Call it continuation of a tradition dedicated to India's foreign trade, this year too, The Dollar Business trekked far and wide to explore some of the lesser known export clusters of India. And like every other year in the past, this year too saw us digging out some unheard facts from across these hotspots of India's exports. As enthusiasts of foreign trade, it is but necessary for us to understand the opportunities and challenges that these export clusters face. It is the government's goal to make these clusters the strong pole that will help the nation vault over the ambitious $900 billion bar in exports by FY2020. Is the government 'walking the talk' when it comes to improving the global competitiveness of these clusters? Are the central and state agencies fulfilling their mandates of creating common facilities to help small entrepreneurs explore global markets? Are initiatives like 'Make in India' and 'Skill India' making a difference on the ground? These export clusters, which contribute significantly to India's export basket, lack the visibility and the attention they deserve. For the third year in a row, The Dollar Business explores the length and breadth of the country to bring to its readers some ground realities from a handful of India's less-celebrated clusters of export excellence.
TDB Intelligence Unit | October 2016 Issue | The Dollar Business
There was a palpable excitement in the editorial team when in mid-July we sat down to decide on the centres of export excellence, that The Dollar Business would visit, for this year’s edition of the 'Export Temples of India'. It is a pilgrimage that we make every year to the lesser-known export hubs, and being India’s only magazine that caters to foreign trade, rightly so, these are truly our temples.
This year, in keeping with tradition, The Dollar Business team spread out across the length and breadth of the country, to bring to its readers, the state of exports from 12 different MSME clusters. The clusters selected this year ranged from the scenic Sikkim for its organic produce to the much maligned Vapi (reported to be one of the most environmentally degraded regions in the world) for dyes and chemical dyes, and from Nashik famous for its grapes to Coimbatore known as the ‘Pump City of India'. With India’s exports in decline over the last year and a half, it was necessary to put feet on the ground to look at the realities of our export clusters with our own eyes.
In the Foreign Trade Policy 2015-2020, released on April 1, 2015, the Central government had identified 108 micro, small and medium clusters to help India reach the ambitious target of $900 billion in exports by 2019-2020. The thrust on MSMEs is understandable, after all MSMEs account for nearly 38% of national GDP and 40% of India’s exports. In keeping with the thrust on exports from MSMEs, the Niryat Bandhu Scheme (NBS), a scheme for mentoring exporters from small and medium enterprises (SMEs), was repositioned to reach out to these clusters. The export promotion councils (EPCs) and the Indian Institute of Foreign Trade (IIFT) were roped-in to help with the effort. The Directorate General of Foreign Trade (DGFT) started imparting training to entrepreneurs who were interested in exports under the aegis of the Niryat Bandhu Scheme, both online and offline. When The Dollar Business spoke to Additional DGFT D. K. Singh, he mentioned that he himself was involved in imparting a few hours of online training every week.
Considering all these, it seemed our export temples would finally be able to fulfill their potential. The Government of India and the Ministry of Micro, Small and Medium Enterprises has over time also rolled out a plethora of initiatives for MSMEs which include the Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme, MSE Cluster Development Programme, Marketing Development Assistance Scheme, Promotion of Information & Communication Tools (ICT) in MSME sector, Technology and Quality upgradation and Managerial Development of SMEs through incubators, etc. So, the editorial team at The Dollar Business decided to do some digging across geographies and industries to find out if our MSME clusters were adequately equipped to give a boost to exports in the present times. [Yes, each year we do make some discoveries (and actually do) that prove how the word about MSMEs being handicapped with government policies and schemes being handsome just on paper is a myth.]
When it comes to clusters (a concentration of units in a given geographical location, producing same or similar types of products, and facing common opportunities and threats, by definition) India has a long history. A variety of clusters, mostly related to traditional industries or handicrafts, have been in existence in India for decades, if not for centuries. More recently, clusters have been developed with infrastructural and financial support from the Union and state governments.
While the cluster approach was recommended by the-then Ministry of Small Scale Industry in 1997, it was only in August 2005 that the government announced a policy package where cluster development was made the platform for making Indian SMEs competitive in the global market. State governments soon followed suit by coming up with their own policies for cluster development. The objectives of cluster development, across a variety of schemes, were common. The idea was to create infrastructure and common R&D and testing facilities in existing and new clusters, help SMEs in upgrading technology and skills, as well as provide them better access to easy credit and diverse markets.
Well, results have varied, depending on the geographical location as well as the product category. Some clusters like Butibori (near Nagpur) and Coimbatore have seen significant growth, some like Vapi, after a phase of tremendous growth, have seen exports weaken in the recent past, and for the others like Sikkim, Agra, Ludhiana, etc., there are too many factors at play to talk about their future going either way.
Not all outcomes can be attributed to the successful implementation of the cluster approach policy though. Changing customer choices, swings in the global economy and climate change and the vagaries of the Indian Monsoon also play spoilers.
India is a diverse country and drawing conclusions after field visits to just 12 export clusters would be fallacious. But that said, if we consider information derived in the past three years from over tens of dozens of such clusters as somelearning, we can safely conclude that in general, in India, the major challenges across geographies seem to have distinct commonalities. Access to international markets is still a challenge for many small and medium enterprises. Some who have managed to gain access to the European market – for example, leather clusters in Kolkata and Agra – have not been able to break into the lucrative and large American market. Competition from China (and even Bangladesh when it comes to textiles and yarns from Ludhiana and Nagpur) has been a constant and longstanding concern. The average yield per hectare is a challenge, whether it be soya beans from Dewas in Madhya Pradesh or organic produce from Sikkim (the first 100% organic state in India).
While some long-standing issues like infrastructure and logistics seem to have by and large been sorted across sectors, pollution and effluent treatment have remained obstacles. India's leather, chemical and marble processing clusters have seen matters get worse due to these menaces. Is there a common thread somewhere in all these challenges? And above all, why are we not able to create a pull factor for our export products in the international arena?
One theme that we could identify is the lack of capability to diversify our product basket and move up the value chain. Most countries that have seen the cluster development approach succeed – be it Italy, China or Brazil – have invested in technology and skills to move up the value chain. The other common factor defining their success has been efforts towards building a brand or an image. The world knows about Italian leather, Egyptian Cotton and Colombian Blue Diamond Coffee. Amongst the clusters we visited this year, not one has been able to create a brand recall at a similar level in the global market (the possible exception would be some handicraft products, unfortunately none of them figured in our list of export temples this year).
The Market Development Assistance (MDA) scheme, which was initiated by the government to help small exporters gain access to export markets, has also not yielded the desired results. “The objective of the MDA scheme was to support small exporters to access new export markets. Unfortunately, the scheme is being utilised by big players, which goes against the very purpose of the initiative,” says Nazir Ahmad, CEO, Park Exports, a leather exporter from Agra.
Understandably, small exporters are disappointed. When it comes to compliance with environmental policies, it is the same small manufacturer or exporter who suffers the most. The moratorium on industrial expansion in Vapi is a case in point. The ban on industrial expansion was first imposed by the Ministry of Environment and Forests (MoEF), GoI, back in 2010, based on the Comprehensive Environment Pollution Index (CEPI) – an index of pollution developed by IIT-Delhi and Central Pollution Control Board (CPCB). Interestingly, MoEF lifted the ban in October 2011 only to reimpose it in September 2013. The present Gujarat government has been urging the Union government to lift the moratorium, but it is probably already too late for MSMEs in the dyes and dye chemicals cluster of Vapi to imagine a revival tale in the face of uncertainty.
While large companies like Berger and Asian Paints continue to produce and export from Vapi, the small manufacturers have gone out of business. The common facilities that were supposed to help the small and medium enterprises, it seems, have not been able to fulfill their mandate in this once vibrant industrial town. But there is still hope that the Common Effluent Treatment Plant (CETP) will get its act together and the dyes and dye chemicals industry at Vapi will be revived.
Environmental concerns are holding up production and expansion at the Bantala Leather Complex in Kolkata too. The complex was conceived as an integrated and environment-friendly hub for leather processing after concerns were raised regarding inefficient effluent treatment at tanneries in Tangra and Kasba. The project is once again mired in controversies regarding pollution. Processors, who wanted to build large facilities, are holding back investments till a final settlement is reached.
Kishangarh, the 'Marble City', has also gained notoriety for the toxic waste it generates. In these times of environmental activism (which sure is important for mother Earth to survive), MoEF needs to have a clear policy of saving the Earth without stalling the economies of our export clusters. That's not too much to ask.
Another major issue that most clusters face is inadequate connectivity. And this applies to clusters as prominent as Coimbatore to as remote as Sikkim. A case in point could be Coimbatore, often referred to as the "Manchester of South India". We did a quick check on flights from Delhi to Coimbatore and found that only one airline has a direct flight to the city. Manchester, on the other hand, is the third busiest airport in United Kingdom. So much for being the Manchester of the South. But then we probably are being a little harsh on Coimbatore, considering that air connectivity is still not a priority in India. But even railway connectivity to major cities such as Chennai and Bangalore needs to improve. Connectivity among various industrial clusters near Coimbatore such as Pollachi, Mettupalayam or Tiruppur too remain lacklustre. For the economic and business growth of the city, upgradation of roadways within the 80-100 kms should also improve.
When it comes to Sikkim the less said about connectivity, the better. The mystic charm of the remote state attracts tourists in hordes, but business visitors may not be so forgiving. Large stretches of the road connecting Sikkim to Siliguri are in a deplorable condition, lengthening the transportation time of goods (often causing them to perish). Also, the road is prone to frequent landslides. This is a major challenge from an exporter's point of view. Having more warehouses and cold chains is one way of tackling this problem. But the long-awaited ICD at Siliguri, the nearest major railhead, remains stuck in red tape.
Even in case of Agra, which is known world over for the majestic Taj Mahal, the condition of roads is nothing to write home about. The city still does not have a proper airport. [It takes more time to fly than to drive from New Delhi to Agra. Can you beat that?] No wonder, exporters rue the lack of well-heeled buyers!
Absence of incubation centres, patent information cells, R&D centres is another justifiable demand. For instance, exporters of jute from Hooghly say that they are trying to diversify their product basket to mitigate the demand slack for traditional jute bags, and that R&D support in product development is sorely missed.
Similar is the case with knitwear and apparel manufacturers in Ludhiana and exporters of essential oils and attar from Kannauj. We need to remember that moving up the value chain will only be possible for small exporters when there is adequate support in terms of technology and skills development. Even a cluster like Butibori (an industrial suburb of Nagpur), which seems to have the infrastructure and connectivity, rues the lack of skilled labour.
The Dollar Business team though sees hope amidst these challenges.Whether it be grape exporters in Nashik, or pump manufacturers in Coimbatore, private players are stepping in to fulfil the gaps. For instance, in Nashik, private co-operatives are training farmers to produce better quality grapes in greater quantities. Nashik is confident that it will become one of the largest grape producing areas in the world in future. And looking at their efforts, we couldn't agree more.
Similarly, Elgi Pumps of Coimbatore too aims to occupy the second spot (by volume) in the world in air compressor production. New investments are pouring into the textiles cluster in Butibori and jute exporters from Hooghly are also confident of exports business receiving a boost going forward. While United Colors, a Chinese behemoth, has set up shop in Vapi to produce organic dyes, soya bean exporters of Dewas too are hopeful of better exports on the back of a good monsoon.
While exporters from Kannauj are upbeat about the new perfumery park and museum, an initiative of the government, and believe it will help attract investments and grow exports from the region, exporters of organic produce from Sikkim are gung-ho about finding new export markets in Europe and America.
So, not to say, hope springs eternal amongst the exporters in most of the temples that the The Dollar Business visited this year. In fact, most entrepreneurs operating from these temples believe that exports will only grow hereon. It seems the adage 'the taste of fire makes fine steel' holds true for Indian entrepreneurs in theses export temples of India. Flip through and travel across India to discover some of the lesser known towns of export excellence.
The city wears a pale grey look despite being reckoned as one among India’s top producers and exporters of colours, inks, dyes and pigments. Vapi, the starting point of the 400-km stretch of the industrial belt in Gujarat, is trying hard to shed its image of being a critically polluted city. But in the process, will the city end up losing its prized dyes and chemicals industry too?
Sairaj Iyer | October 2016 Issue | The Dollar Business
The first thing that hit me, as soon as I got off the bus in the wee hours of the morning at Vapi, was a hard-to-ignore odour. While I was not able to pinpoint the source of the unpleasant smell, I guessed the culprits were the nearby factories' chimneys. After all, I was at Vapi, a city and municipality in Valsad district in the state of Gujarat, that accounts for about 40% of India’s dyes and dye chemicals exports.
“Vapi Industrial Estate contributes about Rs.12,000 crore every year to Gujarat’s exports revenue, which is roughly Rs.23,000-24,000 crore per annum. The chemicals industry constitutes 70% of total business in Vapi. Out of this, the dyes and dye chemicals account for about 70% revenues. The total export revenue from dyes and dye chemicals is about Rs.5,880 crore,” said Sudipto Sarkar while sharing some facts about Vapi's dyes and chemicals industry. This Assistant Secretary of the Vapi Industries Association was the first person I met as soon as I got accustomed to the pungent air of the city.
As I went around Vapi, I came across the factories of some leading producers of dyes and paints, namely Berger, Asian Paints, Hindustan Inks, Atul Industries Ltd., Heuberg, and Aarti Industries among others. There are also 300 to 400 other small and medium enterprises (SMEs) engaged in the manufacturing of dyes and intermediaries, besides a handful of 100% export houses like Richard Themis and Voxco Pigments.
Vapi’s success in exports has been driven mostly by these large producers and a handful of SMEs. A large section of SMEs are yet to join the export bandwagon. “Most SMEs engaged in the manufacturing of dyes are not aware of incentives and duty drawbacks. In the past, agents would take away the drawbacks, although they are incentives meant for the exporter. Dealings were mostly done in cash, and overall it was not a transparent system. Today, in spite of the online systems, SMEs are still reluctant to export, thanks to the lack of knowledge of global standards and practices when it comes to colours and dyes,” says Niyaz Saiyad, Director, Triveni Interchem.
As I walked around this industrial cluster, I could get a clear sense of how the city's dyes and pigments industry is facing tough times. However, the factory owners were quick to point out that Vapi has ample infrastructure and the regulatory environment also facilitates the ease of doing business. “Until 1994, we had frequent power cuts. Over the years, the situation has improved immensely and nowadays we hardly have any problem with power,” elucidated Rahul Porwal, Founder & CEO of Rishabh Intermediates. He even goes on to draw a comparison between Gujarat and other states, “As far as the business environment is concerned, it’s quite easy to operate in Gujarat, especially in Vapi, as compared to Maharashtra and Karnataka.”
Porwal has been operating a factory in Vapi since 1990, and has just expanded to a second factory within Vapi Industrial Estate that was set up by the Gujarat Industrial Development Corporation (GIDC) in 1967. He believes that meeting norms and compliances for setting up a chemicals industry is challenging if not frustrating. His company has to follow strict guidelines, more importantly in storage of methanol, since Gujarat is a dry state. Surprisingly, his licence for ethanol storage came from the collector’s office within four months, which is considered as a speedy response at Vapi.
Connectivity is another big positive for Vapi. The city is well-connected to Surat and Mumbai, the top two textile markets in India. This works well for the manufacturers of dyes at Vapi. The 180-km distance between Vapi and Mumbai can be covered in about three hours by road or train. On the export front, the industry benefits from the facilities that are closely located, such as an ICD at Umbergaon in Valsad and JNPT in Mumbai.
Despite all these positives, the influx of Chinese products, since the beginning of this century, into Indian market has put a spanner in the works for Vapi's dyes and chemicals industry. The low-priced Chinese products have been chewing holes into profit margin, scalping Indian entrepreneurs, for quite some time now. Saiyad of Triveni Interchem elaborates, “Buyers these days prefer cheaper chinese products. Many manufacturers and exporters have even lost old customers for a margin as small as 1%.” To counter and stay alive in the market, local manufacturers, at times, have resorted to unethical practices, and in the process they have lost the trust of buyers. However, most traders and manufacturers feel that Chinese products are not a threat. Saiyad is however concerned about the unethical practices, and says, “Such malpractices can help manufacturers play a volume game in the short term. But we might just end up losing all our international customers because of poor quality.”
Just when the town was in the process of recovering from the low-priced-goods attack, in 2011, the Ministry of Environment and Forests (MoEF) placed a moratorium on Vapi as it turned out to be one of the most polluted industrial clusters in Gujarat. Of late, the Gujarat government had requested the ministry to review its decision. But in a parallel move, it took the decision of developing a new cluster for dyes and intermediaries at Syka in Dholera and also a chemicals cluster through the PCPIR (Petroleum, Chemicals, and Petrochemicals Investment Region) at Dahej. Following the moratorium, many SMEs have closed down while several manufacturers of chemical dyes diverted investments into sectors like engineering goods and services. A cluster that was once home to almost 700 dyes manufacturers shrunk by almost 50% within a blink of an eye.
While the moratorium has been partially lifted from Vapi, the cluster still falls under the critically polluted zone which prohibits new units as well as expansion of the existing ones. Nevertheless, the dyes and chemicals sector in Vapi has already started looking beyond the moratorium. Companies like Union Colours, a division of Longyu Pigments & Chemicals Corporation of China, has set up a R&D facility for developing organic pigments at Vapi. Going organic could signal the new wave of growth for Vapi. V. H. Thakker, Regional Manager at GIDC, too sees a silver lining and says that entrepreneurship in Vapi will never subside. And I think he is correct! You possibly cannot keep business away from Gujarat for too long, and Vapi is no exception. Vapi too will surely find ways to retain its export temple status.
Mahesh Pandya, Former President, Vapi Industries Association
TDB: Please tell us about the evolution of the dyes industry in Vapi.
Mahesh Pandya (MP): The dyes industry developed in Vapi because of its close proximity to the textile markets of Surat and Mumbai. The cluster has seen the rise of many known enterprises like Bayer Vapi (formerly known as Bilag Industries), Hindustan Inks, Atul Products and Colour Chem, amongst others. Despite significant domestic demand, exports also took flight – there was a time when the cluster had almost 700 dye manufacturers. But, before the economic benefits could be passed on to the local manufacturers, the Chinese entered the Indian dyes market, and then came the moratorium wiping out many of our SMEs. Today, only the big players are able to survive.
TDB: What’s your opinion on the current export incentives?
MP: The cost of dye production is high. In addition, there are other costs such as royalties, machinery cost, effluent treatment cost, etc. So considering the expenses, the current incentives or duty drawbacks aren’t enough. Even in the early 1990s, Chinese products were cheaper. Today they are far more competitive!
TDB: Do you think the moratorium could be lifted anytime soon?
MP: Talks are on, but I don’t see it happening! The three industrial clusters, Vapi, Vatva and Ankleshwar, are among the most polluted cities in the world. Today, the government is focusing not only on development but on sustainable development. The state has considered removing the moratorium, but there is an opinion that launching a new cluster would be better than to focus on Vapi. I was in Vapi for 43 years, 20 of them in the dyes business, and I can tell you, none of the chemicals manufacturers is really happy to be in the dyes business today.
TDB: Has the state government ever considered new initiatives to revive the industry?
MP: The government policy is mainly focused on value added products, thus pharmaceuticals and chemicals companies were always kept aside. Ironically, Gujarat contributes nearly significantly to the total chemicals exports of India. The government is currently rectifying its mistake by setting up separate zones for chemicals and dyes to reduce the risk of pollution and for better effluent management.
Rakesh Sharma, CEO, Gujarat Polysols Limited
TDB: How is the dyes and chemicals business faring in Vapi?
Rakesh Sharma (RS): The cluster has emerged as an important sourcing hub and houses several companies that produce pigments, inks, dyes and dye-intermediaries. As per our knowledge, the industry has been growing at nearly 8-10% year-on-year, except inks, a segment which is clocking a growth rate of just 2-4%. There is no industrial development happening in Vapi presently, however bigger manufacturers have been able to bridge the 40% price gap offered by China without losing on quality.
The prices of raw materials have also gone up by almost 30% and the international market is quite wobbly! Besides, Vapi has been under an environmental moratorium (nearby Ankleshwar and Vatva are also included), and news reports have projected Vapi as one of the most polluted industrial clusters in India. So, starting 2012, the dyes industry has slackened. There is no clear roadmap from the state or the Union government, and the situation got more complicated after the effluent norms became more stringent.
TDB: How would you rate the infrastructure in Vapi for manufacturers?
RS: Lack of good roads and the absence of dedicated container terminal is an issue. But, overall, the infrastructure is fairly decent in Vapi. Procurement of raw materials hasn’t been an issue because most of them are available locally. Even otherwise, we simply call our suppliers in Mumbai, who manage to supply them on the same day. However, procuring imported raw materials from JNPT takes a day or two. Availability of power and gas is adequate, but we find them to be slightly more expensive compared to the tariffs in nearby Dadra & Nagar Haveli and Daman. We have an ICD in Umbergaon, but a new port facility would be helpful.
TDB: Post moratorium, has the dialogue between the industry and the Gujarat Pollution Control Board been fruitful?
RS: Gujarat Pollution Control Board (GPCB) has been quite strict, and over the past decade, they have been rigorous with sulphate and phosphate manufacturing companies. Various campaigns have been run to educate company owners about effluent treatment. Also, there have been regular meetings and open houses that have led many manufacturers to follow better standards
and practices.
TDB: How have exports from Vapi evolved in the past decade?
RS: The dyes and chemicals exports have come down; the reason being, many small and medium companies have shut down in the last 10 years. Some of the owners have divested and moved on to set up engineering goods and services businesses in nearby Pardi. As for our company, we export to Bangladesh, Singapore, Sri Lanka, etc. The duty drawbacks on the products we manufacture fall between 1-2% category. And since we are not a 100% export house, we miss out on some export incentives.
The north eastern state, Sikkim, is no longer popular only for its picturesque landscape and mystical culture. Being India’s only completely organic state, it is also drawing close attention from the central government as well as the Indian export fraternity. But is this attention aligned with the realities and aspirations of the region? The Dollar Business travels across Sikkim to find the answers.
Proyashi Barua | October 2016 Issue | The Dollar Business
NEAREST ICD: ICD AMINGAON, ASSAM (527 KM) I NEAREST AIRPORT: BAGDOGRA (125 KM) NEAREST SEA PORT: KOLKATA (674 KM) I NEAREST RAILWAY STATION: NEW JALPAIGURI (115 KM)
When trapped in a landslide on the winding road leading from Siliguri to Gangtok, you may tend to regret the decision of travelling to this far-flung hilly north eastern state of India. As you look at the serpentine queue of cars halting ahead of your vehicle you cannot help but wonder about the allure of the state which manages to attract tourists like a magnet even during the difficult monsoon months.
But when we reached Gangtok, suddenly worries gave way to smiles! ‘Exotic and alluring’, is how tourists flocking to the northeastern mountain state of Sikkim describe this state capital. And that is exactly how its landscape – fringed by the lofty Kanchenjunga – feels against the backdrop of a fading evening sun. If after braving a landslide you are fortunate enough to reach past sunset, consider yourself blessed – the twinkling street lights lend an inexplicably mesmerising charm to the town.
While the credentials of the state as a holiday destination for nature lovers and people who appreciate culture and art are established, there is a considerable measure of ambiguity surrounding the export potential of the state. “After Sikkim achieved the status of a fully organic state, the Central government is looking at its export potential with renewed interest. The Mission Organic Value Chain Development (MOVCD) scheme and other allied initiatives of the Prime Minister are definitely a welcome step in terms of resolving the logistical handicaps that have been impeding exports from the state. However, the real problem is much bigger than mere logistics and infrastructure. Sikkim being a small state with limited cultivable land cannot meet the existing government mandate (in terms of volume) of export consignments. This is despite the fact that the Central government already has a sizeable waiver for the north eastern states,” shares Dr. Roshmi Goswami, a founder member of the North East network.
Dev Raj Dewan, General Manager of Sikkim State Cooperative Supply and Marketing Federation Ltd. (SIMFED) agrees. “Covering a total landmass of only 7,096 sq.km., Sikkim has an agricultural land of about 1,09,000 hectare, which is approximately 16% of its total geographical area. Owing to this land constraint, production (in terms of metric tonne) of even our chief edible crops like cardamom, ginger, turmeric and mandarin oranges falls short of the specified volume of export consignments,” explains Dewan.
Talking about solutions, L. T. Bhutia, Manager of Temi Tea Garden, says, “The government needs to promote exports from Sikkim from the perspective of quality and not quantity. Most of our organically grown products and almost all our indigenous products have the potential to command a boutique or niche appeal in international markets." And we couldn't agree more. To give an example, Temi Tea has already captured this space in Germany, Japan and Canada. Sikkim also has very rare breeds of flowers and fruits like cymbidium orchids and sea buckthorns (a form of berries that are an extremely rich source of Vitamin C).
One wonders about the monetary worth of small export consignments. “Since organic cultivation is an expensive process, organic produce is priced considerably higher than its counterparts. Therefore, small export consignments can fetch competitive prices particularly in Europe, America and Australia,” opines Dewan.
Roger Rai, Managing Director, SIMFED feels that building an entrepreneurial climate and eco-system is another vital challenge before the state. In his words, “Much greater support has to be secured from national trade bodies like DGFT, FIEO, Export Credit Guarantee Corporation of India (ECGC) and other export facilitating bodies. Annually, one workshop from all such bodies need to be held in Sikkim so that entrepreneurs can be encouraged to invest in export-oriented business.” Talking about the role played by cooperatives, Rai says, “The Sikkim State Co-operative Bank (SISCO) established in 1998, has been addressing the credit needs of the rural agricultural farmers since its inception. Today there are more than 1,630 cooperative societies registered under Sikkim Cooperative Societies Act, 1978. These cooperatives can play a vital role in terms of facilitating exports from the state, by serving as a platform for showcasing and marketing the indigenous produce and products and assisting in fetching premium prices for the same.”
Alluding to yet another challenge that is plaguing exports of organic produce from the state. Dewan states, “Sikkimese farmers have a traditional mindset. They prefer the earlier (conventional) form of farming where they could rely on middlemen for lucrative barters. Moreover, non-organic farming is far less costly.”
As an answer to this challenge, Sona Pradhan, a retailer of an organically grown vegetable stall in Gangtok’s busy Laal Market, says, “It is high time that India created niche markets for organic produces and products which will encourage farmers to migrate to organic farming. At the end of the day, farmers need premium prices for their organic produces and products.”
The presence of marginalised landholdings in the state further compounds the challenges already plaguing organic farming. Since farming cannot take place effectively in small tracts of land, the state government has proposed that all landholdings be segregated into clusters wherein “The one crop one village” form of farming is adopted. This approach could facilitate bulk production of any crop on a commercial basis.
For scripting the success story of organic exports, it is not merely enough to remove the roadblocks associated with farming. According to experts, a lack of adequate research on bio-pesticides is attributing to large-scale damage of organic crops. And the less said about the transport and logistics infrastructure, the better. The road to the main railway station at New Jalpaiguri is prone to landslides that sometimes take an entire day to clear up, and the ICD that was supposed to come up at Siliguri is stuck in red tape.
Incidentally, Sikkim’s pride – the large cardamom (the state contributes to 80% of India’s production of this crop and exports it to Pakistan, Middle East and Singapore), has seen a dip in production in recent years owing to a prolonged crop disease. Consequently, the yields have reduced severely and the land under cultivation, has gone down from around 26,000 hectares to about 16,500 hectares.
In the backdrop of the existing and emerging socio-economic dynamics, it is safe to conclude that although not an established export hub, Sikkim is definitely an emerging export hub of the country. While the focus and expectations from the national export fraternity is clearly on the organic produce of the state, one cannot help wonder about the potential of the traditional handicrafts and artefacts.
Local handicrafts of the state have held a timeless and mystic appeal amongst both domestic and international tourists. Today, when organic tea, oranges and spices of Sikkim are fast becoming a rage, we saw tourists, domestic and international tourists stopping to flock to the shops retailing traditional handicrafts and souvenirs. This speaks volumes about the fact that the local, traditional handicrafts and artefacts are definitely not playing second fiddle to the organic bandwagon in terms of export potential.
Most state officials are in agreement that in order to transform Sikkim into an export hub it should first be promoted as an investment destination both nationally and globally. “Joint ventures and collaborations can infuse expertise that can simplify and smoothen production cycles and enrich the quality of exports,” says Dewan.
It sure is great that Sikkim has become the first 100% organic state in the country, but to be able to fulfill the export potential of this small hilly state, more needs to be done. There is an urgent need to invest in processing and packaging technology. And with the geographical disadvantage of being a remote location, an effective cold chain warehousing system is the need of the day. Once that happens, Sikkim will have more business than leisure travellers.
Roger Rai, Managing Director, Sikkim State Co-operative Supply and Marketing Federation Limited (SIMFED)
TDB: Can you elaborate on some of the MoUs that SIMFED has signed to facilitate organic exports from the state?
Roger Rai (RR): Being an apex cooperative society, SIMFED (Sikkim State Co-operative Supply and Marketing Federation Limited) has signed MoUs with several companies to give an impetus to the organic mission of the state government and strengthen the entrepreneurship of the primary cooperatives by involving them in marketing all agricultural, horticultural, minor forest produce and medicinal herbs. One such medicinal company is Clover Organic Private Limited with which SIMFED had inked a memorandum of understanding in May, 2010. This company is involved in the business, marketing and sale of the 'Nature Vel' range of products in collaboration with BIOSA, Denmark. Another important MoU was signed between SIMFED and The Himalaya Drug Company in June 2010. As per this MoU, the company would be sourcing orchids and other herbs for taking forward its objectives under Good Procurement Practices (GPP) and Good Agricultural and Cultivation Practices (GACP), thereby improving the livelihood of the farmers of Sikkim.
TDB: Can you elaborate on the Central government's value chain initiative to promote organic exports?
RR: The Mission Organic Value Chain Development (MOVCD) scheme launched by the Central government for the north east region of India has a stipulated tenure of three years. Under this scheme, approximately Rs.400 crore has already been allocated to the entire region. Sikkim alone has been granted around Rs.115 crore. This scheme is based upon the ‘Farm to Fork’ concept, which essentially is a concept that fosters edible crop growers to be responsible in terms of the health and well-being of the consumers.
In contrast to other existing central government schemes like Mission for Integrated Development of Horticulture (MIDH), Paramparagat Krishi Vikas Yojna (PKVY), Rashtriya Krishi Vikas Yojna (RKVY), etc., the MOVCD scheme encompasses all the stages entailed in cultivation and marketing of farm produce. The scheme also involves provision for creation of infrastructure like cold chain, warehousing, packaging and processing units, etc.
For Sikkim to script its organic export success story, the importance of appropriate and adequate cold chain and warehousing units cannot be overemphasised. It is challenging to transport produce from the far flung remote hilly areas of the state to the markets. This is especially so because the national highway connecting Sikkim to Siliguri is fraught with challenges. Heavy rains during the monsoon months invariably damage large stretches of the highway, which increases the transportation time. Landslides are also a frequent occurrence in the rainy season. Consequently, it becomes nearly impossible for perishable products to reach the market in its fresh form.
TDB: What are some of the milestones that have already been achieved through this initiative?
RR: I would say that the framework for milestones has been laid as the state government has initiated aggressive action in terms of formation of 41 clusters, which will contain 28 FPOs (Farmer Producer Organisation) or FPCs (Farmer Producer Companies) covering around 14,000 hectare of land area. The identified crops for this scheme are ginger, turmeric, buckwheat, large cardamom and cymbidium orchids.
TDB: How is SIMFED helping exports of organic produce from the state?
RR: SIMFED has been participating regularly in trade fairs like BIOFACH and others in India. Till date, SIMFED has exported sea buckthorn (Hippophae Salicifolia) juice to Paris, France and organically certified raw ginger to Germany on a trial basis. Raw, organically certified ginger has also been supplied to export houses in Kerala. SIMFED has submitted a proposal on the development of marketing linkages and creation of niche markets for agriculture, horticulture and floriculture products of Sikkim to KTW, a German funding agency. Studying the market potential of commercial crops, capacity building and development of backward and forward market linkages are the key highlights of the proposal. We believe, if accepted, this could help improve our exports.
L. T. Bhutia, Manager, Temi Tea Estate
TBD: Which are the major export destinations for Temi Tea?
L. T. Bhutia (LTB): Temi Tea Estate does not engage in direct export of tea. However, Temi Tea Estate auctions its tea in the Kolkata auction centre which has key buyers from countries like Germany, United Kingdom and Japan. The demand has been increasing. The estate is planning to collaborate with State Trading Corporation of Sikkim (STCS) to explore export opportunities in new markets in order to fetch remunerative prices.
TBD: What is your pricing strategy in terms of exports?
LTB: The prices of Temi Tea are at par with the prices it fetches in the Kolkata Tea auction. The prices for export may vary with demand or season. This is because different seasons produce their own distinctive quality of tea. The first flush tea (March-April) may be priced around Rs.3,500 to Rs.4,500 per kg, the second flush (May-June) may be priced around Rs.2,500 to Rs.3,500 per kg, the monsoon flush (July-August) maybe priced around Rs.2,000 to Rs.2,500 per kg and the autumn flush (September-November) maybe priced around Rs.2,500 to Rs.3000 per kg.
We produce only about 100 MT of organic tea per year. Therefore, marketing Temi Tea has not been a challenge so far due to its huge demand. Darjeeling organic tea may be our strongest competitors as Darjeeling orthodox black teas are the only teas which have similar characteristics and quality as Temi Tea.
TBD: Temi Tea is a boutique product. What should the government do to promote exports of such niche products?
LTB: Temi Tea has a huge demand in local markets and 30% of our total produce is sold in the local markets in retail packets. Since it is a government organisation, we have to cater to the demands of the local people as well. Our tea does not fetch premium prices in the local markets and prices can be as low as Rs. 890 per kg in terms of premium tea. Therefore, in my opinion, premium tea should be sold in tea auction centres or exported directly so as to fetch better prices. The government should permit Temi Tea Estate to sell most of its premium tea in the auction or overseas market.
The government has not been able to do much in this regard. Sikkim is a landlocked Himalayan state with many drawbacks such as communication problems, high transportation costs, no airports and other topographical limitations. Therefore, dispatching tea to the nearest ports for export involves huge costs which are not feasible for a tea estate like ours. Government policy should provide subsidised tax rate and a single tax for transporting tea from the factory to the port within the country, which lower the burden of paying all kinds of tax for manufacturing, transporting, excise, etc.
TBD: What are the challenges of organic farming? How can the central and state government help in this regard?
LTB: Temi Tea Estate was the first organic certified organisation in Sikkim. It was certified 100% organic in 2005 by Institute of Marketecology (IMO), Switzerland. We use only IMO certified organic inputs in cultivation of the tea. The main inputs include farmyard manure, leaf compost, castor cake, etc. The pest and disease management system is also fully organic.
Organic farming has its unique set of challenges. The production is much lower as compared to the conventional farming. Also it is very cost ineffective as we incur huge labour expenses as a large number of workers are required to spray and apply large quantities of organic farm inputs. The prices of the some organic farm inputs are also very high. The organic products are usually priced high to make up for the high cost of production. This makes it difficult for our produce to compete with other low priced conventional products.
There is a need for more research and development to improve organic farming techniques and outcomes. More cost effective products need to be developed along with stronger biopesticides. The government should provide subsidies on organic farm inputs which will facilitate farmers to secure inputs at lower prices. It should also have agencies which will procure good quality organic products from the growers at premium prices and export overseas.
Which phrase best describes the city of Nashik? A pilgrim’s ultimate sojourn or the beautiful wine capital of India? Our journey to this holy city brought us closer to grapes, a fruiting berry that puts Nashik on the world trade map. The city accounts for over 50% of India's total grape exports we learnt. We weren't surprised.
Sairaj Iyer | October 2016 Issue | The Dollar Business
MOST ACCESSIBLE ICD: NASHIK-JANORI ICD (21 KM) I NEAREST AIRPORT: MUMBAI AIRPORT (186 KM)
NEAREST RAILWAY STATION: NASIK ROAD RAILWAY STATION (3 KM) I NEAREST SEAPORT: JNPT MUMBAI (193 KM)
Nashik is for pilgrims – shares Arun Patil, a auto rickshaw driver and our first guide in the ancient city of Maharashtra. When quizzed about what the city is most famous for, Arun stops to reflect, “Trimbakeshwar, Kalaram, Pandavleni, Saptashrungi, Muktidham, Jain Mandir, Ramkund, Someshwar, Gangapur Dam, Coin Museum, HAL factory and museum, Mangi Tungi, Tapovan, Sita-Gumpha, Sula and York wineries.”
While Patil continues to explain to us about the must-visit places in Nashik, failing to note our shift in attention, we let go ourselves in the panoramic view of the grape farms dotting the Sahyadri range. The picturesque landscape and the scenic horizon makes Nashik the beautiful grape capital of India.
Well, not to say, grapes and wine too are the top export products from this pilgrim town. Interestingly, Nashik was not home to grapes until the 1960s; the Maharashtra Rajya Bagayatidar Sangh (Grape Association) formed under the leadership of late Vasantrao Naik, the first Chief Minister of Maharashtra, brought the grape revolution in the region.
Come today, and nearly 55% of India's grape export originates in Nashik. The city forks out green, red, golden, and black grapes, exporting it across 38 countries including EU, US, Middle East, and parts of Asia. In fact, increasing exports, year-on-year, of grapes from the region has helped India secure the No.15 spot in global grape exports. What's more? During the 2016 harvest season, 75,000 metric tonne (MT) of grapes were exported from this holy city (as per APEDA estimates), making 2016 the most successful year till date in terms of exports of grapes from the region.
Nashik City, Dindori, Niphad, and parts of Chandvad, are the four talukas that top the chart when it comes to cultivation and exports of grapes from the region. “What started out as a hobby has today become an industry. This year we even broke our previous record when it comes to exports,” says Raosaheb Bansode, a grape exporter based out of Nashik. Interestingly, a good portion of cultivated grapes also gets processed as wine. And the region as such is home to some of the biggest wineries in the country such as Sula and York.
Achieving big export numbers would have been a tough task considering its uneven climate and the fact that in the previous year, Nashik managed to achieve a mere 25,000 MT in exports. The reasons for the improved performance this year are the use of scientific farming methods, and availability of good pack-houses and cold storages. “Scientific methods have helped increase the harvest season by as much as three months. Interestingly, most farmers are exporters themselves,” says Balasaheb Wagh, a grape cultivator and exporter from Nashik.
It's a good surprise to find that farmers are shedding their archetypical 'left out in the lurch' image to a new one by using social media platforms like Whatsapp for generating business, apart from adopting new improved hi-tech farming practices. During a visit to Sahyadri Farms, a mega food park situated in Dindori taluka, we could overhear farmers discussing soil-testing and nutrient quality detection methods designed by an American institute. Now that's something!
Sahyadri Farms, situated on a mountain close to the Sahyadri range, packs in a cleaning, processing, crushing, cold-storage and marketing center under a single entity. The farm processes grapes, as well as guavas, mangos, bananas and other vegetables apart from hygienically cold-storing, ready for exports.
The farm visit also led us to a seminar for farmers, where a Mulder’s Chart (a chart showing how the presence or absence of various elements influences the uptake of other elements by plants) was being discussed in detail.
“Our vision is to come out as a single entity dealing in all externalities so that farmers can focus only on agriculture,” said a senior official from Sahyadri Farms. “But why a co-operative society then?” we enquired. “We want to be associated with grapes and food, the way Amul is associated with milk and milk products,” he said.
The industry lost nearly Rs.300 crore when EU banned exports for a brief time owing to the presence of Lihocin chemical and pesticide residues during 2009-10. Farmers and small traders bore the bulk of the loss. When we asked Wagh why the farmers didn't approach the authorities for help, he replied, “we met all of them, and brought some containers back. Sadly, most shipments were thrown into the sea. We lost big money.”
According to Nashik's exporters, farmers and traders would appreciate if efforts are made by agencies such as APEDA and the National Horticulture Board (NHB), to warn the trade of any such issues in advance. Farmers and traders share that unethical practices such as traders not paying on time or cash against phyto-sanitary certifications are open secrets. If critics are to be believed, lack of government handholding is killing the aspirations of many farmers and SMEs based out this export temple. Nevertheless, despite all these odds, the growth story of grape exports from the region remains inspiring.
Balasaheb Wagh, ShivShakti Agro Exports and Representative, All India Grape Exporters Association
TDB: Exports of grapes from Nashik touched an all-time high in MY2016. What factors have contributed to this upsurge?
Balasaheb Wagh (BW): Yes, we have exported nearly 75,000 metric tonne (MT) this year. Our window for grape cultivation used to be April-May, but scientific practices, optimal use of pesticides, and proper planning have resulted in harvest starting from December itself. This year, luckily, the weather has been good, and instances of hailstorms have been far less than in MY2015.
TDB: In spite of some bumper export seasons we still rank 15th in the global grape export market, while Chile and South Africa are the top exporters. Your take?
BW: Chile and South Africa have remained as top exporters, owing to quality, and obviously better logistics. But this year, Nashik grapes, both in terms of quality and quantity, have fared far better than South African and Chilean grapes. Our rank in export market will also improve and we will soon be amongst the top 5 exporters.
TDB: What is state government doing to boost trade?
BW: The state government does nothing. Nashik even today faces frequent power cuts for about 12 hours a day, and we have to depend on diesel generators. Farmers don’t need alms. We say stop all subsidies, but let’s adopt standards, and let a farmer get what is his right.
TDB: Grape exports were very low in 2009. Any specific reason?
BW: EU had banned Indian grapes on account of presence of Lihocin and pesticide residues. Lihocin is a growth regulator and the concentration was beyond permissible limits. But, when this regulation was discussed as early as 2000, APEDA or National Horticulture Board (NHB) did not discuss this with farmers. Most farmers and traders were clueless when they started the export season. And when the product was shipped, it was held, and transactions were cancelled at the last minute. The loss was nearly Rs.300 crore for the industry. I myself lost somewhere close to Rs.1 crore in it.
TDB: Today, how are the margins looking like?
BW: There are no margins in grape exports, unlike other products such as mango. Exporters are doing it simply because the EU currency has a higher value, and then an advance helps recover the harvest costs. Our grapes sell for 7-8 euros a box, and we receive an advance of 3-4 euros per box. The export variety fetches close to Rs.110 a kilo in markets such as Delhi and Mumbai.
TDB: How will the new Nashik airport help achieve bigger export numbers?
BW: Work on the airport started eight years ago, and is awaiting final approvals. But the air-route will be fairly expensive for us. Comparatively the sea-route is cheaper. However, it takes nearly 20 days to reach a favourable destination. We have also used railways, but freight rates have increased and, hence, they are no longer viable.
TDB: What should the government do to make grapes a lucrative export industry, and Nashik a much bigger export hub?
BW: There is a need for skilled labour. In every taluka there are 200 agricultural officers, and at every village there are 1-2 krishi sahayaks to advise farmers on the best practices. In spite of these facilities, we are still lagging. The government needs to think of a policy that can integrate the industry.
Raosaheb Bansode, Representative, Canal Bagaitdar Sangh Samiti & a grape exporter
TDB: How have grape production and exports been this year?
RAOSAHEB DANVE (RD): Unlike last year, this year we have had a favourable climate and therefore grape production has been good this season. Last year Nashik exported a mere 25-30,000 MT grapes; unseasonal rains, drought and hailstorms damaged grape crop. This year our exports have touched a record 75,000 MT, an over 100% increase in exports.
TDB: What makes Nashik the grape capital?
RD: In Nashik, the climate is favourable for grapes. Like you have apples from Kashmir, we have grapes here in Maharashtra. We have abundant yield, thanks to the good soil quality and the availability of water. But again, the grape crop does not need as much water like other tabled crops or vegetables. The grape plant can be reared on a 10X10 sq. ft. of land and can survive through a drip system once a day. However, other crops require more water and care. Grape, hence makes for an ideal agro-product.
TDB: What opportunities are there for SMEs in this business?
RD: There are only a handful SMEs and small marginal farmers left now. Grapes are mostly exported to Europe, Middle East, Russia and China. The market for small farmers was good before 2009. The sudden banning of grapes by EU in 2010 led to a collective Rs.300 crore loss for the industry. Forget small players, even the well-established ones went bankrupt. Post this episode, most farmers have been using the facilities at our pack-house to simply pack and send it to a Mumbai-based exporter. Sadly, over the last few years, revenues from exports have gone down by 50% for small farmers.
TDB: But then aren’t small players somehow able to export the product through an agent?
RD: Yes they are, but then there is just a handful of such small farmers. Most of them today indulge in contract manufacturing, for a fixed cost, or deal through agents, which means smaller margins. Again, when it comes to exports, the motivational factor for most farmers was the Vishesh Krishi Gram Upaj Yojana (VKGUY) but unfortunately the scheme is not a part of the new FTP 2015-2020. In terms of other avenues, there are options such as wine and cold storage processing. But the scale of investments are quite prohibitory for a small farmer to enter into these ventures.
TDB: How do you see the future of Nashik as an export hub?
RD: There are concerns with regards to agricultural research, and the removal of VKGUY from FTP 2015-2020 is a testimony that the policy is not geared for the common farmer. In fact, certain private players have been doing more good than the government. For example, the Sahyadri Farms at Mohadi village has come up as a great example of co-operative grape farming and exports. There have also been other prominent business houses that have shown interest in Nashik. For example, Venkys, Suguna, Mahindra, and even food processing companies from Korea and Thailand have expressed their interest in setting up an operating base in Nashik. However, the state government is yet to play a role in shaping this up.
Located almost exactly in the middle of the country, Dewas is an intriguing destination. This ancient town of Madhya Pradesh has over time grown into an industrial zone and is today known as the Soya Capital of India. But is everything really in place in this cluster? The Dollar Business explores...
Andres M. Molier | October 2016 Issue | The Dollar Business
NEAREST ICD: PITHAMPUR INLAND CONTAINER DEPOT (70 KM) I NEAREST AIRPORT: INDORE (55 KM)
NEAREST RAILWAY STATION: DEWAS JUNCTION (2.5 KM) I NEAREST SEAPORT: MUMBAI (620 KM)
Dewas is spread across the Malwa Plateau, a zone popular for its rich black soil. Legend says the town got its name from the famous Devi Vaishini Temple, situated on the northern part of the town. The town, which houses a bank note press, is about 35-km from Indore, the business centre of Madhya Pradesh. It takes about an hour and a half to reach Dewas from Devi Ahilyabai Holkar airport in Indore.
The town is also the administrative centre of Dewas district. It is well connected with all important towns in the state. Centrally located in India’s most fertile region, the state government announced Dewas as an industrial town in the 1970s. And today, it is home to various industries, including, plastic, chemical, pharma, fertiliser, steel forging, dairy products, textile and fabric, and flour mills. However, Dewas is best known as the Soya Capital of India.
Interestingly, cultivation of soya bean began only in the mid 80s around Dewas. But today, about 20 districts (within a 200-km radius of Dewas) grow soya beans. There are more than 5-6 million farmers engaged in soya bean cultivation and about 2 lakh workers in the sector. The Malwa region has over 50 soya crushing companies, operating over 100 units and there are roughly 20 companies in the immediate neighbourhood of Dewas. And true to its name, it produces one-third of India’s total soya beans.
Between the 70s and 90s, availability of cheap land, abundance of raw material and brilliant connectivity allured scores of entrepreneurs into Dewas. However, in the late 90s, underground water ran out in the region, and the district was prone to frequent power cuts, and doing business became vexatious, forcing many companies to involuntarily close down.
“It was hard, but the government soon took measures to rectify the situation. It has been about eight years now that we have an uninterrupted power supply and four years since we get water throughout the year,” says Praneet Mutha, Director of Vippy Industries. Adding to the congenial developments, the Agra-Mumbai NH 3 that passes through Dewas was widened and the 674-km long Dewas-Kanpur NH 86 was reconstructed.
Dewas Anaj Mandi and Krishi Upaj Mandi were soon strengthened by the government, and private players were welcomed to the region. About 70 km away, along the NH 3, Pithampur Inland Container Depot (ICD) was developed in 1994. More trains were routed towards Dewas rail junction and connectivity expanded to all major cities in the country.
Santosh Choudhary, who owns a 12-acre farm, says, “We spend only Rs.11,000 per hectare; Rs.5,000 on pesticides and fertilisers, and Rs.6,000 on a quintal of seeds. Last year, yielding was 850 kg per hectare and we sold our crops for Rs.40,000 per MT.” Santosh isn’t happy with the yield, but he confirms, “Usually, our farm can yield over 1.5 MT per hectare.” However, for farmers like Vijay Singh and and Vinod Choudhary, last year the yield was below 700 kg
per hectare.
“There is minimum support price (MSP) protection on soya beans, but in the last 20 years, soya beans have always been sold 30% above the MSP. Last year, the MSP was Rs.2,600 per quintal, but crops fetched between Rs.3,500 and Rs.4,500 per quintal – this year’s MSP is Rs.2,775,” says D. N. Pathak, Executive Director, Soybean Processors Association of India (SOPA).
Average yield of soya bean in Malwa region is usually above 1.3 MT per hectare. But yield has been below 800 kg per hectare for the last three years. This makes the situation worrisome as Malwa region accounts for over 50% of the total land under cultivation in Madhya Pradesh (the largest producer of soya beans in India), which cultivates soya bean in around 55 lakh hectares of land.
What's more? In 2014, soya bean production in the state was 51,680 lakh MT, which fell to 34.124 lakh MT in 2015. This also means that India’s total production in 2014 and 2015 was 89.07 lakh MT and 68.65 lakh MT respectively, a drastic drop to say the least. Exports from Dewas have declined even more steeply. Dr. Davish Jain, President and Group MD of Prestige Group of Industries, shares, “Exports from the region is almost down to zero and there is no point in talking about few lakh rupees worth of exports in a year. Exports have dropped by 90%.”
In FY2011, India’s exports of HS Code 230400 (soya oil, cake and other solid residues) was $2,056 million, which dropped to $233 million in FY2016. Between FY2015 and FY2016 alone, there was a drop of 70.34% in exports, from $786.67 million to $233.35 million. Nevertheless, the region still serves 40 countries in Asia and Middle East.
Further, “The government’s decision to keep import duty low on soya oil was a treacherous move for the sector,” shares Jain. Manufacturers and exporters are in talks with the government to increase the Basic Customs Duty on soya oil. Due to low Custom duty, import of soya oil in the last four years have increased from Rs.6,500 crore to Rs.19,000 crore. “Four years ago, India imported 1 million metric tonne (MMT) of soya oil, which has now crossed 4 MMT. Our domestic production was around 1.8 MMT, but it has dipped to less than 1 MMT. World’s production is increasing by almost 30 MMT per year, while ours shows no sign of improvement,” says Jain, who feels agonised about the situation.
Interestingly though, installed capacity in the country is way higher. Apparently the situation is so bad that in a few companies machines lay idle because of a lack of orders. These factories accumulate the orders and it’s only when they have a sizable chunk of orders, they run the machine, and even more unfortunately, that does not happen often. Considering all this, not all is well in the Soya capital – some companies had to shut shop in the last couple of years.
While at Dewas, we heard some disquieting talk that Dewas is no longer the Soya Capital of India, but rather a place where malpractices are on the rise. Adulteration in soya bean oil with cheaper products have been a cause of concern. Unscrupulous producers and distributors have brought a bad name to the industry and authorities have seized tonnes of adulterated oil. Both the industry and the government are aware of the issue, but despite a worrisome situation there is no long-term plan in place to curb this menace.
The town has the infrastructure, logistics, labour, machinery, just about everything to take the business to a whole new level. The only things that are pulling back the progress is low yield of the crop when compared to world standards, poor monsoon, low import duties on finished products and the price crash in the international market. But there is hope! “Monsoon is good this year and crops look very promising. We can’t give you a figure, but there will be some exports,” says Pathak with a smile.
Even going by reports gathered from different sources, production in Malwa region might touch 55 lakh MT this year, which is significantly more than what it produced last year. And, Indian products being classified as non-GMO (non-genetically modified), importers prefer sown in India soya. So, despite the woeful situation, exporters will make some gains for a few months, thanks to a good monsoon. And if the industry stakeholders at Dewas work together towards maximising soya bean yields by improving agronomic practices, notwithstanding the hiccups, exports of soya and related products from Dewas can once again flourish going forward!
Praneet Mutha, Director, Vippy Industries
TDB: There are many soya bean producing centres within Malwa region in Madhya Pradesh. Why did you choose Dewas?
Praneet Mutha (PM): In 1973, my father started the business with the intent to export soya bean meals. The government identified Dewas as an industrial town, and back then land-leasing price was low and land was easily available. So, as a focal town, everything in Dewas was favourable to establish our business here. In addition, we knew the government will develop infrastructure faster than other parts of the state.
TDB: Don't you feel overshadowed by Indore, which is just 40 km away?
PM: We used to, but not of late. Indore has an airport, the railway station is bigger and it has better hotels, but that’s about it. Things in Dewas have changed a lot in the recent years, the obvious being improved infrastructure.
TDB: What are the most glaring changes in the last decade, other than the infrastructure?
PM: Earlier, power cuts used to be a major concern in Madhya Pradesh. But, now it has been eight years since the government has been supplying power 24/7 – at least to the industries. We have four and six lanes highways, and the fact that the Mumbai highway is in excellent condition at the moment has helped us cut down our transport costs significantly. Being a dry and hot place, water was always a major problem, but through a private-public partnership a 90-km long pipeline was laid few years ago from the Narmada and that has taken care of our water requirements.
TDB: Which is more convenient, road or rail ways?
PM: Roadway! There are times we use rails, but it’s only when we have bulk orders. Since most of the consignments are small and medium sizes, trucks work out better for us. Besides, roadway is
cheaper and saves times. It’s almost 100% safe. And since the port in Mumbai is only 600 km from Dewas and the highway is in excellent condition, it takes less than a day or two to ship them offshore.
TDB: How is the soya business in Dewas at the moment?
PM: In the last couple of years, about half a dozen of soya factories, such as Laxmi Soya and Premier Industries, have shut down around Dewas. In fact, the installed capacity in India is two times more than what we can actually produce, and Dewas is no exception. On top of this the surplus of production in South and North Americas is really affecting the Indian soya industry.
TDB: So what’s the current turnover of soya industry in Dewas?
PM: It will be between Rs.2,000-2,500 crore. Turnover from exports has gone down, and at the moment it may be roughly Rs.500 crore or less.
D. N. Pathak, Executive Director, Soybean Processors Association of India (SOPA)
TDB: What, according to you, makes Dewas a special place for both soya farmers and soya processing units?
D. N. Pathak (DNP): The average yield of soya is between 0.9 to 1.2 tonne per hectare in India. Whereas in in this region, yield is between 1.5 to 2 tonne per hectare, which is possible because of the soil quality and climate. Thus, one should not be surprised by entrepreneurs flocking here.
TDB: About half a dozen of companies in Dewas have shut down in the last two years. What seems to be the problem?
DNP: The installed capacity in the country is about 2.5 to 4 times higher than what we actually produce. So, our plants are utilising only 30% of their capacity. Also, while the price of soya bean dropped in the international market, prices went up in India. To add to this, the yield in Argentina is 3 metric tonne (MT) per hectare but in India it’s just about 1 MT. The situation is critical not only in Dewas, but soya beans crushing companies have been affected across the country and many have shut down in the last two years. Also, the import duty on soya bean oil is very low at the moment, which impacts soya bean processing units in India. We have requested the government to increase the import duty on soya bean oil, but nothing has happened yet. As a result, we are losing out on a lot of foreign exchange. Interestingly, soya bean meal prices in international markets are trending at $350 per metric tonne (MT), whereas in India, the price is $515 per MT.
TDB: What is SOPA’s role? Can you help India achieve a better exports?
DNP: We are a private entity, thus there is little that we can do. We get no help from the government and we run completely on membership subscription – the government does not even want to include us in the National Mission on Oilseeds and Oil Palm (NMOOP) scheme. Otherwise, only if we can get monetary support, we can help the farmers increase yield by providing training and better quality of seeds. With that being said, we develop better seeds and sell them to the farmers.
TDB: Does the sector get any incentive from the government?
DNP: Soya bean meal is given 5% incentive under MEIS, but at a price difference of $150 per MT with the international market, it is pointless.
TDB: What is your take on the infrastructure in Dewas?
DNP: Connectivity is good, though rail freight keeps on increasing every year. But good infrastructure means nothing at the moment because soya bean meals export is almost down to zero from this area. Last year, the country’s production was only 70 lakh MT, which was hardly enough for our domestic market – less than 3% of the world’s total production. This year, India has so far exported about 15 consignments, which should be around 3 lakh MT. And with high domestic price, export sounds like a far-fetched dream.
TDB: Other than low yield and high domestic prices, is there any other problem that the soya bean industry in Dewas is facing at the moment?
DNP: In Madhya Pradesh, the local tax is higher than other states. For instance, the mandi tax, or rather, fee, is 2.2%, whereas in other states it is only 1%. Also, we have an entry tax, which is 1% – this particular tax we believe will be subsumed under the GST. We have requested the government to reduce the mandi tax but we are yet to see any action on the ground.
TDB: How are farmers in Dewas different from farmers in other regions?
DNP: Taking advantage of the rich soil, farmers have become smarter. They have become stockers themselves and sell the product only when the price in the market is high.
India boasts of a $17.85 billion leather industry. It's the second-largest producer of footwear and leather garments in the world after China. And it's a known fact that Agra makes a colossal contribution to this shining story of leather.The Dollar Business checks on what makes this MSME-driven export hub tick.
Ahmad shariq khan | October 2016 Issue | The Dollar Business
NEAREST ICD: AGRA ICD (6 KM) I NEAREST AIRPORT: NEW DELHI: (210 KM)
NEAREST RAILWAY STATION: AGRA RAILWAY STATION (5 KM) I NEAREST SEAPORT: JNPT (1200 KM)
Agra – every other landmark, irrespective of how important or grand it may be, will strike a foreigner's mind second after the Taj Mahal. Nothing surprising though. After all, it's the city linked very closely to the beauty of the marble marvel, one of the seven wonders of the modern world. And stretching that parallel, I was expecting myself to arrive at a city that would be visitor and business friendly. My experience was different. After spending considerable time observing things around me, I concluded that apart for the Taj Mahal (that seems to have indeed withstood the test of times), all other things about the city, especially those considered to be the lifelines of the city’s industrial face, urgently require a facelift.
In one word, Agra's streets are 'chaotic'. Broken roads and traffic snarls did not spare any stretch that I travelled. The greeting by the hotel receptionist reiterated this omnipresent chaos. “Sir, we have power backup solutions. There are frequent power outages in this city," was his welcome remark. He also unapologetically overquoted his very regular, standard-sized room. While in the elevator to my floor, I wondered that if his verdict of power supply is true what encouraging results can be hoped to be seen in terms of the city's 'ease-of-doing-business' parameters? After all uninterrupted power supply is the lifeblood of all industries.
![A shoe undergoing polishing at a factory in Agra. Quality inspection is the final stage after this. [R] Raw leather hides at a tannery in Agra.](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/Agra%20Factory.PNG)
For decades, Agra has been known as the leather and footwear market of the north. It’s here that you get to see how businesses and traditional leather artisans, after inheriting the art from their forefathers, have nurtured this trade as a cottage industry.
Today, more than 60% of the country’s total demand for footwear is met by this city alone that is said to be home to more than 3 lakh people associated with this trade, directly or indirectly. In fact, all famous global brands such as Ann Taylor, Clarks, Coach, DKNY, Ecco, Guess, Hush Puppies, Liz Claiborne, Next, Nike, Pierre Cardin, Reebok, Rockport, Tommy Hilfiger, Tony Lama, Zara, Timberland, Armani, Diesel, Ted Baker, Calvin Klein, Bata, Espirit, French Connection and even car makers like Mercedez source their footwear and leather requirements in large volumes from Agra. The city, according to industry estimates, is the largest footwear manufacturing hub in India, producing goods worth Rs.10,000 crore every year.
All things considered, a million dollar question that I felt like asking a city-based exporter was whether the administrators and policymakers, at large, give them their due share of reciprocal love or business support. After all, millions of dollars are being injected into the country's economy owing to the untiring efforts of these exporters. I finally did pop the question. Nazir Ahmad, CEO, Park Exports and former president of Agra Footwear Manufacturers and Exporters Chamber (AFMEC) says, “In short, what we need, more than anything, is a robust supply of raw materials, uninterrupted power and better roads. If we are provided with these basic necessities, then I can say with full conviction that Agra's leather exporters will be able to stand competitively in global markets.”
When probed if the government's ‘Make in India’ plan has been able to help them in the right spirit, Nazir feels that the ‘practical application’ of the ‘buzzword’ is yet to take off. “To make 'Make in India' a reality, we first need to change the mindset of people involved. The sector is still plagued with bureaucratic hurdles and red tapism,” he says. Terming the country's labour laws obsolete, Nazir says that it is high time that our labour laws are synchronised with the realities of the times that we are living in. He alludes to China's simpler and streamlined labour policy. “Unlike India, hiring and firing is so easy and structured, and productivity is the main criteria for judging a worker there,” Nazir points out.
Rajiv Wasan, General Secretary of AFMEC too expresses similar views while stating that labour intensity in the leather sector is very high, even more than that of the textile sector for which the government has recently approved a special package of Rs.6,000 crore. “Council for Leather Exports (CLE) had a meeting with the ministry recently. We have actually proved to the ministry that the leather sector is more labour intensive. We have impressed on the fact that given the challenging times we do need a push, and have asked for a similar package.”
The industry has also been hit hard by the devaluation of the euro and the sterling pound on the back of Brexit. Exports from these key markets have been hit by as much as 7%. For the uninitiated, about $120 million worth of leather products were exported from Agra over the last 12 months, and the industry surely needs to be nurtured further.
Wasan believes a strong impetus on the 'Make in India' policy and adherence to quality manufacturing will make India the next leather factory for the world. He also felt that India needed to negotiate better deals at the WTO. “Vietnam, at the moment, has free access to the EU market while Indian exports have an import duty component that makes our merchandise costlier by 4.65%. The government needs to act fast on this issue.”
Well, things seem to be looking up with the environment ministry clearing the way for a mega leather cluster in Agra. Construction has already started and that should take care of infrastructure woes. It may be a small measure, but is a sure sign of better days ahead for the exporters from the city of Taj!
Nazir Ahmed, CEO, Park Exports, Agra
TDB: Agra, for decades, has been the leather capital of India. In your view, does Agra really offer the perfect business ecosystem for leather manufacturers and exporters?
Nazir Ahmed: Agra has traditionally been the shoe market and the hotspot of leather manufacturing in India and we are really proud of this fact. Here, in Agra, local people and leather craftsmen have inherited the art from their forefathers. Therefore, you can see that the leather industry has been an integral part of Agra's culture for decades. In every home here, leather industry has been groomed as a cottage industry and approximately 3 lakh people are associated with this trade (directly or indirectly). Today, more than 60% of the country’s total demand in footwear is met by this city. Our products are respected all over the world. Moreover, due to our continuous introduction of state-of-the-art machinery and equipment, today there is hardly any difference between Indian shoes and original Italian shoes. Such is the level of competitive strength that we enjoy today.
TDB: According to you, what are the current challenges which the city’s leather industry grapples with?
NA: Compared to our competitors, say China, our support industry or leather’s ancillary industry is a bit weak. The supply chain is also one area which we need to focus on. In China, while you can get a leather product sample in 1-2 days, in India it takes at least two weeks to produce one. I would urge the government to formulate policies to support our ancillary industries.
Another major issue affecting the sector is the not-so-robust supply of raw material for the industry. Today, India is first in the total buffalo population in the world and second in the population of cattle and goats, so there obviously is no dearth of supply of livestock in India. But, I would say, due to some emotional reasons, the industry is witnessing a demand-supply mismatch not just in Agra but across all the leather hotspots of the country. Though we do appreciate the religious sentiments (and everyone should), we expect the government to come up with a transparent, streamlined set of action plan so that all the legitimate supply hiccups are removed.
TDB: What are the real issues that are acting as a drag to the city's potential as an export hub?
NA: Because of the current level of red tapism, difficulties encountered in the name of environmental pollution, many people associated with this industry are moving away.
Despite Agra being such a historical place, the city’s leather industry is marred with infrastructural and logistics related issues. With the Delhi-Agra expressway things have improved a bit, but a lot more steps are needed.
Contrary to government claims, there is no single-window mechanism in place. The logistical issues are also impeding growth – for instance, there is no big airport in the vicinity. Hence, Agra is still a destination which is out of bounds for big overseas clients. A well-heeled overseas client will obviously feel wary about the idea of travelling in a car on the roads of Agra and these concerns seem valid to me. The quality of power supply is also a huge concern.
With regard to tax deductions available, I would say duty drawback is not that much of an issue for us, but an uninterrupted supply of cheap raw material definitely is. As of now, we are satisfied with the tax deductions available to us. However, in some utilities, there is a lot of complex tax structure – in power and in fuel. These aspects are not included in the duty drawback and the irony for us is that the law is very clear that you cannot export taxes.
And about government’s MDA scheme available to us, I would say though the scheme is good on paper, but sadly, against its very purpose (to give a helping hand to budding enterprises) it is being availed by established players. So, constant monitoring is needed to check the misuse of the policy.
Rajiv Wasan, General Secretary, Agra Footwear Manufacturers & Exporters Chambers (AFMEC)
TDB: Please help us understand the potential and scope of the leather industry in India.
Rajiv Wasan (RW): Down the years, making leather and its various products, processing and even globally trading in it, has been one of India’s key strengths. Backed domestically by one of the largest supply of livestock in the world, a strong and eco-sustainable tanning base, presence of support industries like leather chemicals and finishing ancillaries and, last but not the least, that the sector is envisaged as a key sector in the current government’s flagship programme 'Make In India' speaks volumes about its significance. In recent times, backed by both industry support organisations and the government (both central and state), things have turned brighter for this sector.
India’s leather sector is worth $17.85 billion (exports – $5.85 billion; domestic market – $12 billion). The country is the second largest producer of footwear and leather garments in the world and accounts for 12.93% of the world’s leather production of hides and skins. Hence, there is a big scope for leather players of the country – to conduct trade, both domestically and globally. I believe Indian leather products, including what Agra produces, are highly valued in global markets and going forward AFMEC is committed to helping our exporters increase their share in India’s total produce.
TDB: Agra is a hotspot for the leather industry. Please tell us about some of AFMEC’s endeavours aimed at helping the city’s manufacturers attain global competitiveness.
RW: Today, without a doubt, AFMEC could be said to be a strong and formidable voice of the industry. We share the concerns of the industry with the government, both at the state and the national level, on a regular basis.
Our flagship networking platform, ‘Meet at Agra’ fair, that we have been organising for the last 10 years has received much appreciation and accolades, both nationally and internationally, as it brings together technology and component partners from across the globe. This knowledge sharing helps our members gain valuable insights; technical know-how that they utilise to improve their products and offerings. I am happy to share the news with you that the upcoming ‘Meet At Agra 2016’ is scheduled for November 12-14 this year.
Currently, we are also working on the development of a mega leather cluster, a world-class exhibition centre, a globally acknowledged testing laboratory and a world-class design studio.
TDB: Accodring to you, what are the biggest challenges the leather industry faces, especially in Agra?
RW: I believe, not just in Agra but across the leather-goods producing factories of the entire country, the biggest factor acting as an impediment is the irregular, uncertain and unsustainable supply of raw material. We also do not have systematic breeding programmes which can ensure that our manufacturers continue to receive uninterrupted supply of the raw material. Then there are logistical woes, both intercity and beyond, and rampant exploitation in the name of environmental clearances. Exporters from Agra have traditionally been heavily dependent on European markets, with UK leading the chart. However, going forward, I believe, we need to move beyond those traditional markets. And with Brexit, things are bound to get tougher and hence we need to find a way out. Today, US is the biggest consumer of footwear in the world and it is time that we channelise our energy in tapping this market along with many newer markets across the globe.
TDB: Rising manufacturing cost is one aspect that has been a sore point when it comes the production of leather and leather goods in the country. How do you see it vis-à-vis competition?
RW: If we look at the top 25 footwear exporting countries, India has one of the lowest manufacturing cost. This is despite the fact that manufacturing wages have more than doubled over the last decade.
It is interesting to note that India has held steady over the years in terms of relative cost. This means that our cost increases have been dwarfed by that of many of our peers.
Situated 26 km north-west of Ajmer, Kishangarh has a cultural significance as it is home to a famous temple of nine planets. However, being a hotspot of trade and export of marbles, life, work and conversations here revolve only around marbles.The Dollar Business explores the all-consuming marble aura of the town.
Ahmad shariq khan | October 2016 Issue | The Dollar Business
NEAREST SEAPORT: MUNDRA PORT (580 KM) I NEAREST AIRPORT: AJMER AIRPORT (10 KM)
NEAREST RAILWAY STATION: KISHANGARH (5 KM) I NEAREST ICD: KISHANGARH ICD (8 KM)
The moment you arrive at Kishangarh, the marble city of India, you notice a striking feature about the place. Around you, till wherever your eyes can travel, you will see the colour white. It feels like white has been superimposed on almost everything, for even roads and trucks plying on them appear white. As you move into the marble market you almost start wondering if you have become colour blind (for you see only one colour!). Such is the overarching bond of Kishangarh with marbles.
![[L] A giant gang saw machine in action at Kishangarh; [R] Marble blocks stacked up, ready for cutting by edge cutting machines at a marble processing unit in Kishangarh.](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/Kishan%20Garh.PNG)
Quite true to its name, i.e. Marble City, the fulcrum of Kishangarh’s economy mainly depends on marble trading. This small region – a municipality in Ajmer district of Rajasthan – is said to be home to more than 25,000 marble traders and has about 1,000 gang saws, 5,000 edge cutting machines and over 25,000 godowns. What's more? Kishangarh's marble industry secures employment to 1 lakh people, directly and indirectly.
Few know that this industrial hotspot is also known for its quality powerlooms and ball mills industry. The region also boasts of a textile park set up by the Central government. This speaks volumes about the industrial prowess and potential of the city.
While travelling along the industrial area of Kishangarh, spread across 15 kilometres, your quest to locate a marble mine will leave you disappointed. This is when you start wondering how the mecca of marble has no marble mines? According to Samapat Rai Sharma, CEO, Kishangarh Marble Association, Kishangarh’s main strength is embedded in its location. The city is easily accessible from almost all industrial and construction hubs of India. "Though we have no mining activity in the vicinity – the nearest mine is about 250 kms away – our strategic location has helped us earn our credential as India's premier hub for processing and trading of marbles," says Sharma. This rationale does convince you when you consider that out of the 3,300 registered members of the association, 2,262 members are from the trader fraternity – meaning they deal mainly in sale and purchase of marble, both nationally and globally.
Kishangarh is well connected to other parts of India through the rail network and National Highway No.8. The city shares its north and northwestern boundaries with Jodhpur. On its west and south-east is Ajmer district, while on the extreme south is Shahpura. On its eastern fringes lies the city of Jaipur.
According to Sharma, the success of Kishangarh as a marble hub has neither come quick nor easy. “R. K. Marble Group, a local business house, can definitely be termed as the main growth engine behind Kishangarh’s rise as the Marble City of India. A pioneer of the marble business, this group had brought the biggest marble-related machines to the region. This set a precedent for other businessmen and since then there has been no looking back for Kishangarh's marble industry," he adds.
Today, this Kishangarh based group is famous across the globe and boasts of a production capacity of 2 million tonne annually. It also has operations in Vietnam, from where it exports marble to 45 countries across the globe. The group has many feathers on its cap – it has a mention in the Guinness Book of World Records as the largest producer of marble in the world (in 2001) for producing 10,59,540.134 tonne of marble blocks.
At Kishangarh Marble Mandi you name any type of stone and chances are you will find it! This place is home to more than 10,000 stone traders. Marble suppliers, marble mine owners, granite sellers and manufacturers, sandstone sellers, marble importers and exporters and marble manufactures are all present here, under one roof, ready to close deals. Further, the Makrana Marble Mandi is also situated near Kishangarh (about 50 km away). Makrana marble market is also one of the oldest marble markets in India and is home to more than 2,500 traders. Well, locals even claim that Makrana marble is considered at par with Italian marble. Indian Makrana is also known as sangemarmar and is famous for its brilliant glow and finish. This stone is easy to clean and does not allow the growth of germs on its surface. Incidentally, the flooring of the Taj Mahal has this stone.
Kishangarh is home to some of the best Makrana marble dealers who tell you that many shipments are currently headed to US, the Gulf countries and EU. These shipments consist of Makrana marble and Vietnam White.
Besides granite and Makrana, the region is also home to many importers who import Vietnam White, Italian marble and many other types of stones from China and Egypt.
During your stay at Kishangarh you also cannot but help notice the growing usage of granite in construction activities. In fact, even the office of the Marble Association has a generous share of granites. This makes you wonder if marble is slowly losing its glory? And if it can withstand competition from other stones? Luckily, the government is doing its bit to preserve the sanctity of marble trade. Better air connectivity, lower power tariffs and cheaper lands by Rajasthan State Industrial Development and Investment Corporation is what can play a big role in helping the marble trade from Kishangarh recapture its slowly-fading glory. That’s not too much to ask. Or is it?
Atul Kumar Luhadiya, Director, Shrenik Marble Pvt. Ltd.
TDB: Being an active marble trader in Kishangarh, what would you say are the main issues that are plaguing the region’s marble industry?
Atul Kumar Luhadia (AKL): First and foremost, the current power tariffs are too high. These should be lowered. All the machines here in Kishangarh run on electricity and higher power tariffs are adding to the already high cost of production. This in turn results in loss of competitiveness.
Rajasthan State Industrial Development and Investment Corporation (RIICO) is presently offering land at 4,000 per sq. mt. We believe, that in order to encourage more industries into Kishangarh, this rate should be lowered.
Though plans are on for Kishangarh airport, it will have its own limitations. Once operational, it would mainly cater to smaller planes. Bigger commercial planes will not be able to land here. Ajmer airport is also not too conducive for our business needs. And then the sheer volume of paperwork for exports is too high at the moment – each year, we file roughly about 17-18 returns, monthly, quarterly, half yearly, annually, etc. There needs to be a simpler mechanism that will foster exports.
TDB: How do you view the government policies with regard to marbles? Going forward what are your expectations from the government?
AKL: Frequent policy changes are a big hassle for us. For example, for import purposes, marble is listed as a restricted item. It is not that I am against the quota policy. What is distressing is that the government's current quota policy is subject to frequent changes and delays. Every year, the Ministry of Commerce & Industry’s policy for the issue of import licenses of rough marble and travertine blocks gets delayed by 6-8 months. As of now, we have knowledge about marble’s import quota only till the end of September. Things are uncertain after that. Though we understand that deliberations are on to bring changes in the present import licence policy of the government for rough marble blocks and also the MIP (minimum import price) policy for the import of finished marble, we are working in an uncertain business environment. We really don’t know when and how things will change and how it will affect us. Hence, we are asking the government to provide us more information.
Further, we still have no clue about how the government will decide on the GST rate for us. Going forward, for all practical purposes, CGST for marble slabs under the upcoming GST should be below 10%. I think we need more clarity on the government's roadmap.
TDB: According to you, what strategies are required to provide an impetus to the marble industry and boost exports?
AKL: For giving a big push to exports from Kishangarh, the government needs to create the right viable business ecosystem for the traders and exporters here.
The government should also make efforts towards facilitating ease of access to credit and finance. Improved infrastructure, cheaper power and cheaper lands can play a big role in exports and overall business facilitation.
We also have issues while dealing with other states. For example, despite the fact that we have proper papers (from our state) pertaining to the quality, quantity and volume of our marbles, neighbouring Uttar Pradesh's trade officers and toll officers very often arbitrarily decide the nature and worth of our goods. What's worse they also tax us at will.
TDB: How do you see the current government's 'Make in India' initiative? Is it working for you?
AKL: I would say, for us, it has so far been nothing but a mere slogan. Presently, for import purposes, the minimum floor price for marble blocks, as set by the central government, stands at $325 per tonne, which is too high for many of us. It should definitely be lowered. How can we make in India, if you are not letting us get the required raw material for producing finished goods for the foreign clients here?
Given the current dip in the stone’s demand, a scary question is facing us. We have installed machinery and manufacturing infrastructure at our own expenses. What will happen if there are no orders?
Suresh Tak, President, Kishangarh Marble Association
TDB: Please help us understand the history of India’s Marble Capital - Kishangarh.
Suresh Tak (ST): Initially, the marble industry was located only at Makrana in the Nagaur district of Rajasthan. I believe that Kishangarh’s geographic location (existence of an industrial area in the proximity of National Highway 8) coupled with the hard work and efforts of its industrialists, led to the development of the internationally acclaimed marble industry. This happened despite the fact that there weren’t many marble mines in the vicinity of the city.
Around 1981, a few industrialists established small units of kareji (a type of mosaic tile) in the town. They brought small sized marble stones from outside the town and processed kareji from them. In those times, kareji was extensively used in the construction of houses in north India. Consequently, small kareji units sprang in the area giving the business a boost and the industrialists the confidence to manufacture tiles by the year 1984.
As the trading activities of Kishangarh started to grow, these industrialists procured the first gang saw machine of the region in 1986. Since then Kishangarh’s marble industry has been growing consistently and I am pleased to say that it is today known to be the world’s largest marble market.
Today, across Kishangarh, there are 585 marble gang saw machines, 80 granite cutters, 1,000 small marble cutters, 74 chips crashers, 40 marble handicraft units, 5,000 marble entrepreneurs, 200 marble polishing machines and a number of border setting, finishing and epoxy plating machines. To run such a big marble hub, the services of more than 30,000 workers are being utilised. These units utilise 1,000 trucks of raw materials from the distantly located mines and ship about 400 trucks of processed products every day.
TDB: Give us a sense of the current state of affairs in the demand-supply matrix of marble and other stones in the region.
ST: Talking wholly about the Kishangarh marble industry, I can say, the growth in the marble sector in the region has largely been flat for quite some time now. However, over the last couple of years the demand for vitrified tiles and granite have surpassed that of the marble from the region. In order to cope with the changing market dynamics, gangsaw unit owners have of late, joined hands with granite cutter units. The growth in demand of granite has been so great that compared to just two years back, when only 7-9 trucks were loaded out of Kishangarh each day, today 80-90 trucks are being loaded on a daily basis.
TDB: You just talked about the dwindling demand of marble from Kishangarh. What measures should the government take to reverse the trend?
ST: A number of factors are responsible for the slowdown. It has less to do with policies and more with consumer choice. Unlike marbles, vitrified tiles are easier to install, require no polishing and are subject to lesser hassles in terms of loading and unloading.
Also, according to some of our members, the current power tariffs are not at all industry friendly. In the last four to five years, rates have only been hiked. Marble traders do not want to increase their market price, but burdened with added cost of production they are left with no option. This is also hurting their competitive standing in the global marketplace.
Although the inland container depot (ICD) at Kishangarh is operational at the moment, in order to further boost exports from the region we desperately need a robust Custom office. The demand for one has been pending with both state and central government for a long time now. In absence of Customs office, we have to make use of ports that are really far off – for us nearest port is Mundra Port that is 580-km away. This hurts the ease of doing business.
Also, I think, not focussing on mainstreaming of the unorganised sector is one of the issues that is hurting the region. There are many traders who are not registered and we are making efforts to bring them into the fold. This, we believe, would not just be better for the industry-government relationship but would also streamline many processes for the unorganised traders, thereby helping in accelerating trade from the region.
Indian jute industry has been linked to the socio-economic and political fabric of the twin cities – Kolkata and Hooghly. A few years ago, various factors including rampant trade unionism had brought the industry down to its knees. But the industry has begun fighting back strongly. Survival is on the cards.
Deepak Kumar | October 2016 Issue | The Dollar Business
NEAREST SEAPORT: KOLKATA (10 KM) I NEAREST AIRPORT: KOLKATA (30 KM)
NEAREST RAILWAY STATION: HOWRAH (15 KM) I NEAREST ICD: COSSIPORE, KOLKATA (47 KM)
There is something inexplicably joyful about visiting Kolkata. Adding to the usual glee, our recent visit to the City of Joy coincided with the time when West Bengal was renamed to Bengal, the Supreme Court ruled the Singur land acquisition case in favour of the farmers, the whole city was commemorating their own Mother Teresa ascension to sainthood and people were in the Durga Puja-frenzy mode.
Everyone in the city seems to have a plenty of stories to share about state and national politics, particularly, a former jute trader, Subhash Banerjee, who I ran into on my way to Kolkata. We started our conversation pretty mundanely, but soon he introduced the prospects of agriculture, leather and the jute industry – his hidden disappointments came into open day light. He said that the jute industry, which has been a key contributor to the state’s economy since pre-independence era, had once lost its sheen.
![L] A heap of raw jute wool before they are woven; [R] Workers piling up jute sacks in a factory near Hooghly, before they are stitched.](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/Hoogly.PNG)
He went on to narrate that during the rule of former Chief Minister Jyoti Basu, many jute mills were shutting down and thousands of people were losing their jobs. But suddenly, the industry has woken up, looking for fresh ideas to sustain and grow. His statement was soon vindicated when we met S. K. Dokania, Director of Vijai Shree Ltd., a leading manufacturer and exporter of jute products, who says, “Earlier, the state housed 64 jute mills, which has shrunk to 56 fully-functional mills today. It is always the survival of the fittest and most of them shut shop because they could not manage to stay afloat amidst competition.”
Bengal, the jute capital of India, produces and manufactures about 85% of the country’s total jute products. Most of the mills are located on the riverbank of the Ganges (locally known as the Hooghly), along the stretch of Barrackpur and Naihati, the northern suburbs of Kolkata. The spread accommodates 12 colossal jute mills that significantly contributes to exports. Interestingly, these mills were established by the British during the colonial days – some machines are 100-120 years old and are still functioning.
These mills employ lakhs of workers – for instance, Hukumchand Jute Mills, the largest jute mill in Asia, employs about 10,000 workers. Dokania mentioned that these days setting up a mid-size jute mill would be very expensive and it would cost about Rs.150-200 crore. So what millers do is improvise the existing machines with new technology.
Between FY2014 and FY2016, India’s jute exports fell from $173.21 million to to $81.56 million. Increasing dependency on plastic is one of the main reasons that has contributed to the drastic fall – well, there are countries that encourage jute, but the impact is nanoscopic. “Plastic industry is booming because as an artificial product it’s cheaper and easier to make,” says Pankaj Aggrawal, Head of Exports at Hooghly Infrastructure Pvt. Ltd., a unit of Hukumchand Mills. Also, jute cultivation is no longer looked at as a profitable profession. Thus, in the recent years, with the farmers switching crops, domestic production has slipped.
But this year, the situation is quite promising – thanks to the adequate rainfall. Agrees , Vice Chairman of Indian Jute Mills Association (IJMA), as he says, “This year’s projected production of jute in Bengal, and the new methods adopted by the farmers in the state, is indicative of a changing landscape for the jute industry.” According to Gupta, the government and industry have been holding regular interactions on the issues of price stabilisation to encourage farmers. Also, this labour-oriented sector has seen a noticeable shift after new technology has been introduced. So, things are looking up for the industry, and of course the region.
Bangladesh is a huge threat to Bengal jute industry because it produces more jute, houses more mills and exports to more countries. India’s domestic production of raw jute is about 15-15.5 lakh metric tonne (LMM), which is just enough to meet its domestic demand – millers import around 2 LMM a year. Adding to the strain, domestic production of raw jute fell by almost 25% in FY2016.
“There are various reasons for this decline. The industry is dependent on the packaging of food grains that is mandated under the Jute Packaging Materials Act 1987, by which packaging of certain commodities are reserved for packing in jute bags. However, in the year 2013-14, we saw dilution of this Act, which eroded our market for jute goods. But with that said, we expect bumper jute production this year,” says Gupta.
However, even if production of raw jute escalates in India, in the coming years, millers will still have to import raw jute from Bangladesh. The reason being, they produce better quality! Also, Bangladesh exports will enjoy greater dominance in international markets because they get more benefits from their government than what Indians get. And even their labour and electricity costs are cheaper, when compared with India.
All said and done, the government and industry are striving to maximise growth and they are playing a crucial role in transforming the industry. They are spreading awareness about jute products and encouraging people to store food grains only in jute bags. “We would not survive without the government’s support. The current support from the government fits well with industry’s demand and we are already availing them. We even receive 20% subsidy on purchases of new machines from foreign countries. So, we don’t have much to complain about and the overall jute cultivation and manufacturing prospects look exciting,” says R. K. Srivastav, General Manager of Hukumchand Jute Mills.
The government is organising seminars across the country and the world, educating and promoting jute. In US, Textile Bag and Packaging Association (TBPA) has been formed to promote jute trade and industry issues. But, what the government can also do is set up a department and a mediator, who can monitor the industry, exporters, international markets, as well as the farmers. This could very well set up the jute industry for better days ahead.
Raghavendra Gupta, Chairman, Indian Jute Mills Association (IJMA)
TDB: What role does the Indian Jute Mills Association (IJMA) play in keeping the jute industry on a growth trajectory?
Raghavendra Gupta (RG): IJMA, as the primary lobby group of the jute industry, takes up all the industry-related issues, whether related to policy or technological advancement, both with the state and the Central government. This year, the government has allotted Rs.80 crore for R&D in the jute sector. We have already made several representations that a long-term policy within the Jute Packaging Materials Act framework should be made. Our long-standing demand is that the government should take care of the Customs duty which is levied on our imports from Bangladesh. This is being investigated by the DGFT. We expect the results to come soon.
TDB: What kind of support do you provide to the manufacturers and exporters of jute products?
RG: The government agencies provide support to the farmers. The Jute Corporation of India is mandated to purchase jute from the farmers. This assurance comes as a huge support to the farmers sowing the crop. We saw a sharp decline in jute prices, so the jute commissioner gave the mandate to start stocking in order to provide an interim relief to the jute growers. Now the prices have stabilised over almost 5-7% above the Minimum Support Price (MSP). The industry also plays a proactive role in the price stabilisation of the jute product, which ultimately benefits the farmer. Merchant exporters are given separate incentives by the government under various schemes.
The Government of India is also giving benefits to exporters, alike Bangladesh, and now our product prices are similar for most categories. On traditional items, their export policies are better. But because of the diversity in our jute goods production, 20% of our production goes into exports. For the past 5-6 years, we have seen significant growth in jute diversified product (JDP) segment, such as jute bags, jute matting, and jute textiles. This is the new avenue opening for the jute industry and in turn for exporters from the industry. This makes India ahead of its counterpart Bangladesh, especially in this segment.
TDB: Specific to exports, what kind of support have you been receiving from the government?
RG: Last year, the government increased incentives on jute goods exports up to 5%, from 2%, under the Merchandise Exports from India (MEIS) scheme. This has provided some viability to compete with exporters from Bangladesh.
We just had a meeting with the Textile Minister Smriti Irani, in presence of Members of Parliament from West Bengal, workers, trade union leaders, trader communities, farmer communities, and of course, the industry, where we highlighted issues related to the industry. We received assurance on these fronts. Jute goods from Bangladesh are flooding into the Indian market at a subsidised rate, at the behest of zero duty imports into India. We have filed an anti-dumping case on Bangladesh.
The Textile Ministry has assured us that it will take up the matter with the Ministry of Commerce. The SAFTA treaty allows these goods to enter into India without any duty. In the domestic space, we end up with a 7.5% disadvantage against our counterpart.
TDB: With everyone rooting for IJMA, what are your expectations from exports this year?
RG: We expect exports volume to increase because of the arrival of raw jute, and since the prices of jute goods and raw jute have fallen. The overall market for jute diversified product and jute textile abroad is increasing. We have shown a consistent 7-8% CAGR in this segment. The focus of the government is also to increase production and exports from the industry. We are looking at probably a double-digit growth this year.
TDB: What role does the state government play in helping the industry grow and boost exports?
RG: The state government lends us a huge support. It is the main authority as far as labour issues are concerned. Chief Minister Mamata Banerjee has been very proactive in addressing industry’s concerns related to labour strikes. We have signed a three-year non-strike agreement with the state government.
Pankaj Agarwal, Head of Exports, Hooghly Infrastructure Pvt. Ltd.
TDB: What are the reasons behind continuous decline in exports of jute?
Pankaj Agarwal (PA): Plastics have taken over the world market in a very big way. Also, sometimes we don’t have sufficient raw material in the market and some domestic policies have changed. So, all of these together have hampered our exports. Earlier, the demand for jute was huge in US, but due to lack of promotion and involvement, they have resorted to using plastics. It’s really difficult to convince people to use jute products because jute products are expensive. The previous Thai government was very supportive of jute and gave subsidies to the rice millers to pack rice in jute bags. Therefore, the Thai rice millers were buying jute in huge quantity even though the product was costly. But ever since the new government has taken over, it has stopped giving subsidies and these buyers have absolutely stopped buying jute bags from us. At times, we used to export about 400 containers to Thailand in a month, but that has stopped completely.
TDB: How do you intend to tackle the situation?
PA: We are educating people on the adverse impact of plastics and the multiple usages of jute bags. We are promoting the usage of jute for agricultural and fashion purposes while giving it free to retail buyers. The industry has been making an all-out attempt to boost growth in the sector while maintaining user interest. Those who are concerned about the environment have gradually started to switch to jute products. Jute is particularly important for packaging cocoa and coffee; therefore, Brazil has a very strong demand for jute. Although Brazil has already established jute mill for packing cocoa and coffee, it does import a significant quantity of the product from India.
TDB: What countries do you exports jute products to?
PA: We export majorly to the South and Central American countries, USA, Europe, Vietnam, Australia and many Asian countries including Japan. Africa is a very old and established market for us. We have sufficient production in most years and have adequate holding capacity. Our mills are adequately equipped to process imported jute into refined products. Well, I don’t see jute exports from India going down, ever. There could be considerable fluctuation from time to time, but the industry will continue to encash on its jute shipments.
TDB: Do you receive adequate support from the government?
PA: Earlier, the government wasn’t giving exports benefits to jute exporters. But now some of the benefits have been extended to the industry, putting us on a parallel platform with the other industries. It has also made our exports competitive in international markets. But, we still face some challenges at times because those benefits are relatively lower than what Bangladesh gives to its exporters. We have a common body that works closely with the government. It is very active and we are surviving because of them.
TDB: Do you import raw jute?
PA: We do import raw jute from Bangladesh, especially when demand rises in the international market and we run out of raw jute. India imports for about 2-3 months in a year through roadways. Earlier, finished jute products used to be imported into the Indian market, instead of raw jute. But then we highlighted our concerns to the government and urged them to put an anti-dumping duty on finished products. The two governments keep on changing the raw jute import policy and interchangeably imposes bans on imports. But for a certain period of every year, the border route is open for the supply of jute into the Indian market.
TDB: Is there seasonality in exports too?
PA: We receive export orders throughout the year for different kinds of products of varying qualities. Since we export our products to different countries, they all have different agricultural seasons, for example the cocoa season in Africa. There has been a decline in exports, overall. But we have not faced any financial loss. It’s a profit-oriented unit. In addition, the government has been really focusing on the industry. The National Jute Board is encouraging jute mills to diversify their product basket and use other products such as jute and cotton together to make sarees, shopping bags, etc., in order to ensure sufficient demand is generated throughout the year.
In the course of the last few years Kolkata’s tanneries and leather trade have been caught in a spate of controversies. This happened after these tanneries were shifted from Topsia, the erstwhile tannery hub, to a spanking new Bantala Leather Complex. What is that is bothering the leather exporters from the city?
Deepak kumar | October 2016 Issue | The Dollar Business
NEAREST SEAPORT: KOLKATA (15 KM) I NEAREST RAILWAY STATION: SEALDAH RAILWAY STATION (18 KM)
NEAREST AIRPORT: NETAJI SUBHAS CHANDRA BOSE INTERNATIONAL (22 KM) I NEAREST ICD: COSSIPORE (5 KM)
On a rainy afternoon last month, my visit to the ILPA Leather Complex (popularly known as Bantala Leather Complex), located about 35 km from central Kolkata, felt like a nightmare. My phone was dead, and there was virtually no way that I could establish any contact with the Indian Leather Products Association (ILPA) members, who along with leather manufacturers and exporters, were busy raising their concerns with the state and Central government officials. My driver, an effervescent young man in his mid 30s, was continually humming Kishore Kumar’s hit songs, which at times sounded soothing. When he learnt the purpose of my visit, he took permission to roll down the window, to acclimatise me with the outside air. I could suddenly smell the nauseating smell emanating from leather processing units. That was my introduction to Kolkata's leather industry, and I felt a sense of assurance that I was heading in the right direction.
When one enters the Bantala Leather Complex, the empty patches of land, some newly-constructed buildings, and water canals running through the complex are particularly conspicuous to one’s eyes. At first sight, the complex also lacks basic amenities such as transportation and communication systems. One can immediately comprehend that the complex has either been recently developed, or is in the process of being developed. However, the reality is totally different.
![[L] A skilled worker cutting processed leather into shape at Bantala Leather Complex in east Kolkata; [R] A heap of tanned leather at the leather complex waiting to be polished.](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/cutting%20processed.png)
g PollutionThe day I visited the complex, the leather goods manufacturers were in the middle of a meeting with the state and Central government officials. Apparently, there is a rainwater canal, which is obnoxiously polluted as the industry has been dumping waste into it. The government is taking strong steps to stop unregulated waste discharge. Consequently, companies located in the Kolkata Leather Complex need to acquire No Objection Certificates (NOC) from the Pollution Control Board to set up factories. A separate permission is also required to operate the factories. “We have committed to the government to build an STP (Sewage Treatment Plant) at our own expense. But we are unable to undertake any expansion activity because we are not getting any clearance from the Pollution Board. As soon as we get a clearance, we will start building our facilities and expand the existing ones,” says Arpita Paul, Executive Director, ILPA.
ILPA has also formed a committee to look into the basic amenities of the industrial park and ensure the speedy redressal of grievances. According to Mukund D. Kulkarni, Director, Trio Trend Export Pvt. Ltd., once the pollution issue is resolved, at least 25 new companies will be setting up their plants here. In fact, many of the companies which already have plants in this complex have plans to expand at a fast pace. "However, they have not implemented their expansion plans owing to the pollution menace," he adds.
India’s leather producing areas can be categorised into five zones: eastern, western, southern, northern and the central India. The eastern zone, mainly Kolkata, accounts for about 15% of the country’s total leather goods exports. “The eastern zone alone contributes to over 15% (about $0.95 billion) of India’s total leather exports. Out of this, 0.6 billion is from the leather goods sector, while the other 0.35 billion consists of leather garments, shoe components and gloves,” says Tapan Nandi, Past President, ILPA.Sound like some good numbers. But then, about a decade ago, the contribution from the region was much larger, reveal industry observers.
ILPA Leather Goods Park, which is located in Bantala, is spread over 60 acres. There are currently 60 companies in the park, but overall 99 plots have been acquired so far. There are a few more leather clusters in Kolkata, namely Kasba, Raja Bazar, Topsia, Tiljala, Sodepur and Tangra. But as per the Supreme Court guidelines, bigger leather manufacturing units have been shifted to Bantala.
Even though the economic unpredictability in some of the overseas markets has risen inexorably in the recent past, ILPA, as well as exporters, feel that leather goods export from the region will not suffer a detrimental impact. There is a sense of assurance from the overseas market, in terms of growing opportunities. To capitalise on the future opportunities, exporters have been working relentlessly to further their technology and enhance their workers’ skill.
Currently the European market, which places a premium on quality, is a key export destination. On the other hand, markets in America desire volume. If the Indian exporters aim to address the American market, which boasts of some of the world’s biggest retail stores such as Walmart, Macy’s, Costco and Target, they have to be ready to produce in volumes.
“The biggest manufacturing units in Kolkata today manufacture about a thousand pieces per month. To cater to the American market, they should be manufacturing not less than 3,000-5,000 pieces per day. Currently, we are not logistically ready to handle the American demand of 100,000 bags or 200,000 bags per month,” says Kulkarni. Because of such limitations, in terms of mass production of leather goods, the companies from the region have stuck to just European markets or similar small markets.
Incidentally many entrepreneurs, who have bought land in Bantala, already have leather factories operational in Kasba. Their objective of acquiring land in the complex is to enhance production volumes and expand their export across international markets. “We have entered into several collaborations with international leather institutions to prepare for a better future. This will assist our expansion strategy into the American markets,” informs Nandi.
It seems that leather exporters from the City of Joy have set their sights on the lucrative US market, and pollution notwithstanding, they will leave no stone unturned to secure a bright future for their exquisite wares.
Satyabrata Mukhopadhyay, President, Indian Leather Products Association (ILPA)
TDB: Please tell us how active the Indian Leather Products Association (ILPA) has been in extending support to exporters?
Satyabrata Mukhopadhyay (SM): We are constantly in touch with exporters to understand their concerns. We organise frequent meetings with the government officials and exporters so as to highlight the latters' concerns. If the government rule or regulations are not in favour of the exporters, ILPA takes up the matter with the related government departments, such as DGFT, Customs, the Commerce and Industry Ministry or wherever it is required, to discuss their concerns so that the rules can be amended.
TDB: Why have you not looked beyond the European markets when it comes to exports?
SM: At the moment, our factories are small and cannot cater to the American markets that require products in large volumes. We have moved to Bantala with the objective of creating bigger factories here, just like our Chinese counterparts. Chinese companies have 50,000 sq. ft. per floor. Whereas, we have factories of about 30,000 sq. ft., split over four floors. Many of us have standalone factories in Kasba. In spite of that we have bought land (and are now building factories) in the Bantala Leather Complex. In the main city, there is just not enough space for expansion in addition to the fact that it is expensive to expand in the city. Here at Bantala, we can get big plots at lesser prices. There are also some pollution-related obstacles at the moment. The moment these are addressed, we will begin to look at the American market. Right now we are only focussed on Europe (a much smaller market) as we have a limitation in terms of mass production capabilities.
TDB: How soon do you think the pollution issues will be resolved? Have you received any assurance from the government?
SM: The government has a positive attitude, and it is visible in the progress we have seen in the cluster. They have indeed given us an assurance that they are working on the pollution issue and hopefully they shall come out with a positive announcement very soon. As soon as we get a clearance on this issue, we will execute our plans for expansion and diversification.
TDB: What is ILPA doing to upskill the workforce?
SM: ILPA Infrastructure Development Foundation has established FREYA studio, a first-of-its kind leather goods design studio in Asia. The studio is already helping many manufacturers with a common design and development facility. The smaller units, in particular, which can’t afford to have their own R&D infrastructure have benefitted from this effort. There are more than 100 manufacturers who come to this studio regularly to seek support in terms of designs, product development, colour patterns, upcoming trends and samples. We have seminar rooms, computer-aided design systems, classrooms, training centres, support systems, and sample-making centres.
TDB: What makes this zone different from the other leather clusters of the country?
SM: The eastern zone is replete with artisans who have experience and knowledge of leather processing. Besides there is a ready semi-skilled workforce. Availability of leather is not a challenge either. To add to it, we have continuously focused on skill development. Today, ILPA-skilled workers are working in the leather industry across many states. We have been processing leather for over 40 years. We use all the latest technology to meet the demand according to European standards. There is hardly any difference between an Italian leather goods factory and our factory.
TDB: How do you help exporters with technological know-how?
SM: We have collaborated with the ARSUTORIA School in Milan, Italy. We are also associated with the Central Leather Research Institute (CLRI). Experts from both these institutes visit Kolkata to share their knowledge and expertise. We also organise seminars and programmes for exporters to gain industry-related knowledge. Incidentally, we import high-end machinery from Europe to train our people since a bulk of our export consignments cater to the European markets. Professionals from Europe also come down to impart training to our exporters, so that our products comply with their standards.
Bikas Chandra Ghosh, Proprietor, R S Lederwaren Pvt. Ltd.
TDB: Please tell us about your major export markets?
Bikas Chandra Ghosh (BCG): We export to European market, in particular Germany. We are also exploring the American market as we see an immense potential there. We have already spoken to a few prospective buyers and have sent samples to them. We are in continuous discussions. We will start exporting to those buyers as soon as both parties reach an agreement. We expect to get some answers soon from them. We are also exploring markets like Czech Republic and Russia.
TDB: What kind of challenges do you face while exporting your products to international markets?
BCG: We don’t really face any special challenges. The problem is the world economy. As you know, there are numerous factors which have affected the world lately. All I can say is that these factors have also affected us. There is no hindrance but there definitely are challenges. Every buyer has his own suppliers and therefore, we have to maintain our position to stay ahead of the competition. The government's support is not always available and logistical challenges will always be a cause of concern for the industry. Luckily, since we have excellent connectivity in Kolkata, logistics is a lesser challenge. The regulatory policies here are already streamlined. The government though needs to analyse the global situation and accordingly revise the policies from time to time.
TDB: Do you receive adequate support from the government? What kind of additional support do you need from them?
BCG: We are trying to leverage the government's support that we have already received for the comprehensive benefit of the industry. The value of our currency has witnessed a decline, but we need a policy that will protect us from currency fluctuations. We already receive the duty drawback benefits from the government and would like this scheme to continue in the future. Without the drawback the cost of our products shall increase, thereby making us lose our competitive edge in the global markets. The government does listen to our issues and concerns, whenever we raise them. But their pace of functioning is very slow. That, at times, becomes a problem.
TDB: India’s overall exports have been witnessing a decline for quite some time now. Have you also felt an impact?
BCG: We too have witnessed a decline in our exports value. Last year, our revenue from exports fell down by around 10%. The overall global market seems to be in a poor condition, but we have been working very hard to reverse the odds. We are committed to international activity, and we intend to continue our efforts to boost exports. We are also attempting to acquire newer markets, for which we have been making aggressive efforts. Right now, we are focusing on the quality of our manufactured products and on the training of our employees. In short, we want to be fully prepared when the international markets pick steam.
TDB: What do you think is the major challenge for leather exporters from the region?
BCG: If we don’t compromise on quality and we cultivate honest workers, we can beat all other leather exporters in the world. Our craftsmanship is excellent. Many countries, which are major leather exporters, receive huge amounts of subsidy from their government. We do require that kind of subsidy from the government. We already have the capability of producing quality finished products. Our exquisite quality makes our manufactured products expensive at times, but it also keeps us ahead of the competition. We need to balance price and quality, and that becomes a challenge at times.
TDB: Do you import leather and other inputs? If yes, which are your biggest sourcing markets?
BCG: We don’t import any leather. We purchase Indian leather from the Indian sellers. Indian leather is excellent in terms of global quality parameters. Besides, whatever is our requirement, it is always invariably fulfilled by the domestic market, both quantitatively and qualitatively. However, we have imported technology. Many of the machines have been imported from technologically advanced countries such as Italy.
It's said that one in every two electrical pumps manufactured in India is from Coimbatore. After all, this Indian city alone is home to about 4,000 electrical pump manufacturers. And not just pumps. Exports of textile has also been thriving from this place. This is one export temple in 'total control' of its future.
Niladri S Nath | October 2016 Issue | The Dollar Business
NEAREST SEAPORT: COCHIN PORT (215 KM) I NEAREST AIRPORT: COIMBATORE INTERNATIONAL AIRPORT (10 KM)
NEAREST RAILWAY STATION: COIMBATORE JUNCTION (2 KM) I NEAREST ICD: IRUGUR (17 KM)
“Magizhchi [nice to meet you]!” greets the rather friendly cabbie while driving us to our destination. He tells us to mimic the word whenever we meet new people in the city of Coimbatore to win their hearts. We tried. It works!
Located in the western part of Tamil Nadu, Coimbatore has won several sobriquets such as 'Pump City of India' and 'Manchester of South India', etc. True to these names, the city displays unique top-notch manufacturing brilliance in the fields of machinery, tool and textile. What's more? The city exports pump sets worth over Rs.500 crore annually and manufactures 70% of the total textile machinery tools produced in India.
Machinery manufacturing revolution in the city, which started in the early 1950s, was spearheaded by D. Balasundaram, an enterprising tech entrepreneur. The city was dependent on imported water pumps as it was devoid of natural water resources. However, Balasundaram stopped the practice by setting up a manufacturing plant for pumps as the imported ones were not only expensive but repairing them was also a challenge. He then went on to set up Textool, a textile machinery manufacturing company.
Those developments set the stage for a multi-dimensional industrial revolution in the city. Soon the growing number of machinery manufacturers created the perfect platform for the ancillary industries to spread wings to feed the bigger companies with various machine parts.
Before the 1991 economic liberalisation, there were only a handful of exporters in the textile sector. However, post 1991, the limited domestic market and growing production prompted the city to look for growth opportunities in the overseas market, especially in US and Europe. And since then there has been no looking back for this Manchester of South India.
“You just have to give us a drawing and we’ll give you the finished product,” says R. Ramamurthy, Vice President of CODISSIA (The Coimbatore District Small Industries Association), encapsulating the strength of the city’s integrated supply chain. He continues, “supply chain management is excellent here. Any multinational company either from India or abroad can bank on Coimbatore for a regular supply.” CODISSIA today has more than 2,000 members from industries encompassing pumps, engineering products, machine tools, casting, foundry, pressure dye casting, injection moulding, machine fabrication and textiles. Well, the other industry bodies that act as a co-ordinator to ensure synergy across the industry are SIEMA (Southern India Engineering Manufacturers’ Association), SIMA (Southern India Mills Association), SISPA (South India Spinners Association) and ITF (Indian Texpreneurs Association).
The best part of Coimbatore's growth story is that every industry stakeholder is playing his/her role to make things happen. Take a stroll around clusters like Ganapathy, Saravanampatty and Mettupalayam that house large, medium and small-scale, and even cottage industries, and you will realise how deep the thread of entrepreneurship runs here, the thread that binds the industry together – for the record, the city has approximately 50,000 companies manufacturing and exporting several products.
“The industry and clusters have developed spontaneously and there was no concept of technology parks or FDI to give impetus to the growth. Instead, we call it the 'family direct investment' because we re-invest in our business,” says Prabhu Dhamodharan, Secretary of Indian Texpreneurs Federation (ITF), a body of 500 members, representing the entire value chain of textiles. The body boasts of a combined turnover of Rs.35,000 crore. Entrepreneurs from the city explain that they are not dependent on any support from the government. “Pursuing the government for benefits takes its own time. But we don’t worry about it, we focus on what we can control,” says Jay Varadaraj, Managing Director, Elgi Equipments Ltd., a leading manufacturer and exporter of industrial compressor. The company exports to 70 countries across the globe and aims to take the second position globally (in volume terms) in air compressor manufacturing space in the next 12 years – Elgi currently ranks seventh in the world.
Addressing the aspect of a self-sufficient ecosystem, recently, a member group from ITF negotiated with a thermal power producer to get power at a very attractive rate under the group captive scheme. They have negotiated with a LED bulb manufacturer to purchase LEDs in bulk for their manufacturing plants. “According to our research, industrial areas in our country consume 20% more energy than international standards. With these initiatives, we have tried to narrow the gap,” says Dhamodharan. One can find such examples of self-sustainable models in the city across industries.
According to a senior CODISSIA official, foreign buyers sometimes assist the companies in the city in raising manufacturing standards by offering training and project-based funding. Well, that talks a lot about the trust foreign buyers have on the city manufacturers!
“We strongly believe that duty exemptions and subsidies are detrimental to growth because they act as an incentive to stay small and unorganised,” says Dr. K. Selvaraju, Secretary General, SIMA. Varadaraj agrees with Selvaraju. In his opinion, subsidy makes one a slave and offering subsidies is not the way to achieve competitiveness. What the industries want is better connectivity to ports at Chennai, Tuticorin and Cochin, and direct flights to various destinations in Europe and the Middle East to facilitate business. In addition, drawing in more companies under the tax net and offering more relaxed rules to create a level-playing field will help.
“We are asking the government to introduce a special working capital fund at lower interest rate and a longer repayment window for the textile manufacturers to buy cotton during the off-season,” says Selvaraju. Also, automation has become crucial in manufacturing to scale up business. And according to Dhamodharan, manufacturers should have enough fund in their hands to introduce new technologies and innovations to be competitive. Hence, a relook into the old policies and tweaking the current duty structures will go a long way to help the city realise its true potential.
“Coimbatore is ready for vertical growth. It’s time now for everyone to chip in their bit to make the city an entrepreneurs’ paradise,” saya Ramamurthy. Companies such as Roots, Elgi, CRI and Aqua are a testimony to the city’s enviable atmosphere for nurturing innovation. Undoubtedly, this self-sufficient eco-system will do even better with a thrust from the authorities. If that happens, no one can stop Coimbatore from making to the next level!
K. Ramasamy, Chairman, Roots Group of Companies
TDB: What makes Coimbatore such a prosperous manufacturing and exporting zone?
K. Ramasamy (KR): The soil of the city has the spirit of entrepreneurship! As they say, necessity is the mother of invention. The need to extract underground water for agriculture made the city a key manufacturing centre for water pumps. Meanwhile, the city’s natural congenial weather for cultivating cotton made it a key zone for spinning yarn and textile manufacturing. And with the proliferation of pump manufacturing units and textile mills, the casting and manufacturing sectors received a boost. Eventually, the city became the largest casting and electric motors & pumpset manufacturing zone in the country. Simultaneously, auxiliary industry comprising machine tools and parts manufacturers started flourishing. The setting up of some quality engineering colleges filled up the void of skilled manpower. Initially, export wasn’t the priority for the sector, but economic liberalisation in 1991 opened new horizons and helped expand the market to US and Europe.
TDB: Tell us about your foray into exports.
KR: Being an automobile enthusiast, I dabbled into manufacturing various automobile parts, such as the patented radiator recovery systems, servo brakes, etc. However, I tasted huge success with electrically operated air horns – my first consignment of air horns was to Japan. But our products were 20% more expensive than the global price. Thus, we re-engineered the products to reduce the cost by 25%, which worked in our favour. Today, we export to almost all countries in Europe apart from exporting to Australia, Japan, Philippines, Malaysia, Vietnam, Egypt, Iran, Russia, UK and US – in fact, US is our biggest market. Gradually, we diversified into automotive component manufacturing, medical component manufacturing, casting and aerospace. At present, 35% of our turnover comes from exports and 2% of our turnover goes into R&D. We have set a target to take exports figures in every vertical to 50% in near future.
TDB: What challenges are you facing currently?
KR: What requires immediate attention is infrastructure. For instance, movement of raw materials in China can be done five times faster and much cheaper than in India as they have excellent roadways and port facilities. Lack of infrastructure actually adds to the cost. Smart cities need to be developed and planned properly with public-private participation to build better infrastructure. Developed countries like Japan have switched to just-in-time material movement. Unless we improve infrastructure drastically (not only roads but also mass transport), we won’t be able to implement the concept. Nobody wants to import and keep products in the container. They want us to deliver on time, so we have to set up our own warehouses to supply just-in-time. Electricity, which is Rs.6 per unit is quite high. It’s only Rs.3 per unit in Pondicherry. And there is no incentive to install the solar system.
TDB: What’s your opinion of the current tax structure? How will GST help?
KR: I am definitely rooting for GST. Obviously, there will be learning curves and struggles in the beginning. However, if implemented properly, GST will make us more competitive in the international market. But if check-posts and border control persist, the objective of free movement of goods will be defeated. In my opinion, GST should be levied at 16-18%. But if it goes beyond 20%, it will impact consumer prices and result in slower GDP growth.
TDB: How do you view the future of Coimbatore?
KR: The business ecosystem is quite robust in Coimbatore. We have a mix of small, medium and large companies and there is good cooperation and synergy. What I am worried about is the infrastructure. But with that said, my company is expecting 10-15% growth year-on-year from here on.
Dr. K. Selvaraju, Secretary General, The Southern India Mills' Association (SIMA)
TDB: What makes Coimbatore such a premier textile manufacturing and exporting zone?
K. Selvaraju (KS): Coimbatore is rightly called the Manchester of South India. There is a strong vertically integrated supply chain, comprising almost three lakh powerlooms, one lakh handlooms and 900 spinning mills within a radius of 100 km around Coimbatore. In fact, the city manufactures about 70% of the total textile machinery and testing equipment manufactured in India. In addition, the congenial climate for producing yarn, exceptional entrepreneurial skills of the local people, and decent connectivity to rest of the world make Coimbatore a global hub for textile manufacturing and exports.
TDB: Textile production has slowed down in Tamil Nadu over the last few years. Any particular reasons?
KS: Poor logistics is one of the key reasons. Mills depend on Gujarat and Maharashtra for raw cotton, but with regular hikes in diesel price, transport cost has touched Rs.6 per kg. However, coastal movement from the ports in Gujarat to Tuticorin has reduced the cost to some extent. Our demand is to relax the cabotage rule, which will permit foreign vessels to transport goods between Indian ports. But, Indian National Shipowners’ Association is vehemently opposed to our demand and the government has tried to keep both the parties happy by reducing the tariffs and offering shop-owners exemption from bunker charges and other duties.
Duty exemption to MSMEs is another hindrance for growth because it is like giving them incentives to stay small and fragmented – a reason why the powerloom sector hasn’t been able to attract investment. The lack of technological upgradation in the powerloom sector affects the entire value chain. Hence, we have requested the government to implement DBT (Direct Benefit Transfer) to the handloom weavers. In addition, road, rail and air connectivity need to improve, if Coimbatore wants to attract foreign buyers.
TDB: What is your opinion on the tax and duty structure?
KS: VAT is quite high in our state. While cotton yarn manufacturers in Gujarat and Maharashtra pay 2% VAT, cotton yarn manufacturers in Tamil Nadu pay 5% VAT to the state government. Not only that, we pay 2% CST as well. To add to that governments in Gujarat and Maharashtra offer a 7% interest subsidy, Re.1 power subsidy per unit for a period of five years and 100% VAT exemption for a period of five years. Those governments have extended similar support to new manufacturing units as well. As a result of this, textile mills in Coimbatore as well as in Tamil Nadu, are losing their competitiveness.
TDB: How will GST impact the textile manufacturing?
KS: We have urged the government to keep us in the lowest slab because textile has been in the optional route in central excise for the last 12 years. It’s a business with low profit margins of about 4%. In other manufacturing sectors, margins are around 4-8% and in the service sector they are in the range of 22-30%. Also, if we fall under a higher slab, customers will suffer. We want GST to be implemented as soon as possible because we have so many anomalies in the existing taxation structure.
The Indian textile industry has been hit hard by the downturn in global trade, forcing many small companies to shut shops. However, the textile scene in Butibori, located a few miles from Nagpur, seems encouraging. The Dollar Business visits this industrial cluster to learn some secrets of endurance.
Andres M. Mollier | October 2016 Issue | The Dollar Business
NEAREST ICD: NAGPUR (27 KM) I NEAREST AIRPORT: NAGPUR (22KM)
NEAREST RAILWAY STATION: BUTIBORI JUNCTION (3 KM) I NEAREST SEAPORT: MUMBAI (840 KM)
It was about 10.30 pm when I reached Butibori, an industrial suburb, situated 35 km from Nagpur. Since industry is the only life-blood of this town, an unmistakable quiet envelops it in the late evening hours. Once at the hotel, one attendant at the front desk uttered something in Chinese (which I couldn’t understand). It was amusing to hear Chinese in this small industrial town and asked the hotel manager about this special linguistic capability of their receptionist. “We receive a lot of businessmen from China, Hong Kong, Singapore, Malaysia, Germany, Austria and Switzerland. Most are either Indo Rama or Morarjee's clients,” the hotel manager explained.
Developed by Maharashtra Industrial Development Corporation (MIDC) as a five-star industrial district, Butibori encompasses a total of 23.12 sq. km., out of which 14.94 sq. km. has been already developed. MIDC has already completed the first three phases of development and is presently moving on to the fourth. Today, this suburb houses 24 large enterprises and 75 small and medium enterprises. Moreover, two large and 32 small and medium enterprises are being set up at the moment in Butibori. Most of the companies are manufacturers of yarns and textiles. Engineering goods, packaging, and food & beverages are some other industries vying for prominence in Butibori.
![[L] A worker checking quality and consistency in the shirting division of Morarjee Textiles at Butibori; [R] A roll of shirting material in printing division at the same factory.](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/A%20worker%20checking%20quality%20and.png)
Butibori, as many would agree, is synonymous with Indo Rama Synthetics (India) Ltd. and Morarjee Textiles Ltd., the tycoons of textiles and polyester fibre. Understandably, my visit would remain incomplete without visiting these companies. Other textile, garment and yarn companies that add value to the industrial district are Sheshrao Wankhede, Pee Vee Textile, Suryalaxmi Cotton Mills, Uniworth Textiles and Indoworth India. Raymond, another internationally acclaimed brand, has its unit in Chhindwara, about 120 km from Nagpur.
So, what makes this place an ideal for setting up a textile unit? “Since it is situated almost in the centre of India, it has easy access to all parts of the country, both along its vertical and horizontal expanse,” says Mukul Dixit, President and Site Head of Indo Rama Synthetics (India) Ltd. He continues, “In the last few months, various companies have approached us for consultation regarding setting up operations here. Innovative Textiles and Indigo Denim have also started their operations recently in the cluster – a sign of significant growth.”
Despite the present negative sentiment in the global economy, companies in Butibori seem to be confident about their future. Antony J. Leo, Vice President of Morarjee's spinning unit, says, “Spread across 100 acres, we have spinning, weaving and processing units. Our current spinning capacity per month is 80 MT, and we are excited about opening our new unit next month. We have invested about Rs.150 crore and it will produce roughly 280 MT of yarn per month.” The company’s current production of printed textiles is 15-17 lakh metre and of shirting and dyed yarn is 5-7 lakh metre. It also produces 600 new designs per month, affirms the unit-head.
Dixit of Indo Rama affirms that the company’s utilisation has reached 85% of its capacity and that this year innovation is a key priority. Expansion too is on the anvil, he informs. The company has three key units, Polyester Staple Fibre (PSF), Partially Oriented Yarn (POY) and Partially Drawn Yarn (PDY), and Draw Texturised Yarn (DTY). Dixit says, “At the moment, PSF has five plants and DTY has six. Some of these have been recent additions.” Indo Rama’s per day production of polyester is 1,700 MT; other production includes 700 MT of fibre, 500 MT of POY and PDY, and 350 MT of DTY per day – a formidable volume one would agree.
Given the growing industrial significance of this suburb, one would assume that transportation from Nagpur would be easy. And true to form, this cluster boasts of excellent connectivity. The National Highway (NH) 6 that runs through six Indian states goes through Nagpur. In addition, NH 204, which runs throughout Maharashtra intersects with NH 7 near Butibori. Moreover, the Express Highway between Nagpur and Mumbai, via Aurangabad, is nearly complete. There an inland container depot (ICD) in Nagpur and a rail junction about 2 km from Butibori bus terminal, serve the cluster. And, lest we forget, Nagpur Railway Station and Dr. Babasaheb Ambedkar International Airport are hardly 30 km away from Butibori.
“Infrastructure is at its best. Most of the companies here use trucks because it works out cheaper and is more convenient than railways,” says Narendra Nayak, Vice President – Commercial, Morarjee Textiles. According to officials at Morarjee, the cost to transport one tonne of items by road from Butibori to warehouses in Bhiwandi near Mumbai is only Rs.2,500. The distances to ports in the east and west coasts are equal, but with more clients in the west, JNPT in Mumbai is the most used seaport. The only time the area faces a logistical challenge is during the orange harvest season.
“During the last two years we had to cut down production because of unsold inventory,” shares Dixit. But the things are back on track now. “This year, we expect revenues to touch Rs.3,000 crore. And, yes, we aim to reach Rs.5,000 crore in the next five years,” adds Dixit. Meanwhile Morarjee Textiles clocked revenues of Rs.337.45 crore in FY2016. Suryalaxmi Cotton Mills, another major player, bagged export orders worth Rs.180 crore last year. Even Innovative Textiles Ltd., the newbie in the cluster, is generating around Rs.6 crore per month – quite an achievement for a company that started operations just seven months back.
With patterns changing in the international markets, Indian companies are slowly learning to innovate and Butibori is mirroring this trend. Well-equipped and connected, the Butibori industrial cluster seems to be well poised for growth. Especially with the government's new Rs.6,000 crore package for the textiles sector, we expect SMEs too to join the exports bandwagon. It has the full support of MIDC and there are talks that the Nagpur Metro Rail may be extended upto Butibori, making the town even more accessible. The optimism of the town is infectious, and I left with a distinct feeling that exports from
Butibori will only move skywards.
Shailendra Kumar Nigam, President, Innovative Textiles Ltd.
TDB: Why did you choose Butibori, when you could have picked from many other clusters in Gujarat or Tamil Nadu?
Shailendra Kumar Nigam (SKN): There are many potential clusters, but Butibori is the economic and industrial centre of India. Butibori has a geographic advantage over many clusters, and we know that it will facilitate us to evenly distribute our goods throughout the country. Also logistics and infrastructure are in their prime here.
TDB: Why did you decide to expand when the current sentiment in textile sector remains negative?
SKN: We have been producing cotton blended yarn, 100% cotton lycra, 100% cotton knitted fabrics and knitted garments for quite a while now. While we are well aware of the fact that the current market scenario is not the most promising, we also realise that we can no longer postpone our expansion plans. You will agree that if expansion is a stated imperative for a company, it cannot be stalled indefinitely. Therefore we are going ahead. Also, in my opinion the market is bound to improve soon. Therefore, with the aim of providing quality products at a competitive price, we decided to open this unit in 2016.
TDB: What is your monthly turnover? Do you have any plans for export?
SKN: Our current revenue is Rs.6 crore per month. At the moment, there is zero exports. But this does not mean that we have no plans to export in future. In fact talks are ongoing with Sri Lanka and Ethiopia. We will be able to export to these two countries by December 2016. And once this happens, we will be exporting at least 10% of our production.
TDB: As a new player, do you face any challenge?
SKN: There are quite a few challenges, but the cost of power and shortage of labour are the main ones. These two challenges stand out like a sore thumb in this otherwise very conducive industrial hub. Power costs are very high – we pay Rs.9 per unit. Also, it’s hard to find both skilled and unskilled labourers. At the moment, about 40% of the employees are immigrant workers and we had to hire them from different parts of the country. We are looking for an alternate option to bring down the power cost, and also trying to fill some positions in the unit.
TDB: How do you see the cluster performing in the years to come?
SKN: This is a cluster that is growing very fast. It has enormous export potential because it has everything it takes to move to be competitive in the global market; be it raw material, infrastructure, logistics or governmental support. There are already many textile companies here. I am quite confident that more companies will join the bandwagon when the market improves a little.
Mukul Dixit, President and Site Head, Indo Rama Synthetics India Ltd.
TDB: What is special about Butibori that Indo Rama decided to settle here?
Mukul Dixit (MD): Back in the early 1990s, government policies and machinery were very active in promoting the place. The geographical location also translates to a strategic advantage – goods from here can be distributed across the length and breadth of the country. And, of course, being a region that is known for cotton cultivation, Butibori translated to the ideal choice for us. We already had a spinning unit in Pithampur. So, in 1994, as a part of the backward integration, we decided to set up a plant here and promote manmade fibre.
TDB: How has the business evolved in Butibori?
MD: It has been an interesting journey! Between 2006 and 2007, we doubled the capacity – our current production is 1,700 MT per day. In the last few years, the market scenario changed, which made us take a new route. For instance, polyester chips became unattractive and became a loss making product, so we decided to move into the yarn and filament segments. We do have some competition in the western and northern parts of India, but I believe, competition makes us stronger. And, now there are about 32,000 people who are directly or indirectly employed by Indo Rama, and we are happy about our contribution to the society.
TDB: What are your strengths when it comes to exports?
MD: As far as exports are concerned, we have two levels of strength – our unique product and our extensive global reach. We export about 15-20% of our production to nearly 55 countries, out of which, Turkey, South America and Europe, particularly Germany, are the largest destinations.
TDB: What are your thoughts on the state of logistics in Butibori?
MD: I would say, Indo Rama is hugely responsible for the development of logistics and infrastructure in the region. Now we have an ICD in Nagpur, and the roads and railways are in excellent condition. However, Nagpur being the orange capital of India, we do face some challenges during the orange season, more specifically February and March. Most of the companies, including us, use roadways because it’s cheaper, faster and more convenient. Also, we favour the ports in the western region because they are closer and more developed. So far, it's good!
TDB: According to you, what factors have contributed to the growth of Butibori as an export hub?
MD: I would give the credit to the product quality and stability we offer. For instance, about 70% of our employees have been with us throughout, which ensures productivity and quality. The infrastructure and technical support that we receive from the government has also contributed a lot. And, in addition, the Maharashtra Industrial Development Corporation (MIDC) is very helpful in terms of rapid development of the region.
TDB: What are your expectations from Butibori in the future?
MD: Growth in Butibori is going to be very significant because of two reasons – first, the soil is perfect for the cotton crop and, second, the work and initiatives of MIDC are significant both in terms of scale and quality. The area also falls in the coal belt of India – therefore key resources for manufacturing shall never be a challenge. These factors undeniably augment the attractiveness of Butibori. The MIDC has already developed its third phase in Butibori, which is a sign of growth and the fourth phase is in the offing. Many companies are now interested in setting up plants here – some have even approached us for consultation. The latest additions are Innovative Textiles and Indigo Denim, which were set up only seven months ago. Another positive about the cluster is that most of us produce unique products, which in many ways, complement each other, instead of competing against one another.
Exports from Ludhiana, the hosiery capital of India, has faced headwinds in the last couple of years. Can the new textile policy and technological innovations save this export temple? The Dollar Business travels to Ludhiana and discovers how exports can get the much-needed leg up in such a challenging scenario.
Neha dewan | October 2016 Issue | The Dollar Business
NEAREST ICD: DHANDHARIKALAN ICD (4.7 KM) I NEAREST AIRPORT: LUDHIANA AIRPORT (13.8 KM)
NEAREST RAILWAY STATION: LUDHIANA RAILWAY STATION (1 KM) I NEAREST SEAPORT: MUNDRA (1,299 KM)
It’s 6 PM. The stipulated day shift for factory workers is almost coming to a end. However, the pace of activity has not slowed down at Superfine Knitters’ Factory, located within Industrial Area A of Ludhiana. Clocking extra hours during an export order is nothing new to the workers here. They are mentally and physically prepared to stretch their limits and deliver their best.
Inside the huge shop floor, the sound of stitching machines grabs all attention. At one corner, a worker is lining up t-shirts for brand logos to be imprinted and at the other end, garments are being rapidly ironed, folded and neatly stacked. The clockwork precision tells you about the sheer mastery that these unassuming workers have achieved over the years.
Santram, a friendly 21-year-old young worker proceeded to introduce himself and the work culture of the place. He said he had joined the factory when he was only 18, about three-and-a-half years ago. The ambitious lad, who has plans of pursuing chartered accountancy, quips, “There is a lot of tension within export oriented factories because time is always at a premium. We have to work fast and everything has to go out on time. But I like this pace.” He took pride in introducing his city, “Dhabas are very popular in my city and a big hit with many international tourists as well.” Ludhiana, besides being home to many industries is known for its authentic North Indian delicacies – it's a veritable foodie’s paradise.
Colloquially dubbed as the hosiery capital of India, the city houses about 14,000 apparel manufacturing units. Industrialisation in Ludhiana started nearly 150 years ago when artisans from Kashmir migrated here and got into manufacturing woollen products.
In the beginning of the 20th century, several industrial units dealing with apparel took the initiative to install apparel machines. And ever since, there has been no turning back as far as Ludhiana’s booming apparel trade is concerned. Industry estimates peg the total size of the apparel industry in Ludhiana at approximately Rs.14,000 crore, with exports from the city touching nearly Rs.1,000 crore.
The city also exports auto parts. However, this trade does not have the scale of the apparel industry, which too in recent times has been struggling to survive and remain competitive.
“The industry has been going through a phase of recession for the last three years. Retailing has been difficult because of the proliferation of online marketplaces and the mushrooming of multinational brands in the Indian apparel market. In addition, delayed winters have also impacted the sector,” rues Sudharshan Jain, President, Knitwear & Apparel Manufacturers Association of Ludhiana (KAMAL).
As per industry estimates, this season the production has fallen by 40% as compared to the usual, since overproduction had happened in the previous seasons. The industry anticipates no change this season. That's a thought worrying enough for Ludhiana.
Exporters are grappling with a different set of issues and finding it increasingly difficult to sustain profitability levels. Rajat Kansal, Partner at Kansal Hosiery Exports that mainly exports to Europe, laments, “Exports are down this year by at least 15% due to the European political situation and surge of terrorism. The cost of labour has also increased and minimum wages have gone up. Advanced machinery too is expensive. And unfortunately the sales have remained stagnant and hence we are under pressure.” While the wages of unskilled labourers is roughly Rs.7,000 per month, semi-skilled workers are paid nearly Rs.8,000 per month and skilled workers pocket about Rs.9,000 per month.
The recent price increase in yarn has added to the woes of exporters, creating a further dent in profits. Exporters are now looking at selling to brands within the domestic market. “Many exporters have shifted their activity by moving their capacity to the leading brands selling in domestic market, such as Vero Moda, Zara, etc. But this also has a counter impact because it’s not creating competition within the internal markets,” adds Jain of KAMAL.
Owing to the challenging scenario, the industry has its eyes fixed on the Rs.6,000 crore that was recently announced by the union government for the textile and apparel sector. The package is expected to roll out several tax and production incentives, and help exports. Exporters are hopeful that an increased duty drawback would give them the much needed competitive edge. At present, the drawback ranges between 7% and 8%, subject to variation basis the product. Exporters are also hopeful that this package will help the industry deal with the stiff competition from Bangladesh and China.
The LDC status accorded to Bangladesh is adversely impacting the business from India. “The material from Bangladesh is very good and labour is cheap. Their production costs and bank interests are also lower. While they pay zero duty, ours is 18.9%. So, how can we compete!” exclaims Vinod K. Thapar, Chairman of the Knitwear Club, Ludhiana.
At present, export units in Ludhiana are close to 100. “Most units are into domestic production. Whereas in Tirupur, it is the reverse. So, steps must be taken to increase exports from Ludhiana,” adds Kansal. Exporters are now putting new innovations in their designs to beat competition. They are also procuring the latest machinery, making knitting more efficient and offering better designs at the same price. “Innovation is happening here but only in the organised group. There are units who offer everything in one garment, be it printing, patchwork, embroidery, etc. We are hopeful that things will improve eventually when the changes come in,” adds Thapar.
What will be the fate of India's apparel capital? Will it be wiped off from the map of India's exports temples? Hopefully not.
Ajit Lakra, Head – Textile Division, Federation of Industrial & Commercial Organization (FICO)
TDB: Why is hosiery industry in Ludhiana facing such an acute slump?
Ajit Lakra (AL): Not upgrading technology, system and capacity by the manufacturers is the main reason for the downfall of Ludhiana. Suddenly, when there is an order, they are unable to supply. If we talk about hosiery fabrics, one has to first make the knitted fabric on circular knitting machines. Recently, I have ordered circular knitting machines, which are supposed to be the best in the world. Many buyers, be it Indian or international, specifically, ask for such machines – they buy in large quantities and want consistent quality.
So, one needs proper infrastructure, people and technology for business to scale up. All kinds of upgradation, human and technological, was required in the last few years. In addition, since there was an international slump, our exports haven’t grown much last year. Now that we are looking at some buoyancy in this business, one has to be prepared to meet that demand. Margins in the industry can only increase by decreasing rejections, wastages and incorporating the right kind of systems.
TDB: What are your expectations from the government? What kind of support do you feel can uplift the industry from this dire state?
AL: Recently, the Prime Minister announced a package for the textile industry and increased the duty drawback rate. But, whatever is said and done, there is no ease of business at the ground level due to the bad culture that has been going on for so many years. Systems have to be more streamlined and corrupt people should be shown the door. To make things easy, there should be an automatic route. Only then our industry can improve. Simply changing the policy is not going to help!
Also, there should be more freight trains from Ludhiana. I believe Goods and Services Tax (GST), if implemented properly, will give some relief. It will save time and one will not have to wait for any kind of refund, and it will also eliminate the parallel illegitimate economy. This will fill government coffers in a big way. So, it will move the economy. Growth in a lot of countries has accelerated only after implementation of the GST.
TDB: What is making Bangladesh increasingly a threat to the hosiery industry in Ludhiana?
AL: Bangladesh is a different case. It has a preferential status in US and Europe – all those countries don’t levy a duty on the garments imported from Bangladesh. Because of this preferential treatment, the development and growth of the garment business in Bangladesh has gone up. Labour is cheaper, and so is their currency. They are better off! But still, last year, our textile garment exports was $17 billion and Bangladesh was close to $20 billion. And, well, Bangladesh still imports yarn from India as they don’t have their own cotton.
But rather than worrying about any other country let us improve our own situation. A lot of training and skill development is needed for us and we have to increase our internal efficiencies and reduce the rejection rate. We should also encourage more ladies in the garment industry, and for that we need to have hostels, secured accommodation for women, etc., which is currently not available.
TDB: What incentives in your opinion can encourage exporters in the business and increase profitability for them?
AL: I think simple steps can be taken to address their interests. For instance, in the case of duty drawback, when the merchandise is on board and the shipping bill is made, the drawback should automatically go to the exporters account. Currently, we have to wait for about three or four months. Moreover, finances get stuck not only for duty drawbacks but even for VAT refunds in Punjab.
Making a policy is good but efficient implementation of policies is the main problem in our country. No country would not like inflation to go up but we miss the point that industrial production will also bring down inflation. So, if the industry is supported by a low rate of interest, it directly translates into my additional income. That would mean profits which would imply further expansion, capacity upgradation – it is now imperative for all sections of our economy to understand these crucial linkages.
Rajat Kansal, Partner, Kansal Hosiery Exports
TDB: How is exports of hosiery from Ludhiana been faring this season?
Rajat Kansal (RK): This year, business is down by at least 15% because of the European political situation and upsurge of terrorism. At the beginning of the year, the euro was under pressure. Although the situation has now improved, it is not upto the mark. We are distressed because countries like France, Germany and Spain, which are most hit by terrorism, are our main retail markets. The impact is particularly acute in the mid-segment. And the bad news is that these markets are not expected to improve even next year.
TDB: What has been your counter strategy to increase business at such a challenging time?
RK: We were banking on the domestic market. Sadly this market too is not promising because of changing climatic conditions. Last year, domestic brands had at least 30% unsold inventory. So, this year, production has been less. Also last year, online sales were high. On the contrary, this year, garment sales (especially sweaters and knitwears) through online portals is also very less. We only supply to two brands locally, Lee and Wrangler, and their online sales last year were hit by 40%. That’s why they have bought 60% lesser this year as they don’t want to keep stock. So even with them, our y-o-y business has been 30% less this time.
TDB: What incentives do you think can help get an edge over competition and push up profitability for hosiery exporters?
RK: Two years back, there was talk of an FTA with Europe and duty free import to France. Neither happened. We can flourish only if these things are realised. Things will be difficult, unless the government puts a duty on products from Bangladesh. My gut-feel is that this isn’t going to happen because Bangladesh is an underdeveloped country. Yarn prices here also need to be reduced. Yarn in Bangladesh is cheaper than India because the dyeing cost is lesser there. They also get drawback incentives in exports, making the landed cost cheaper. I think the industry can only look up if there is a better agreement with the importing nations – ensuring that India gets a preference like Bangladesh.
TDB: How is China posing a threat to the hosiery industry in Ludhiana?
RK: China is not a threat, Bangladesh is! Chinese and Indian prices are more or less the same. The variety of Chinese material is definitely more, but in the segment that we operate in the prices are mostly the same. Bangladesh has a duty free agreement with European Union, hence there is a difference in the price and we are losing out on a lot of orders. If India also has an FTA with Europe Union, only then our industry will grow. They are 15-20% cheaper than us. And out of that 15-20%, about 12-15% is the duty cost which the buyer saves. So our costing margin is 7-8%. Our quality and delivery are better, thus we get some orders. But we cannot compete because of the higher import tariffs that we face.
TDB: Despite housing over 14,000 units, exports from Ludhiana are low. What efforts should be made to change this scenario?
RK: One needs a perfect ecosystem for exports along with proper compliant units and ancillaries. For the domestic market, the scenario is different because the transaction is done through instant cash. In the exports business, if you take an order today, the realisation will come after six months. Not everyone can afford such a long cycle.
Steps should definitely be taken to increase exports because Ludhiana is the only place in India that manufactures hosiery and caters to the entire north Indian market. If we can cater to the Indian market, we can cater to the rest of the world. And when we export, our quality also improves because whatever we learn while exporting, gets transferred to the domestic industry.
If you compare domestic and export manufacturers, there is a tremendous difference in their factory set up, outlook and infrastructure. There are also differences in the kind of staff they have, the follow ups that they do, compliance, financials, etc. Workers in the export factories are also paid better, whereas workers in the domestic industry work only on a seasonal basis. Therefore, increasing exports can have positive ripple effects.
Attribute it to government policies or sheer human hardwork – the essential oils, fragrance and flavour industry of Kannauj has witnessed a steady growth in the past years. While duels between traditional and modern methods, and synthetic and natural products are on, its attar continues to bewitch perfume lovers globally!
Aamir H. Kaki | October 2016 Issue | The Dollar Business
NEAREST ICD: ICD KANPUR (83 KM) I NEAREST AIRPORT: LUCKNOW AIRPORT (150 KM) I
NEAREST RAILWAY STATION: KANNAUJ RAILWAY STATION (4 KM) I NEAREST SEAPORT: KOLKATA (985 KM)
Located just 130-km away from the state capital Lucknow, Kannauj is a small town in Uttar Pradesh. The first glimpse of Kannauj reveals a typical modern Indian town replete with the usual crowd and chaos. One feels almost disappointed with the obvious inconspicuousness of the town. But as you continue walking towards the suburbs, you chance upon an entirely different spectacle. You feel instantly transported from a modern town to a medieval settlement. As the feeling further seeps in, one becomes engulfed in a labyrinth of narrow lanes and alleys. Just like the days of yore, these lanes are filled with a fascinating array of small shops that sell antique and handmade crafts.
![Flowering plants and herbs being grown at the FFDC facility in Kannauj; [R] Various](https://d5u2ay5hcb1a1.cloudfront.net/October%202016/Flowering%20plants%20and%20herbs%20being%20grown%20at%20the%20FFDC%20facility%20in%20Kannauj%3B%20%5BR%5D%20Various.png)
Kannauj is identified by several sobriquets such as Cannodge and Grasse of the East, and even Kanyakubja. Its popularity goes way back to the early 600 AD (Harsha Dynasty). However, most developments took place only during the Mughal era. For instance, whenever the Mughals brought new plants from Central Asia, they would plant them in and around Kannauj. Also, a special way of extracting and preparing rose water was discovered here during the time of Noor Jahan. And the locals have kept alive the centuries old practice of preparing perfumes, making Kannauj earn another sobriquet, the perfume city of India.
As we walk around the town, it feels like we are visiting an outdoor exhibition. Almost every house is involved in making attar the traditional way (they have been following the same process for generations.) “We have been into this business for the last four generations,” says Rahul Mehrotra of Lala Kedarnath Khatri & Sons, a manufacturer of natural attars. Seconding Mehrotra’s words, Nishish Tiwari, Proprietor of Gauri Sugandh, adds, "My family has been involved in this business for the last three generations, and even the subsequent generations will carry on the legacy.”
In a world that is rapidly advancing towards sophisticated machines, it is mesmerising to notice that the people of this town have preserved the age-old traditional methods of manufacturing attars. In their opinion, quality products come only from the traditional methods. “We still manufacture attar using traditional methods. We use copper cauldrons, which are 1-1.5 quintal in weight, to extract attar and essential oils. It brings quality to the product. If we change the methods, it will affect the business as well as the quality,” clarifies Rajat Mehrotra, CEO, Meena Perfumery.
He further informs The Dollar Business, “You can still find 100-year-old deghs (copper vessels) in Kannauj because natural quality comes only when you use the copper degh. Advanced distilleries made of steel are now available in the market, but they cannot match the quality that is produced by traditional methods.” Adding on to the significance of traditional methods, Shakti Vinay Shukla, Director, Fragrance and Flavour Development Centre (FFDC), says, “The fragrance or odour that a conventional method can create cannot be replicated in any way through modern techniques. Though modern methods can succeed in creating good fragrances, the shades are entirely different and there is no prism for comparison.” Tradition sure supercedes technology in Kannauj!
The natural fragrances industry is facing some competition from synthetic fragrances, but they have separate clienteles. Mehrotra of Meena Perfumery says, “We always try to provide better quality because our customers know the importance of quality.” A die-hard optimist Shukla claims, “There is no threat from synthetic and chemical-based products. The market for natural essential oils has its own clientele, and more people are now going organic. What the industry needs to do is to rebrand and reposition itself.” However, Tiwari has a different opinion. He says, “Synthetic and chemical-based products are cheaper, so there is a strong threat from them.”
Last year, Akhilesh Yadav, Chief Minister of UP, announced a twin city project to revive the attar industry in Kannauj. Land has already been acquired to build a perfume park and a perfume museum in Kannauj. And it is widely believed that this initiative will take the attar industry to the next level by giving it the much needed facelift.
The government's ban on pan masala and the country's gutka industry elicits a mixed opinion from the fragrance industry. On one hand, there are traders like Mehrotra who feel that the impact on the industry is as high as 80%. However, on the other hand, there are a few traders along with Tiwari who feel that it is business as usual and there is no perceivable impact on the industry.
India is a global leader in several fragrance and flavouring products. According to Shukla, out of the 110 most sold essential oils in the global market, India produces 31. There are around 350-400 small attar manufacturing units in Kannauj alone. However, South India dominates the value game. Shukla adds, “If we talk about total aroma products and spice oil, a single company from south India alone can export worth Rs.1,100 crore. This is a considerable number.”
According to industry experts, the industry in India is growing at a rate of 10-12% – in fact the domestic industry has witnessed a significant growth in the course of last ten years.
The industry in Kannauj is exploring various new ways to make use of its products like aroma therapy, fine fragrances, herbal cosmetics, etc. At the moment, the products are used in the form of fragrances and perfumes as well as additives in flavouring agents. Though it will take a while before the industry realises its full potential, the future of Kannauj does look fairly bright. Yes, there is competition from the synthetic range, but with the mega perfume park on its way, the game seems to have just begun for its attar manufacturers. Addiction to traditional ways will however be a habit hard to change. But change it will.
Rajat Mehrotra, Chief Executive Officer, Meena Perfumery
TDB: Your family has been into this business for several generations. How has the business evolved over time?
Rajat Mehrotra (RM): We have been into this business for the last four generations. My great grandfather started the business and now I am taking care of the same. We primarily deal in attar and essential oils, made from natural extracts. And our main expot market is the Gulf region. We also supply and sell rose water in the domestic market, but 70% of our products are exported.
TDB: Do you see any threat or competition from companies that are into synthetic and chemical-based fragrances?
RM: There is competition, but consumers and business houses are aware of the quality and purity of natural products. Interestingly, companies that are into synthetic and chemical-based fragrances also buy natural extracts from us to manufacture their products.
TDB: How have the exports been for the past few years?
RM: Exports have been great and we have been witnessing a significant year-on-year growth. We have achieved 5-10% growth every year for the last few years. Recently, there has been a slowdown in the Middle East market, but it seems that the Gulf market is on the way to recovery and that should mean more export orders for us.
TDB: What products comprise your export basket?
RM: We export essential oils like rose, attar and other perfumery compounds that are used in the cosmetics industry. In essential oils we supply rose oil, clove oil, cardamom oil and citronella oil amongst a host of others. While the Gulf region remains our primary export destination, we are also exporting to France, Germany, China, US and several other markets. Our products adhere to stringent quality standards and we supply at very competitive prices. We are also able to adapt our production capacity across various product lines as per the requirements of our customers. This gives us an edge over other exporters.
TDB: How is the government supporting the attar and perfume industry?
RM: The state government has already acquired land to set up a perfume museum and park, near Tirwa (Kannauj). Once this park is developed, it would attract foreign investment into the city. We believe with foreign investment coming in, big industrial units will be established in the park. This initiative will certainly benefit the sector, and we may even find use for our raw materials within the park. The government is trying to make Kannauj accessible from other parts of the country. Now we have a highway that connects the city with Lucknow, Agra and Delhi. But even better connectivity will always be appreciated. This will definitely help boost the business from the region and enhance the industry.
TDB: What kind of export potential do you see from the region in the next five years?
RM: The industry is growing because more people are joining the trade. The new generation is very focused on exports because they see huge opportunities in overseas markets. The way the things look at the moment, I think the industry will be earning a lot of foreign exchange for the country in the near future.
TDB: Has the geographical indication (GI) status granted to Kannauj attar helped boost perfumery businesses from the region?
RM: The perfumes and attar of Kannauj were already famous around the world. However, the GI tag may help the industry. It provides a unique identity to the attar and perfumes of Kannauj.
Shakti Vinay Shukla, Director, Fragrance and Flavour Development Centre (FFDC), Kannauj
TDB: What’s the objective behind Fragrance and Flavour Development Centre (FFDC) and how is it promoting the perfume and attar industry?
Shakti Vinay Shukla (SVS): Founded in 1991, FFDC was earlier called Product Process Development Centre for essential oils (PPDC). But we realised that the name doesn’t cover all the aspects, thus we changed the name to Fragrance and Flavour Development Centre (FFDC) in 1995.
Back in the days, the R&D activities conducted by different organisations, such as CSIR and university research labs, did not reach the industry in the desired manner. Either the technology was too advanced to be adopted or it was in a commercially non-viable form. So considering the two specific problems, together with the state government, central government and United Nations (UN), a concept was laid down by all industry departments. The state government provided the land, the central government offered most of the financial support and UNIDO extended technological inputs in the form of machinery, etc.
Also, at the global value-chain level, there is hardly a 12% share each for synthetic aroma and essential oils out of the total revenues. Thus, the aim of FFDC is to serve as an interface between the essential oil, fragrance and flavour industry and R&D institutions, both in the fields of agri-technology and chemical technology. Our approach since inception is demand driven; therefore, 50% of the members in our governing council are from the industry.
TDB: What are you doing for the farmers involved in the cultivation of flowers and crops used in the industry?
SVS: We educate them about various flowers and plants and assist them in cultivating them. It’s only when the farmers are familiar with the crops, they can be financially independent. Also, it is our job to inform them about new research findings. We educate them on how and where to grow which crop. We also educate them about the crops that can give them better benefits. We provide them literature in several languages, organise kisan melas, workshops, etc., to make them aware of best practices and train them on particular crops and processes. In addition, we help them get their material distilled at our facility and serve as a bridge between them and the industry apart from assisting them in selling their raw materials and oils.
TDB: What is the current market size of India’s fragrance and flavour industry? What kind of growth do you expect?
SVS: The industry in India is growing at a rate of 10-12% every year and is currently pegged at about $550 million. In terms of value, India ranks second in the world. In FY2015, the global fragrance and flavour industry stood at $24.78 billion – and the top 10 global MNCs together accounted for nearly 77% share. If we also include essential oils, then number is much bigger. Essential oils, which are exported from India, get converted into fragrance and flavour.
TDB: What is the export contribution of Kannauj?
SVS: Two years ago, contribution of Kannauj in total exports of perfumes and essential oils was about 1%. The figure appears low because thousands of kilograms of mentha and spice oil are also clubbed under the same category. I believe there are about 350-400 small attar manufacturing units in the city.
TDB: What potential do you see of the industry?
SVS: The potential is huge. Besides conventional usages, essential oils can be used in aroma therapy, fine fragrances, herbal cosmetics, etc. The industry will take a while to achieve its true potential, but FFDC is working towards it.
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