India's plastics processors toil in a huge market with massive growth potential. Industry leaders predict the billion-person nation is on track to consume 27.5 billion pounds of plastic products by 2010, making it the third-largest consumer of plastics in the world. They base this bullish assessment in part on the fact that per-capita annual consumption of plastics in India is just one-third of the world average of roughly 53 pounds.
But India's plastics processors also are hamstrung by some domestic policies that make it difficult for many of them to compete globally, those same leaders say. Since joining the World Trade Organization in January 1995, the democratic country has made major strides in implementing external reforms and liberalizing trade. And the policies designed to spur entrepreneurial investment have led to the creation of thousands of small manufacturing companies.
India has 22,000 plastics processing firms alone, according to Ashok Goel, president of the 150-member Organization of Plastics Processors of India, whose mostly large-scale members account for about 30 percent of the country's processed plastics.
But therein lies part of the problem.
Most of the players in this highly fragmented industry lack the critical mass or the capital to become world-scale producers. And, assert some, a crippling tax structure puts much of Indian industry at a distinct disadvantage with its trade rivals.
In a speech at the Feb. 9 opening ceremony of the triennial Plastindia trade show, M.P. Taparia outlined the challenges facing India's processors and called on the government to lend a helping hand. Taparia is managing director of Supreme Industries Ltd., one of the country's largest and most successful plastic product makers.
The first impediment to success, Taparia said, involves the so-called ``reservation policy,'' which sets aside scores of specific products that can be manufactured in India only by companies defined as ``small-scale industries.'' This decades-old policy, implemented years before global competition became a hot-button topic, was designed to help small businesses gain a foothold and succeed. More recently, India's entry into the WTO has caused import barriers to fall, opening the door to products made cost-effectively at huge production facilities in China and elsewhere.
The small-scale manufacturers in India don't have a chance of competing equally, but the law effectively prevents the Indian companies from bulking up to fight back.
The law served its purpose, Goel said, but now, with globalization, Indian firms cannot protect themselves. The number of reserved items is shrinking, he acknowledges, but not quickly enough for many. (For more information on this policy and the affected products, see India's Small Industries Development Organisation Web site at www.sma llindustryindia.com/policies/pres eve.htm.)
``We need to have world-class production facilities to make quality products in volume and variety at a competitive cost,'' adds Taparia. ``This is not only required to boost exports but to enable the industry to withstand the onslaught of imports. It will not be long before the flood of imports of plastic products from China and Southeast Asia may reduce several producers to traders.''
The other major issue relates to the high level of indirect taxes that the Indian government places on plastics goods. A 12.5 percent value-added tax is levied on top of a 16 percent excise duty, which amounts to a total indirect tax of 30.5 percent.
``This high tax rate makes plastics products unaffordable to common masses of the country,'' according to Taparia and other industry officials. He notes that China, with double the per-capita income of India, levies total indirect taxes of only 17 percent on similar products.
In a system not unlike Mexico's maquiladoras, if Indian companies import material, do value-added production and then export the item, the materials are allowed in duty-free. Duties also are levied on imported machinery used to make products locally.
Industry is appealing to the government to slash the federal excise duty in half, to 8 percent, and the value-added tax, which goes to the state governments, to just 4 percent.
Mahesh Shah, president of the Plastindia Foundation, the coalition of industry associations that organized the 1,200-exhibitor trade show, said the plastics industry simply wants the government to bring import duties in India into line with what other Asian countries pay, to level the playing field.
``We continually talk to the government that plastics is not a luxury product. It's an environmentally friendly product. It saves wood and saves material in packaging. Post-harvest loss of agricultural products in India is close to 20 percent,'' Shah said in a Feb. 11 interview in his office on the Plastindia fairground. ``If plastics were used properly for storage, they could save millions. ... It would be good for GDP overall.''
Shah also says India must reform its labor laws to be more competitive. Currently, any company that wishes to shut down an operation employing more than 100 people first must get government permission. And since India's current government relies on Communist Party support to stay in power, getting approval to lay off workers is ``almost impossible,'' he explained. There already is a draft proposal on the floor of India's Parliament that would change the law and raise that level to operations with 1,000 employees. But, he said, ``It's a very touchy political subject.''
Taparia notes that India's plastics processing industry currently accounts for about 600,000 direct jobs and 2 million total jobs in the economy. He estimates that if the industry's level of growth can be boosted to twice that of gross domestic product - or to about 16 percent a year - ``it has the capacity to generate 1.5 million new jobs in the next five years.''
Taparia - whose own 20-plant firm expects to generate sales exceeding $500 million this fiscal year from films, piping, furniture and materials-handling products - said India in 2004 accounted for only $650 million, or 0.38 percent, of the world total of more than $169 billion in value-added plastic product imports that year. Efforts must be made to boost the country's share of value-added exports.
China consumes more than eight times the amount of plastics as India, which is projecting consumption of 10.1 billion pounds in the fiscal year ended March 31.
China now is focusing on promoting high-value-added industries. Traditionally, it has considered plastics processing to be a labor-intensive, low-value-added activity. In the process, Taparia noted, China has become the manufacturing hub of the world.
``This opens immense opportunity to Indian manufacturers to replicate the Chinese model and become a manufacturing hub for the world, after China,'' he said. India has the further advantage of a skilled and knowledgeable, English-speaking workforce, he added.