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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."

With shut-down an imminent reality for manufacturers such as him, is becoming a trader an option? Have manufactures successfully made the transition to trading?

"Businessmen are always positive. And moving forward is always a strength. Those who are big in trading today were small 10-15 years ago. I have seen their transition from small to big traders. But I haven't seen a single case of a manufacturer making the transition to trading. When we say, Noida is transforming, it is not that manufacturers are becoming traders. Manufacturers may shut down, or go somewhere else. But there is a new generation of traders and it is one-time small traders are now making it big," he says.

The transition for even those who want to make it, says Khurana, is not a cakewalk. "For a manufacturer to become a trader it is not an easy option because you need specialisation in that particular line. You need funds. And to shut down an existing business is to suffer lot of losses. After that whether you in a position to switch depends on your circumstances."

Contrasting the manufacturing to trading, Khurana says, "Today, it is more profitable than manufacturing. You go to China, book a container, bring the products and then sell it in the Indian market. Yes, in trading there is one advantage. You can work with lesser people. Your running liabilities are much lesser. And you can judge immediately how much profit you'll make based on the orders."

70% 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, laments Vipin Malhan, president of the Noida Entrepreneurs Association. Pic by Naresh Sharma/Firstpost

Since there is no beating them, the Noida entrepreneurs have decided to join them. In October, the NEA, hosted a 40-member strong delegation of Chinese businessmen and signed a 'friendly association agreement' with the Chinese General Chamber of Commerce of Jilin province. This was the second business delegation from China to visit Noida in four months.

"We have given Chinese businessmen a platform. What is happening now is that manufacturers import parts from China, assemble it here and sell it in the Indian market. When Chinese businessmen partner with us, doing business will become even more easy. The supply and quality will be assured," says Malhan.

Asked why Chinese businessmen were keen on partnerships with entrepreneurs in Noida, Malhan says, "Noida has a high concentration of SMEs. Their main focus in Noida - be it in cement, marble, electronic, electrical or engineering goods - is to form partnerships so that they can jointly set up businesses. Also, in the last few years, the real estate in Noida has developed. If they tie-up with real-estate companies for example, the can sell their marbles, tiles, doors, kitchen chimneys - it is lucrative market for them here. With a local partner, they can better promote their products."

Though Malhan says that "entrepreneurs in Noida have suffered a big setback due to the Chinese imports," that "many SMEs have shut-down as a result" and that "there are fears that SMEs may be wiped out of Noida", he remains positive and is welcoming of China's role.

He says, "Television sets used to cost Rs 18-20,000. In the last 10-15 years, wages, prices, electricity has gone up. But a TV set today costs Rs 5000-6000. And that is due to china."

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by Pallavi Polanki

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