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Economy Dec 12, 2012

China effect: Noida’s manufacturing units are shutting shop

By Pallavi Polanki

In Noida, once a thriving manufacturing hub, industrial units now seem to be falling like ninepins. As cheap Chinese imports turn small and medium enterprises (SMEs) into losing propositions, Noida is being transformed into a trading hub, say manufacturers.

Noida or the New Okhla Industrial Development Authority has one of the largest concentration of SMEs. Seventy percent of its 10,000 industries are SMEs, as per the Noida Entrepreneurs Association (NEA).

"Seventy percent of the electronics market is now dominated by Chinese imports. If you look at the furniture market, it is all Chinese and Malaysian. Indian products are nowhere. Today the furniture manufacturing units in Noida have been converted into assembling units. They import the parts from China, put them together, and sell them in the Indian market," says Vipin Malhan, President of the Noida Entrepreneurs Association (NEA).

While the auto sector has remained largely unaffected, Malhan says, all electrical parts are being imported from China. "They are also slowly capturing the garment market," adds Malhan.

Noida has a high concentration of SMEs. Picture taken by Naresh Sharma/Firstpost

With the fall of manufacturing has come the rise of traders.

"The main reason for this is the small margin of difference between the import duty on final products and that on components. So whether you import the raw material or the final product, it hardly makes a difference. That is why the preference is shifting to importing final products rather than raw materials. Secondly, neighbouring states such as Uttarakhand have lucrative schemes for manufacturers such an excise free zones. So people prefer to buy from excise free zones rather than Noida," say V S Khurana, who has been manufacturing TV sets in Noida for the last 25 years. He is the Director of Vidya Electrotech Pvt Ltd (VEPL) located in Noida's Sector 65.

Noida is losing its advantage as a manufacturing hub, especially for electronics, says Khurana. "The viability of electronic manufacturing is reducing every day. It is very difficult to cope with this transition. The only way is to switch to a different product or become a trader, that is, import finished goods and sell it in India," says Khurana.

Developments in the last five years have brought Khurana's electronic unit to the verge of shut down. "If things don't improve I have to shut down. I've been in manufacturing for 25 years. At one time my turnover was Rs 300-400 crore. Today my turnover is around Rs 80-90 crore. Look at the downfall. There is no demand," he says.

Transition from a manufacturer to a trader is not easy option because you need specialisation and funds, says VS Khurana director, Vidya Electrotech Pvt Ltd, who has been manufacturing TV sets for the last 25 years is on the verge of shutting down his company . Picture courtesy: Naresh Sharma/Firstpost

He has had to lay off more than half his workers. "I used to employ 300-400 people. I now have 150. I don't know how much longer I can keep them. This is not good for the industry," says Khurana.

He is not alone. This year alone he has come across 15 other businesses that have shut down, moved to other products or moved out of Noida.

"Component manufacturing in Noida died 20-25 years ago. The government decided that since China was better than us in making components, we'll import the components and make the final product here. It started with that. Earlier, the difference in import duty between the finished product and the components was 25-30 percent. So normally no one dared import the finished product. And that gave manufacturers the edge. The government has progressively reduced import duty on finished products. Today the difference in import duty between the final product and components- in electronics - is 10 percent. People are now importing TVs from China and selling it here. The need for manufacturing is over."

Similarly with mobile phones. "Five to six years ago, there was talk that mobile manufacturing will start in Noida because we have capacities in our electronic industries and but no product. (Noida has the maximum electronic and electrical units.) But now, in case of mobiles, there is no import duty. And so we have maximum consumption of mobiles here, even now there are virgin markets, and despite that we are not manufacturing mobiles here. We are importing from China."

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by Pallavi Polanki

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