GST effect: Fate of Ludhiana plywood industry hangs in balance
Ever since the goods and services tax (GST) was brought to force, there has been a 60% fall in the demand for plywood, owing to the tax rate of 28% on furniture goods.punjab Updated: Jul 20, 2017 00:06 IST
Situated on the outskirts of Ludhiana city in Hambran, is a small plywood manufacturing unit. Until last month, the manufacturing unit had a 110-strong workforce. But now the owner, Wazir Sood, has temporarily laid off 70 workers. And the ones that he has retained don’t have much work either.
Wazir says it’s the fallout of the new tax regime. Ever since the goods and services tax (GST) was brought to force, there has been a 60% fall in the demand for plywood, owing to the tax rate of 28% on furniture goods.
Punjab has more than 125 plywood manufacturing units where around 25,000 workers are employed. The story is the same in all these units. Workers are either being laid off or have no work at all.
Threat to ecological balance
Until 1990s, forest wood was the prime source of raw material for plywood manufacturing units but the forest cover in the region was exhausted to its threshold.
In the early nineties, the cultivation of poplar and eucalyptus trees provided a perfect alternative to forest wood and later, the state government owing to its agro wood properties, introduced a slew of fiscal incentives for farmers growing these trees.
Farmers in the state then began cultivating poplar and eucalyptus trees (replacing paddy and wheat crops) in vast swathes of agricultural land. This proved to be a blessing in disguise as in 1996, the Supreme Court imposed a ban on cutting of forest wood.
- Tax on furniture before GST implementation: 5-14%
- Tax on furniture before GST implementation: 28%
Khaira Bet, a village in Ludhiana district, has more than one crore poplar trees while Hoshiarpur, Abohar, Moga, Fazilka, Amritsar and Kotakpura are richly cultivated (crores in numbers) with poplar and eucalyptus trees. Around 90% of wood for plywood manufacturing comes from poplar and eucalyptus trees.
Jolt to farming community
Around 30% of the total farming community in the state is completely dependent upon cultivation of agro wood (poplar and eucalyptus). With shortfall in demand of plywood items, the cultivation of agro wood is likely to fall and thereby taking toll on the livelihood of thousands of farmers in the state.
Parminder Singh, 33, a farmer in Walipur Kalan village who has been growing poplar in five acres of his land for the last 20 years, says, “Now, nobody is ready to pay a single penny beyond Rs 5.5 lakh for poplar trees that were grown at a cost of Rs 8 lakh. Now I am in a fix whether I should cut the trees this year or not.” It takes around four to five years for one crop to ripen.
“80 percent of the plywood manufacturers have not issued a bill after implementation of GST. The demand in the market is negligible. We want GST on plywood products but at a rational rate not a whopping hike of 23%.” -- Naresh Tiwari, chairman All India Plywood Manufacturers Association
Furniture is a common household article that everybody buys as per their spending capacity. At such a high rate of tax, the price is expected to escalate up to 25%, thereby pushing this basic household necessity beyond the common man’s reach. Around 200 manufacturing units (around 10%) of the total 3,200 are involved in manufacturing luxury plywood articles while the rest fall in the micro, small and medium enterprises’ ambit.” -- Baldev Singh, vice president of All India Plywood Manufacturers Association
It’s a proven fact that whenever taxes are hiked, the compliance has dipped and evasion spiraled. Moreover, the smuggling of forest wood would be encouraged. --Harmeet Singh, vice president of All India Plywood Manufacturers Association