Critics of the government attitude to the country’s handicraft exports, worth Rs 12,000 crore annually, say the prevailing inverse duty structure would hit it badly without a change.
Around two-thirds of India’s 15,000 small scale manufacturing units (SSI), which produce articles of daily use from door handles to kitchenware, bag stickers and artifacts to attractive handicrafts, are considering closing their manufacturing sites due to the way taxes are levied on import of raw materials, goes the complaint.
The domestic handicraft industry, with an annual turnover of Rs 100,000 crore, often faces an import duty on raw material which is substantially higher than that on finished products. Brass smelting is a good example. Smelters are heavily dependent on import of scrap as raw material; the domestic collection is poor, and the units have little option but to pay the duty.
“Small scale manufacturing units and medium scale industries (in the sector) are suffering due to unfavourable duty structure, while they are engaged in manufacturing various kinds of components and provide employment to lakhs of people. If we fail in taking an appropriate decision at the right time, more than 70 per cent of the industries will have no option but to shut shop. There is a fear of them being declared non-performing asset units,” said Ashok G Bafna, president, Bombay Bullion Association.
Currently, the import duty on both brass scrap and billets has been levied at five per cent. Brass scrap is a raw material for billet manufacturing and billets are used in producing handicrafts. The same import duty on raw materials as the finished product proves a dampener for domestic smelters, as processing units prefer to import billets for use in handicraft manufacturing. Since, the conversion loss on brass scrap works out to between five and 15 per cent, depending upon the quality of scrap, billet import makes economic sense. Along with 12 per cent countervailing duty and four per cent of special additional duty, the total tax component works out to 22.85 per cent on import of raw materials.
However, scrap import is tariff-based and, hence, the duty component on it is fixed. Finished products (billets) attract duty based on transacted value as declared by the foreign seller. The government has relaxed norms for import of billets through Nepal, Thailand and Malaysia, levying only two per cent duty on billets imported from these countries. Consequently, the overall applicable import duty levied on finished products imported through these countries works out to 17 per cent.
“The handicraft manufacturing sector in India has been hit hard due to this inverse duty structure. While global demand has declined significantly due to the ongoing unfavourable economic scenario, exporters have lost a massive market share in global markets due to the uneven pricing of handicraft products. Owing to this duty structure, the price of India-make artifacts is significantly higher than the product of other countries. Hence, exports are lowering their competitiveness in global markets,” said Rohit Shah, an industry veteran here.
In a letter to Finance Minister Pranab Mukharjee, Bafna highlighted that credit worth crores was lying with the government in the form of the Cenvat Credit Scheme, which could be used for the industry’s benefit.
Handicrafts exports during the first nine months of 2011-12 (April – December, 2011) were Rs 8,075 crore against the target of Rs 12,428 crore. Total exports in 2010-11 were Rs 10,536 crore.
Exports of handicrafts, which were growing at an annual rate of 15 to 20 per cent till 2008-09, were then hit by the world recession, and exorts had tumbled 40 per cent.
