What ails our ceramic industry?

Rampant dumping by China and an inverted duty structure are taking a heavy toll on the Indian ceramic industry.

Did you know that the Indian ceramic industry, conservatively pegged at Rs 4,000 crores, provides direct and indirect employment to over five lakh workers across the country, who tirelessly slog at second-hand machinery to beautify our urbane bathrooms and kitchens?

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Chiefly concentrated in Gujarat, and representing mainly the unorganised sector, the Indian ceramic industry contributes Rs 1,000 crores to the exchequer, yet it faces the threat of a slow-down and ultimate closure due to the massive dumping of cheap vitrified tiles by Chinese manufacturers.

The current growth rate of the industry is 12 per cent per annum. The per capita consumption of tiles in India is just 0.15 m2. "This provides a huge opportunity of growth to the local industry, if it were not impeded by government short-sightedness and procedural hurdles like inverted duty structure and low abatement on MRP," explains Girishbahi Pethapara, President, Gujarat Ceramic Floor Tiles Manufacturers Association, which represents over 150 units located in Gujarat.

During 2003-04, Chinese tiles worth Rs 100 crore were dumped in the Indian market. "This year, it is expected that dumping may well cross the 200 per cent mark to Rs 300 crore. This will undoubtedly put a lot of strain on the local market, and in a long run, may even throw some of us out of business," says Hasmukh Patel, President, Sabarkantha District Ceramic Association.

The Gujarat tile manufacturers have, in fact, been fighting this problem of eroding margins for over the past two years now. As a consequence, prices in the vitrified segment have already dropped from 15 per cent in 2002-3 to three per cent towards the close of 2003-4.

As a counter measure, the Indian government levied an anti-dumping duty of Rs 35 per sq. ft., on Chinese goods, three years ago. But even this hasn't helped as the tiles now come routed via SAARC countries like Malaysia and Indonesia.

Given this grim scenario, many manufacturers are contemplating the exit option. "We have been making heavy investments over the past one year towards new capacity creation and other marketing requirements. But, given today's scenario, the returns on these investments appear to be bleak," laments J. O. Patel, Director, Ajanta Tiles, one of the leading players in the sector.

It may be easy to say that a little competition may be good for the Indian industry but not when almost 60 per cent of the manufacturing cost of ceramic tiles is linked to raw materials and equipment imported from abroad in the form of Ukraine clay, diamond cutting tools, abrasives, ceramic colour pigments and printing bases, borax pentahydrate and boric acid etc. And, while the centre has reduced import duties on finished tiles to 10 per cent, the import duty on raw materials is still a steep 20 per cent.

"The result is that a local manufacturer importing raw materials pays nearly double the duty than that paid by an importer who imports tiles directly. This puts the former at a big disadvantage vis-à-vis importers, providing him with no incentive to make fresh investments in the industry," cribs Pethapara.

Another request of tile manufacturers is the abatement on MRP for the purpose of calculating excise duty, to the tune of 50 per cent. The present rate is 45 per cent. "Ever since ceramic tiles have become popular in rural and semi-urban areas, they have to be transported longer distances from the location of manufacture. This adds to our cost as tiles are usually bulky material," explains Patel.

The bottom line is that the jobs of some five lakh workers are at stake if the government does not respond to the China threat and remove the present anomalies in the duty structure.