Agra pumpset units want excise to go

Vishal Sharma / Agra

September 15, 2008

The unorganised sector is unable to compete on account of the 8% duty; the price difference between branded and unbranded pumps declines and sales drop

Agra’s unorganised mechanical pump manufacturing sector is paying 8 per cent excise duty on every pumpset it manufactures. The duty, in force since January 1, 2007, has affected the margins of small units, which are finding it difficult to compete with players in the organised sector. Players in the organised sector are exempt from the tax till a turnover of Rs 1.5 crore.

Sanjeev Mittal, managing director, Atul Pumps Pvt Ltd, said the excise policy was different for Bureau of Indian Standards (BIS)-certified units, which were exempt from excise duty till a turnover of Rs 1.5 crore. Non BIS-certified units were liable to pay 8 per cent excise duty on every pumpset produced. According to him, this was a quality control measure adopted by the government to introduce standardisation in the pumpset industry.

He added the policy was only applicable on mechanical pumpsets driven either by an engine or by electricity, whereas the hand-operated pumpsets did not attract this duty.

However, units in the unorganised sector have termed the taxation policy as discriminatory and allege the tax is meant to ensure profits for large industries at the expense of the smaller units.

Atul Gupta, owner of Shiv Pumps, a small scale unit manufacturing centrifugal and monoblock pumpsets, said the policy had been specifically designed to throw the small units out of the business.

Gupta said the units operated on a very low operating capital of Rs 5-7 lakh. For these units, obtaining a BIS certification was an extremely expensive proposition as the initial cost of obtaining it was Rs 3-4 lakh. A recurring cost of Rs 1 lakh, depending on production was also levied.

Gupta added the non-ISI centrifugal pumpsets cost Rs 900-1200, while the ISI-branded cost Rs 2000-2200. The price difference resulted in higher volumes for non-ISI pumpsets compared to ISI-branded pumps. However, since the new excise policy, the small manufacturers have been forced to increase prices by Rs 200-300 per unit, narrowing the margin between branded and unbranded pumps.

Gupta claimed that because of the narrowing margin, buyers were slowly migrating towards ISI-branded pumpsets. Consequently, production has dropped in most small units as demand has come down.

To remain competitive, some small units were arranging bank loans to apply for BIS certification. But, for most units this was not a viable option, he added.

Gupta said a petition was now being prepared by the industry to be presented to the finance ministry and the Ministry of Agriculture to obtain relief from the policy in the next year’s Budget.

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