If things go the way they are, SSI units may just have to call it a day - and the long goodnight
Small is no longer beautiful. For proof, ask small-scale manufacturers in Maharashtra. The latest blow to their livelihood has come from the large-scale undervalued import of small engineering items like measuring tapes, clocks, scissors and calculators.
Visit Manish Market, Musafirkhana or any adjoining shopping area in the heart of Mumbai and you'll see imported goods, costing the same as or less than local goods, being generously pushed by the retailer. Not to promote competition or benefit the ordinary consumer but because of the lure of a 200 to 500 per cent higher margin on such goods than local brands.
How do importers manage to award such handsome margins on low-value items? Investigations by Outlook revealed that that's because they're resorting to widespread duty evasion and underinvoicing.
This is how it works: the local importer routes these goods, mostly of Chinese origin, through Dubai, the haven for alternate activity, and invoiced at ridiculously low prices - say, Re 1 to Rs 4 for a measuring tape, Rs 1.25 for a 40 mm lock and Rs 9 for a pocket calculator - in the bills of landing, as per the documents available to Outlook. At these prices, they attract very little customs duty, about Re 0.50 per tape as against Rs 6-7 when imported at their real global market price of $0.35 or Rs 16-18.
How does such doctoring escape the scrutiny of customs officers? Sometimes, they don't. The usual practice in such cases is to ask for the original bills from the place of origin if the officers suspect any foul play. In some cases, the officers do "justice" by loading the price by about 100 per cent and levying an extra equal duty. In the case of the measuring tape, for instance, the duty comes to one rupee and the new price Rs 3. Still, a minor loss for the importer!
Mahesh Sutalia, a padlock manufacturer, affirms it is not possible for an ssi unit like his to supply a 40 mm padlock at less than Rs 20-30 (depending on the metal used). Avnish Jauhari, the official distributor for Casio calculators, says it is impossible to make even the simplest eight-digit pocket calculator for less than Rs 20 and place it in the market for less than Rs 50. But, he says, the cheapest stuff comes from China at not more than Rs 35. "The importers then probably pay off the balance amount by other means like hawala," he says.
Manufacturers are scared to point out these discrepancies because they see themselves being pitted against the darker elements of society. For instance, unlike standard measuring tapes, most imported tapes are non-standard, that is, these aren't calibrated in the metric system. These are barred from import but easily available in local markets. As documents available with Outlook confirm, such tapes are being cleared along with other undervalued items like clocks and calculators.
None of these importers are registered with the Controller of Weights and Measures, as required. Several consignments are regularly cleared without their legality or pricing coming into question. Says Manu Agrawal (name changed), a manufacturer in Thane: "Even scrap can't be bought at these prices." To check out, he invited tenders from leading Chinese manufacturers for some of these goods and got quotations which were not only not cheap but were close to his own manufacturing price.
Is this akin to smuggling, then? Agrees Agrawal: "Now, smuggling has a virtually legal licence." It's not as if the ssis are facing pressure from smuggled goods for the first time but of late, it seems the floodgates have opened. Even recently, the import of three containers of measuring tapes was cleared from Mumbai and Nhava Sheva ports. Says Madhusudan Khambete, president of the Thane Small-scale Industries Association: "Our members are ready to compete with global rates but they cannot cope with such malpractice." Ironically, Agrawal pays 36 per cent or nearly Rs 4 on a Rs 12 measuring tape, bringing his selling price to Rs 16-20, while the 35 per cent import duty adds little to an invoice declaring only 7-10 per cent of the actual value of the good.
More dangerously, if a retailer uses one of these non-standard tapes, the consumer can be cheated without him even suspecting it. Khambete says that apart from huge loss of revenue to the government, if the imports continue, the Indian market will go the Russian way where similar undervaluing of imports killed the local industry.
The government knows all this. A letter from the Controller of Weights and Measures' office alerted the Customs Commissioner that "products like tapes are flooding the Indian market through container load (that) do not confirm to regulations". It points out that several of these importers do not have the mandatory registration with the Department of Metrology which makes them liable for prosecution. It mentions a "likelihood of large-scale evasion of duty". But if the government is taking any action on this letter, it's still a secret.