Brass industry is up against prices, China

State Update: Gujarat

For 50 years, the brass component manufacturing industry flourished in Jamnagar. Like other industries that developed in clusters in Gujarat's Saurashtra region, the brass industry sprang up after entrepreneurs began manufacturing their own component manufacturing machines.

Others leaped in too, explains Nathalal Mungra, president of the Jamnagar Chamber of Commerce and Industry. Today, anywhere between 3,500 and 4,000 units, over 90 per cent of them unorganised and very small, turn out brass parts for electrical switches, electronic appliances, engineering goods and so on, and clock an estimated turnover of Rs 1,000 crore.

But the industry says it is in trouble. Around 1,500 brass parts units have been forced to close down in the wake of the industrial slowdown in the last two years and the tough competition in the market posed by Chinese brass parts.

Obsolete technology, higher prices of brass scrap, which is entirely imported and relatively high sales tax rates and octroi duty have not helped either.

"The abolition of octroi has been a long-standing demand of the industry. Several representations too have been made to rationalise sales tax on brass components but the state government has not considered them," says Mungra.

The sales tax ranges from 4 per cent (brass components for engines) to 12 per cent (brass components for electrical and electronic goods).

In the recent Budget, the Centre lowered the import duty on brass scrap by 5 per cent, from 20 per cent to 15 per cent, but the gains from this have been offset by rising brass scrap prices.

The price of brass scrap has shot up from Rs 98-99 per kg a few months ago to Rs 108-109 per kg today largely because of rising international prices of brass scrap.

Indeed, about 100 Jamnagar units are contemplating migrating to either Rajasthan or the Union Territories near Gujarat. The Rajasthan government levies just 1 per cent sales tax on brass, copper, zinc and lead components.

Regions like Daman and Silvasa offer tax relief while Uttaranchal and Chhattishgarh give special relief. Others too will like to relocate but can't do so because they do not have enough capital to set up base elsewhere. But many industries claim that they are on the verge of extinction in order to garner government aid and sympathy.

Are Jamnagar's brass component units crying wolf or do they have a case? Minister for capital projects and urban development, IK Jadeja, who temporarily holds the industry portfolio (industry minister Anil Patel is in the US) said, "We agree to some extent with the brass units owners."

KK Shaw, a member of the faculty at the Ahmedabad-based Entrepreneurship Development Institute of India (EDI), who has surveyed over 1,500 brass component units, backs the point.

"While sales tax has been a problem across all industries, the brass components industry has been hit hard as a result of the increase in international brass scrap prices. I believe it is the duty on imported scrap and rising prices of scrap that are contributing to these units shutting down," he said.

The Jamnagar Factory Owners' Association (JFOA), an umbrella organisation of the brass component units of Jamnagar district, recently submitted a representation to chief minister Narendra Modi seeking his intervention to include brass component businesses in the cluster development project.

The cluster development programme has the support of the Central and state governments and the United Nations Industrial Development Organisation.

It helps small businesses in production, quality control and marketing. So a group of about 15 entrepreneurs from Jamnagar's brass components industry was recently taken to China to show them how the brass component manufacturers there had adopted better technology.

The JFOA representation also included a demand that the sales tax be cut to 1 per cent. JFOA president Gangdas Patel argues that at least the sales tax should be brought on a par with that in neighbouring Rajasthan.

"We had also demanded that the Jamnagar brass component industry be developed under the government's cluster development programme, which will not only help local industries but will also reduce tax evasion by a few," he adds.

JFOA admits that the industry's technology is outdated. The EDI suggested technology upgradation and quality control if the industry were to survive, he says, adding that the industry is now working with EDI for this purpose.

Groups of 10 engineers have visited plants, surveyed the plant, machinery, quality control systems, and have transferred technology to these units.

The government, says Jadeja, has been working with the industrial extension bureau of the government of Gujarat on a cluster development project, meant for the brass component industry. Several rounds of meetings with state finance minister Vajubhai Vala have been held on the sales tax issue.

"We hope to reduce sales tax significantly in the next state Budget. The government is also planning to extend easy finance options also for this industry," Jadeja adds.