Machinery industry in the doldrums

Print edition : February 27, 1999

MANUFACTURERS of textile machinery, whose business has been hit hard by a flood of cheap imports since 1991, have been further devastated by the collapse of the spinning industry in Coimbatore.

A substantial portion of the textile machinery manufacturing capacity in the country is based in Coimbatore. The big players, such as LMW and Textool, are based here; in addition, there are several ancillary units that manufacture components and spares. At the lowest end are the foundries, which are long-time suppliers to the industry.

Two crucial aspects of the policy of economic liberalisation - one relating to Customs duties and the other to liberalised regulations governing the import of capital goods - have severely affected the indigenous textile machinery industry. While indigenous capacity met about 82 per cent of the demand for machines in India in 1991-92, its share came down to 47 per cent in 1997-98. Industry sources complain that the Government has allowed liberal imports of pre-owned machines irrespective of how old they are. The Textile Machinery Manufacturers' Association (TMMA) has complained that the rates of import duty on finished machines are lower than the rates of duty applicable to raw materials. It says that the industry has been deprived of a "level playing ground".

R. Santharam, vice-chairman and managing director of Lakshmi Card Clothing Manufacturing Company Ltd, told Frontline that the permission to import textile machinery under the Export Promotion Capital Goods (EPCG) Scheme had been misused. He alleges that "traders, rather than actual users, are importing machines." There are also allegations that the Government is not enforcing the stipulation in respect of the export obligations of importers of machinery. In a pre-Budget memorandum submitted to the Government recently, the industry has demanded a ban on the import of second-hand machines and a realignment of import duties.

Several foreign companies that had earlier entered into technical collaboration with Indian companies have now started their own operations in the country. Among them are multinationals such as Sulzer and Rieter. Industry sources say that there have been no new technical collaborations in the last few years. A senior executive in a leading company said that foreign companies were not willing to bring in technology "unless they are allowed to hold controlling stakes in the Indian companies in which they are partners."

Industry sources say that foreign companies have reduced prices by almost 50 per cent in some cases in order to capture the market. According to Santharam, several companies sell at prices below the prices listed in the U.S. market. He argues that this is "dumping"; however, he believes that representations to the Government to invoke anti-dumping measures are fruitless because "dumping" is difficult to prove and the process is time-consuming. He says that the Government has done little to protect the industry from competition from foreign companies; he points out that both China and South Korea offer protection to indigenous industry. Industry sources say that cheap imports, including those of pre-owned machinery, threaten to undermine the opportunities that may be offered by the modernisation drive following the announcement of the Technology Upgradation Fund (TUF).

As the crisis deepens, several companies have retrenched workers. About 1,000 workers at LMW have been retrenched under a Voluntary Rehabilitation Scheme. Santharam, who is also vice-chairman of the TMMA, says that the industry is undergoing restructuring and several companies may collapse in the process. In his view, liberal policies should have been applied only in critical areas in the industry. The industry, he adds, could not cope with this "one-shot affair". Says Santharam: "Over the years we have created so much. It is painful to see all that wiped out so quickly."

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