the manufacturers of welded wire mesh for power projects: ''As other countries cannot take recourse to QRs to shut out Indian goods either, we can increase our exports.'' Adds Madan Aggarwal, the 72-year-old Managing Director of Mandap International, which manufactures wheel-rims for various brands of motorcycles, such as Yamaha, Enfield, and Rajdoot: ''All that we need to do is become much more competitive by cutting our costs and improving the quality of our products.''

Another survival strategy could be in the form of increasing ancillarisation of the small-scale sector, whereby small manufacturers become sub-contractors for big business houses. But that can become a reality only when the goi opts for dereservation of items where the entry of big domestic companies is still restricted. Agrees Rahul Bajaj, 61, CMD, Bajaj Auto: ''The issue of dereservation needs urgent attention in view of the changed economic scenario.'' However, that is a political dynamite, especially in view of the fact that the Bharatiya Janata Party has historically garnered support from the traders, and the small-scale manufacturers.

Despite these hurdles, the manufacturers in the small-scale sector have decided to give the transnationals a run for their money. Even those in the toy industry have decided to set up a Rs 10-crore Toy City in Greater NOIDA (near Delhi). Spread over 125 acres and financed by the Uttar Pradesh government, the project will allow manufacturers to pool their resources, and specialise in different items to take on competition.

According to Dhingra, nearly 100 producers have already applied for registration. Clearly, the small-scale manufacturers are unwilling to give away their turf without putting up a tough fight. And these producers are looking at new strategies to combat the threat from across the border. So, get ready for a sequel to the Toy Story as the Indian cowboys prepare to give the Chinese astronauts a good run for their money.

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