Safety match making units in Sivakasi, Kovilpatti and Sathur in Tamil Nadu are fighting for survival due to high Cenvat, labour shortage and rising raw material costs.
The three towns, approximately 600 km south of state capital Chennai, once accounted for nearly 75 per cent of the Rs 3,000-crore match industry. But in the last five years this has dropped to 50 per cent. This traditional industry is also seeing closure of units and a few have even diversified into other businesses like textiles.
"The match industry here is in a very bad shape and it is a question of survival now," said S Ashok, vice-president, All India Chamber of Match Industries (AICMI) and director, Pioneer Asia Group.
Labour shortage, huge tax evasion by unorganised units and increase in raw material prices have been cited as reasons by the organised industry in these towns for the crisis.
"In the last six months, the cost of various inputs has skyrocketed to unmanageable levels. For instance, the price of red phosphate, a key ingredient in safety matches, has increased to Rs 650 from Rs 300 a kg and potassium chloride to Rs 6,000 from Rs 5,000 a tonne. Due to rise in crude oil price, wax prices, a key component for match box industry, have risen by 140 per cent to $1,700 from $700 a tonne," said Ashok.
The price of matchbox has, however, remained at 50 paise for the last 10 years, he noted.
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While the organised-mechanised sector is faced with the burden of Cenvat at 12 per cent, the unorganised sector in the name of "cottage industry" is out of this tax net. But, it is alleged that these small units produce matches through machines. The huge tax evasion enables the small players to distort the market with low prices, according to local businessmen.
S Selvakumar, one of the mechanised manufacturers, said though matches are produced by machines, packing is done by hand. It includes splint arranging, splint dipping, outer and inner box manufacturing, dipped splint filling and final packing. Shortage of labour is felt most in these sections despite higher wages.
The match industry that employed over 100,000 people till a few years ago today has only 20,000 people in Sivakasi directly depending on it for a livelihood.
Manpower shortage is forcing these small units to become capital-intensive with investments in machines peaking new levels. These units borrow money from local money lenders at high interest rates. Besides, attempts to diversify into other business have also failed, he said.