If there is an issue in the industrial parlance today where the opinions are so diametrically opposite to each other, it is the issue of import of old machinery. The users of old machinery, who import them because they are much cheaper, vehemently support free import of old decided by market forces.
They argue that: If such machinery is good enough for them to manufacture products with enough profit, then there is no reason why they should be stopped from importing them. Though such products are not qualitatively so good, they are good enough for markets dominated by the poorer section of the society which can only pay less price.
The weaker section in the society do not mind buying cheaper cloth, though the standard is not good so long as their immediate need is satisfied. The markets for the poorer class and the market for the richer class are quite different. Let the good quality cloth be produced by new machinery and let the cheaper and coarser variety be produced by old machinery. There is no reason why the manufacturers of new machinery in our country should canvas for stopping the import of old machinery.
It is held that old machinery import is converting our country in to an international junk yard. This view is held by the big machinery manufacturers which are well-organised into chambers, associations, federations and confederations. Their point of view is mainly dictated by their desire to restrict the import of old machinery so that their own new machinery can sell better. It is not as if there is no demand for their new machinery.
In fact, the demand is positively higher than the domestic supply. Therefore, the economic argument which often does not get transparently spelt out is that if the supply of old machinery can be stopped or limited, then demand being what it is, the prices will rise which give higher profit to the industry making new machinery.
In this background the measures suggested by the pro-restrictionists may be examined as below:
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They suggest raising the duty to a very high level such as 60-70 per cent. This suggestion is like creating a tariff barrier, which is against the over all policy of reducing rates of duty. They also suggest that the value of old machinery should be taken as, say, 70 per cent of the new machinery.
| OLD MACHINE IMPORTS | |
| In India, the demand for machines exceeds supply; restrictions on imports thus raise the price of new machinery leading to increased profits. The cloth produced by old machines is inferior, but the poor do consume it | |
| POINT | COUNTER-POINT |
| Raise duty to 70% | Creates a tariff barrier |
| Fix value of old machinery relative to the new | The rule is to give depreciation on a sliding scale |
| Made-in-India machinery to be imported as old machinery | A retrograde step |
This is against the Valuation Rules given by the Customs Cooperation Council of which India is a member. The rule is to take the new value and give depreciation on a sliding scale for every year. They also suggest that those machinery which are made in India should not be allowed to be imported as old machinery. This suggestion will reintroduced the Not Manufactured in India (NMI) Certificate of the old era.
So long as there is enough demand for old machinery which makes manufacture of goods even of a poorer quality economically viable, the import of such machinery should be allowed to be dictated by the market forces. Cheaper machinery makes cheaper goods for poorer people, nearly 40 per cent in our country.
Too much restriction cannot be imposed on the import of old machinery. It will be reasonable to impose an age restriction of 12 years.
This will ensure that India does not become the international junk yard. It is also imperative to stop misuse in the shape of undervaluation of old machinery and misdeclaration in regard to age. Apart from this, I do not recommend any other restriction.