The litany of woes is unending.

The onslaught of Chinese cheaper goods is sounding the death knell for Indian manufacturers, as they can hardly compete on the economies of scale managed by Chinese industrialists.

The companies, promoted by the Patel Group, currently operate from Morbi about 60 km from Rajkot in Gujarat. Since 1991, these clock-manufacturers have been bagging national awards for exports.

Their products are sent to over 60 countries. The companies have a combined turnover of over Rs 2.50 billion, with 25,000 dealers all over India and 180 service stations.

In an exclusive interview with rediff.com, Jaisukh Patel, export-finance director, said: "Chinese traders have almost ruined our market. We too are shifting to China now because of the attractive incentives given to manufacturers there. If we don't do that, we will not be able to compete in the global market and be wiped out."

"We have leased a building with 300,000 sq ft floor space in Shenzhen. Our machinery -- worth Rs 3 billion -- will be moved in phases to China. In the first phase, we will shift about one-third of it. Six months later, we will shift all our machinery," he said.

"We will produce our goods in China and export them to India. It's not possible for us to run the industry in India," he reiterated.

Few years ago, there were some 15,000 workers employed by the Patel firms in Morbi. Today, the staff strength is less than 5,000.

Life for the Patels has almost begun to move in an anti-clock direction. For many years, a board at the front gate of the Ajanta Clocks factory called out to aspiring employees. Today, a notice which asks workers -- who have been laid off -- to collect their dues 15 days later, has replaced the board.

So why is the pride of Saurashtra moving out of India?

The Patels are actually following the maxim: 'If you can't beat them, join them'.

Jaisukh Patel discusses the reasons behind the displacement of this once-proud Indian company. Here is a first person account.

Advantage to China: Economical Capital investment

"In China, a very small investment is needed to set up a factory unlike in India. In the past couple of years, I've visited China on ten occasions. I studied Shenzhen, Shanghai and other industrial estates. For our companies in Morbi, we imported spare parts, raw material and components from Japan, Taiwan and Korea.

"However, since the last three years we have been getting good products from China. I feel the major reason behind this is that since the Chinese invest less in plant and machinery, their goods are cheaper as they have an advantage at the 'entry point' itself.

"China has innumerable units manufacturing such raw material, spare parts and components. This is a boon for industries like ours.

"In India, many companies either import or start a small unit ensure regular supply of raw material and components. But I feel that it is not good business.

"The management's investment of time and money is not worth the trouble. Then, the managers of big companies do not come cheap. Normally, such managers increase the production cost of small units. At the end of the day, our own unit does not remain viable compared to the cost of importing the same goods.

In China, an industrialist is least concerned on that count. He concentrates only on his products and his plant.

I have seen many factories in China with zero inventory. The raw material arrives in the morning and, by evening, the finished product is out of the factory.

In India, factory owners need to stock three months' material, thereby increasing their investment and adding to the cost.

Today our turnover is Rs 2.50 billion. To keep my production from halting, I have to invest around Rs 300-400 million to build up raw material stock. In China, for a company of this size, I would need only Rs 60-70 million to buy stocks.

Supply is erratic in India. People don't stick to delivery schedules. In China, suppliers rarely fail manufacturers.

We are forced to stockpile three months' requirements because our ports take 20 days to release the container. Customs, excise and sales tax officials can interpret laws in their own way. They can keep you on your toes round the year.

Another reason for high investment in inventories is the high number of public holidays. We work only 250 days in a year.

Lack of Industrial culture: 'We lack speed'

Ten years ago, China gave away lots of government owned industries to its managers and executives at pre-fixed instalments. The government gives them loans at the rate of 5.5 per cent to help develop their businesses. For the same type of purpose we get loans at the rate of 14 to 15 per cent. China Industrial Bank and China Agriculture Bank give loans without any hassles. The procedure has been made simple.

In India, I have to deal with two dozen government departments if I have to run a factory. Factory Act, labour department, sales tax, customs, excise, income tax, pollution control board, RBI, central and state ministries, licensing authorities, RTO, supply department, clerks of revenue office, collector, district industry centre...

Thirty per cent energies of entrepreneurs are spent on these procedures.

Then, above all, there is corruption.

In China, recently, three corrupt executives were hanged. Don't misunderstand me, but here even a junior level officer can take you to task. He may interpret law as per his whim and even if he is proved wrong he gets away with it.

In China, all the procedures are completed in a day.

Electricity costs Rs 2 per unit in China, less than half of what I pay in India. The supply is faultless. Exporters get around 19-27 per cent subsidies and free trade zones are easy to set up. The ports clear goods speedily.

In India, industrialists are considered 'thieves'. On the imports of components, spare parts and raw materials, duty is low. But, on our own products double tax is charged.

The person who makes his product in the country is asked to pay excise on retail sales price and the guy who imports is asked to pay duty on his 'declared price'. Because of the tax structure, the cost price of local products is very high. And the same products manufacturing costs in China is 30 to 35 per cent less.

The Chinese merchant is therefore in a much better position to export his goods; and Indian goods can hardly match the pricing of their Chinese counterparts.

Many Indian companies have closed down their export units and Indian markets are flooded with the Chinese goods.

My story

I have invested around Rs 2 billion in my industry, all my own money.

I don't pay an interest of even Re 1. Five thousand workers work for me. I have the most popular brand name in the industry. I have 180 service stations in India. My marketing network is very good. My overheads are under control. I don't have any major problems.

Yet, I confess that I am not in position to compete with Chinese clocks, telephones and calculators in the Indian market. The thought of competing in the international mart is thus laughable.

I would request you to consider this carefully. If a hassle-free company like mine cannot face up to the Chinese, what will be the fate of the other Indian companies with labour trouble, high overheads and debt costs, and without the support of brand name?

To contain the Chinese factor, there is a need to change labour laws, the tax structure and improve power supply. Tax on locally manufactured products should not be more than the duty on readymade imported items. And the difference between the duty on the import of raw materials and components and tax on local final goods must not be more than 15 per cent to 20 per cent.

This policy will revive Indian manufacturing units. The rate of electricity should not be more than Rs 2.50 per unit. How do you expect us to stand up to the Chinese onslaught when my factory is faced with power cuts at least thrice a week?

In most Chinese government offices, people work round the clock throughout the year. We too need to cut down on the number of holidays, and should have a minimum 310-working-day year. Both, industrialists and government officers should be punished if they break rules. This is vital to the development of industrial culture.

There is an urgent need for permanent cures. Since the last 10 years, we have been manufacturing Orpat calculators. We are the only major player in India. Indian demand for the calculators is around 40 million pieces per year. And we make about 2-2.5 million. When the demand was 20 million, we manufactured about 6 to 7 millions pieces, but now -- despite the demand having multiplied -- our production has been halved.

Ninety per cent of the calculators used in India are imported. Some are smuggled, in some cases parts are imported and assembled in India.

Tax evasion is rampant when the calculators are imported. In some cases, importers under-invoice the goods thereby evading the 3 per cent custom duty and 16 per cent excise duty.

He also gains because he is not expected to pay 4 per cent central sales tax and 12 per cent or more as local tax.

Moreover, his entire import is sold in the 'grey market'. This makes imported calculators 30 to 40 per cent cheaper.

Some even showing imports from Nepal. The majority of goods are offloaded in Calcutta but the invoice will not show it. The actual Nepal import is shown. These calculators are dirt- cheap.

And just look at this: here I am, struggling with my state-of-the-art technology. My production is dipping, even as people with the 'screwdriver technology' succeed. They are importing spare parts from China, paying only 5 per cent duty and flooding the market. People who import raw material pay 25 per cent duty. You won't believe me, I am not using the latest machinery in my factory, I import parts from China and sell them.

Few years ago, my company's share in the calculator market was around 50 per cent. Now it is not even 5 per cent. Our people lost jobs, while the Chinese earned them.

We have totally stopped buying raw materials from the local market. My transporters who were bringing plastic powder to the factory have lost business. His drivers and cleaners are now without a job. My men who were attending to these aspects have been sacked.

One factory directly or indirectly supports many homes. Now, unemployment will rise. I was the highest tax payer in the region. Now, I pay 20 per cent of what I used to pay.

Factories are closing down, and I myself am left with no option but to leave the country and settle in China."

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