Ludhiana bicycle industry hit by rising steel prices

Bicycle units in Ludhiana are facing a tough time. Fluctuations in steel prices and the duty drawback scheme are considered to be two major reasons for declining production and exports.

Exports have declined from Rs 850 crore in 2002 to Rs 750 crore in 2004, largely owing to the fact that steel prices have almost doubled in the past three years. Steel prices, which used to be Rs 13,000 per metric tonne in 2002; now stand at Rs 27,000 per metric tonne. The rise in prices has forced entrepreneurs to import steel from overseas.

Experts say exports will decline further if stringent measures are not taken. Both the Centre and the Punjab government are being held responsible by entrepreneurs for the current state of affairs.

Analysts feel that the industry has been declining at a rate of 15 per cent since the past three years. Workers, most of who are from UP and Bihar, are losing employment rapidly.

India is the second-largest bicycle producer in the world, next only to China. 90 per cent of the nation's bicycle production takes place in Ludhiana.

Speaking about the current scenario in the bicycle industry, United Cycle & Parts Manufacturers Association General Secretary Varinder Kapoor said, "Twenty-five percent of the units have closed shop, and 25 per cent have defaulted in loan repayment. Steel prices have doubled in the past three years. Our bank borrowing limits have not been enhanced. Hero Cycles used to manufacture 18,000 cycles per day; and now they are producing 6,000 cycles only. Similarly A-One Cycles has reduced production from 7,000 to 4,000 cycles per day. Now we do not have even the duty drawback of 16-17 per cent. Under this situation exports are bound to decline further."

Eastman Industries Ltd Managing Director J R Singal has a similar story to tell. "Exports have declined by 30-45 per cent in past six months. The government has to come forward and clear the roadblocks. At one time we used to compete with China. Though growth was not phenomenal, the industry was doing well till last year."

Today, with rapidly increasing steel prices, Punjab-based cycle parts manufacturers are increasingly shifting to trading cycle components.

"Because of ever-increasing steel prices, more than 40 per cent of cycle component manufacturers in the state have shifted to the trading of Chinese-made cycle parts because they are cheaper than the indigenously made parts," said Gursharan Singh, president, Handtool Manufacturers' Association.

Singh said trading was more profitable, ensuring least risk, considering that steel prices had remained unpredictable during the last few months, which had a negative impact on exports.

"Despite a superior quality of original components, Chinese-made products have an edge because of low cost. The price difference comes to almost 35 per cent. An imported component from China costs Rs 38 while the same made in Punjab costs Rs 50 (excluding all taxes)," said Virender Kapoor.

Kapoor said many exporters had opened purchase houses in China.

The zero per cent import duty on finished goods is luring cycle part manufacturers to engage in trading.