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‘GST will make EPCG redundant’INTERVIEW

Ajay Khanna, Partner & CEO, Eagle Forgings and immediate past President of HOTREMAI believes that the GST, besides simplifying the tax regime in the country, will create a level playing ground for local manufacturers vis-à-vis the imports. P Krishna Kumar spoke at length to Khanna to find out the sentiments of the hotel equipment supply industry in India.

Tuesday, October 10, 2017, 11:01 Hrs  [IST]

Q How GST has changed the life of hotel equipment suppliers?
The world today is changing quite fast and India has to catch up with those changes. For that reforms are required. There will be challenges when the existing systems are changed. Those who have been running their businesses professionally will feel less pain, and those who were running it not that professionally will have more pain. As far as Eagle Forgings is concerned we have been running our business professionally for the last two decades, and therefore the change has been less painful for us.

Most of the current difficulties associated with the GST are associated with the ambiguity and fear of committing mistake while doing it. In the long run, it will certainly be beneficial for everyone. People are also realising it.

GST is not an insurmountable mountain, it’s just a molehill. As long as the government is not vindictive and allows businessmen to understand and settle things, we don’t see any problem.

Q How GST will change the Import v/s Make in India balance?
Let me explain you this with my own business. A decade ago, 85-90% of my business was import based. The hotels used to import directly using the EPCG licences. Over the last 10 years, the direct import is down to 50%, and in the last few months that again has fallen to 30%, because people want to buy locally. When they started buying locally, companies like ours has started adding value. Earlier, we never used to see the products, because they used to go directly to the hotels. Now, since we started importing it and selling to customers, we are adding value to the products. Tax simplification is going to benefit local manufacturers as well. They can ship it to any part of the country without any issue as long as they do it as per the law set. When doing business becomes easy and simpler, the cost will automatically come down for products, and manufacturers will also try to improve their products further. My strong view is that EPCG will become redundant, and government may even withdraw EPCG in a year or two fully. That will automatically benefit and trigger local manufacturing.

Q The Hospitality Equipment manufacturers and their associations have been demanding a special manufacturing zone for long from the government. With GST, will that demand still continue?
Yes, we have been demanding this for so many years. In the pre- GST era, when you import goods on EPCG, you pay no taxes. On the other hand, local manufacturers had to pay all types of taxes, VAT, Cess, etc. With the advent of GST, that advantage got nullified. Now, it is a level playing ground for imported manufacturer and Indian manufacturer. Therefore, the disadvantages that Indian manufacturers had earlier against imports have been nullified to a large extent under the GST.

Q There haven’t been many projects announcement in the hospitality sector for few years now. How has that impacted equipment supply industry in the country?
That is incorrect. You have to understand that Hong Kong Island has more hotel rooms than whole of India, even city of Bangkok has more hotel rooms. These destinations do not have the variety and richness that India has. India has got lot of potential to grow and therefore the growth story is not yet near saturation. India will grow for the next 20 years.

As far as new projects are concerned, there are enough hotels that are being built in different categories across India. The problem is that projects are not happening fast enough. There are so many hurdles related to approvals, licencing, stupid regulations on liquor, etc., which are causing these delays. But, two and three-star markets are expanding phenomenally in the country, which again is favouring local suppliers.

Q How do you plan to take your business forward in the new environment?
At Eagle Forgings, we are on a major expansion mode. We are looking at investments in three areas. One- new products, second- rupee payment sales, and, third- stocking. According to me the GST will make imports a thing of the past. Rupee payment sales, and stock and sale, building products in India, bringing in CKD, building brands, etc. is going to happen now. Instead of importing products, it is time to import technology, do joint ventures and partnerships, and ask foreign manufacturers to do some value addition in India. We are in the final stages of forging two joint ventures, and also in the process of expanding our warehousing space, bonded facilities, etc. Also, in the next three years we will have part manufacturing here in India for couple of products we represent in India. I can say for sure that we will be doing more in the next three years than what we did in the last 10 years.

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