What started as a small company exporting LED lights in 2007 has today become a major export house that ships products to several European markets. The Dollar Business caught up with Ajay Goel, Director, Brite LED Pvt. Ltd. to understand how his company stays competitive in the global market and the impact of fast-changing government policies on his business.
Ahmad Shariq Khan | November 2016 Issue | The Dollar Business
TDB: Tell us about your foray into manufacturing and exports of LED lights. How did it all start? How has the journey been so far?
Ajay Goel (AG): I started exports of LED lights in 2007. Initially, exporting to Europe proved tough for us. But, over the years, with consistent efforts, we managed to achieve good sales and orders from Europe. In FY2015, we managed to export LED bulbs worth Rs.22 crore to Europe. Most of our shipments are routed through Germany, which is considered the hub of the engineering industry in Europe. However, besides catering to several German companies, today, we also export, albeit in small volumes, to USA, Africa and the Middle East.
Since last year, I have chosen an additional role for myself, and that is of an industry consultant. I am trying to help the Indian LED lighting fraternity come up with the right standards, quality and design of the lights, so that the manufacturers can compete more effectively, on both the pricing and quality fronts, in domestic and international markets.
TDB: How do you see the current landscape of LED lighting industry across the country?
AG: I believe, the ever-increasing need for LED bulbs in recent years has worked wonders for the LED lighting industry in India. About five or six years ago, the disequilibrium between demand and supply of power in India was more than 15%. Thus, to fill this gap, the government had launched various schemes to reduce our energy consumption, and increasing usage of LED bulbs across the country was one of them.
I have witnessed many pro-LED industry measures and initiatives taken by the government, which have successfully helped us reduce energy consumption in a big way. And, today, coupled with our thrust on solar energy generation, the existing energy shortage in the country is merely 2-3%.
These progresses are motivating, and is one of the reasons why we got into this business. I would also like to point out that another important facet about this sector is that it has opened up vast employment opportunities for the masses.
It must be noted that apart from big players getting into LED lights manufacturing business, hundreds of MSMEs are also quite active in many sub-segments of LED manufacturing – it’s quite a heartening revolution. And, for sure, their numbers are bound to grow in the future, so will exports.
TDB: Are you also a part of the ‘Make in India’ bandwagon? How do you view the campaign?
AG: ‘Make in India’ is a good initiative aimed at harnessing the culture of manufacturing within the country. As an SEZ unit, we are doing our best to procure locally made raw materials. I would say, this pro-manufacturing initiative has immensely benefited the LED sector and the ancillaries. About a couple of years ago, only about 20% of the components were being made in India, but now 60-65% of the components are sourced from within the country. I believe, this is a quantum leap that has been made possible by the government.
TDB: Is there any policy related issue that bothers the sector?
AG: When it comes to drafting and introducing policies, the government lacks a long-term vision. This hurts the sector. I believe that whatever policy the government introduces or plans to introduce should be long-term based, for instance, the SEZ Act and the imposition of Minimum Alternative Tax (MAT). Sudden change in the policy shakes the confidence of investors in any given scheme and they become reluctant to invest in the project.
Also, with regards to the whole concept of ‘Duty Forgone,’ I would like to mention that some government departments think of it as a kind of subsidy given to us, which technically is not the case, at least, not for us, as we are an SEZ unit. By the way, if we’re bringing something into the ‘Duty Free Area’, where does the question of ‘Duty Forgone’ arise? Such an unwarranted assumption is creating a bad image for us and must be changed.
"SEZs are already overburdened with taxes and cannot afford more"
TDB: Investors seem to have lost interest in SEZs since the minimum alternate tax (MAT) of 18.5% was imposed on SEZ unit owners in 2011. What’s your take?
AG: Well, the new MAT norms have acted as a sort of barrier for new investments into SEZs. Also, those investors who have already invested in SEZ are now very wary of moving forward with their investment plans. Under the newly changed norm, the income tax benefits have been curtailed drastically – what used to be around 33% benefit has now reduced to roughly 10% after all the deductions. Also, employment in SEZ has been hit hard.
In a way, I think the imposition of MAT defeats the very premise on which SEZs were initiated across the country. The idea then was to offer a long-term enabling business ecosystem (including relaxed tax norms), but with these frequent policy changes, our hope for better days has been once again sent for a toss.
TDB: How do you see the imposition of dividend distribution tax (DDT) on SEZ operators?
AG: If I look at it closely, in the long run, I think dividend distribution tax (DDT) will be a good instrument because it is essentially aimed at encouraging high performers and promoting investments into SEZs. However, in the short-term, it’s troubling for many SEZ operators.
TDB: What are your thoughts on GST, especially with respect to SEZs?
AG: Though, GST is very good instrument that will bring transparency in many aspects, the policy lacks clarity with respect to goods entering into the SEZ territory. The government needs to shed more light on taxes (if any) applicable thereupon.
We are looking forward to GST as an enabling force for us, and we hope that the government will clarify things soon, especially, for unit owners operating under an SEZ. We are already overburdened with taxes and cannot afford more. And in any case, the ideal GST rate shouldn’t be above 18%.
TDB: Over the last few years, India has signed a large number of free trade agreements (FTAs), putting SEZ units at a relative disadvantage. What’s your take on the situation?
AG: Well, we are already going through tough and challenging business environs, both domestically and internationally. So, when we are doing our best to stay afloat, we want the government to lend us a hand. Now, importers can import duty-free products from around 20-30 countries, and when compared with them, we are at a disadvantage.
We want the government to allow us to sell our products in the domestic market after paying the same preferential tariffs applicable to manufacturers in countries with which India has a free trade agreement.
TDB: What kind of competition do you face across international markets?
AG: The competition is really tough across international markets. Indeed, China is a tough competitor, and unlike us, Chinese LED lights exporters benefit significantly from the subsidy programmes of the Chinese Government and their good logistics network. Hence, going forward, I believe Indian manufacturers have to pull up their socks and take steps to outcompete them on both fronts i.e. quality and price.