Paint units for policy review

Small and medium enterprises (SMEs) in the Rs 9000 crore paints sector feel that government schemes like credit guarantee fund and the Solvent Order 2000 need to be drastically overhauled to enable them to survive the onslaught of global players in the Indian market.

SMEs are stifled by certain constraints, mainly the high cost of inputs, said Manu Ahuja, president of India Paint Association (IPA).

Ahuja said that an increasingly large number of companies are outsourcing manufacturing fringe products to smaller companies. He pointed out that the market will get more competitive with new entrants like Nippon, Jotun, Akzo Nobel and others making big plans for India. Innovation will be the key driver for the small scale sector, since they have realised that this will sustain them in the long run.

Going forward, the challenge is for the organised and unorganised sectors to work with each other rather than getting into a price war, he added. "Not only is the competition high, it is also constantly increasing with companies fighting for a bigger share of the pie, and getting into price wars, hurting SMEs and pushing very of them to the brink of closure."

Of the overall paint market, the share of SME and unorganised sector is 25-30 per cent. IPA members collectively account for more than 80 per cent of the total paint production in India, valued at $2 billion.

"As the market becomes more sophisticated, customers demand better products, superior quality and a greater choice. Players in the SMEs will be squeezed out of the market if they they don't upgrade to meet customer expectations," Ahuja pointed out.

This, he added, could be catalysed by the reduction in excise duty, which help the smaller players maintain a viable price differential with the big players.

Ahuja pointed out that the basic raw material for paints, mineral turpentine oil (MTO), plays a big role in cost effectiveness.

Similarly, the government has announced an increased credit guarantee fund, from Rs.1,1 32 crore to Rs.2,800 crore by the end of 2006. In reality, such a guarantee fund for a small scale unit does not come to their help. The government should therefore review in depth the allocation of such funds periodically, Ahuja said.