High excise hits small soap units

Hindustan Lever, ITC and Godrej reap benefits

Finance Minister Chidambaram's Budget has dealt a severe blow to small and tiny units manufacturing oil-based washing soaps without power, by imposing a 16 per cent excise duty on them, thus ending the exemption they had been enjoying for many years.

This has emboldened Hindustan Lever, ITC and Godrej to start their plants for making oil-based soaps. HLL, which has created a facility in tax-free Uttaranchal, will now produce oil-based soaps. ITC has decided to start its oil-based soap-making unit in Uttaranchal, while Godrej is doing something similar in Himachal Pradesh.

Both these states are excise duty-free or very little of it is levied on them, says Naresh Manchanda, managing partner of PSM Soap and Detergent. "Here we will pay 16 per cent excise. Again, these companies import oil, which is in short supply in India, and we buy it from traders, who in turn import it. Thus, our cost of oil is 20 per cent higher than those of large Indian firms and MNCs," he adds.

PSM, the 60-year-old oil-based washing soap brand, will be closed in the course of this year, if things do not change, according to Manchanda.

The industry is surprised because the ruling formation at the Centre has made generating employment its plank. Because of such measures, the oil-based washing soap industry, which does not use power, perfume units of Kannauj and lock makers of Aligarh will all suffer, according to Manoj Banka, state secretary of the Provincial Industries Association.

Manchanda said his firm employed five persons for each one tonne produced and MNC employed five for producing 100 tonnes.

All India Association of Tiny Industries President Sunil Gupta said small entrepreneurs with a small capital of Rs 5-10 lakh put up these units to seek employment for themselves and their families. They create employment for one person with an investment of Rs 1 lakh while MNCs do not create it with an investment of even Rs 1 crore.

India has about 10 million tiny and small-scale units, whose employment-generating capacity comes next to agriculture. Thirty per cent of these are sick and this high excise duty is likely to push 10 per cent more into sickness.

It's suspected further impact will be on the growth of entrepreneurship. New generations will become employees rather than entrepreneurs. Industry associations have approached the Prime Minister and the Congress president, but as yet the government has shown no sign of reversing its policy.