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Photographs by Vishal Koul

State Of The Economy 2020

Riding in the slow lane
The bicycle-manufacturing hub of India is facing heat from China, and its technologically advanced and cheaper products

Rishabh Bhatnagar

Hand-made: Many MSMEs in Ludhiana still rely heavily on manual labour and hand tools

Ludhiana. The city of chicken cooked to perfection, with cream or lemon or pepper, and luxury cars. A 20-minute stroll in the city’s main residential areas and you will run out of fingers to count all the customised, fancy wheels.

How was this fortune created? The answer lies in the third thing the city is famous for — industry. Punjabis party hard and work harder. Trade here is chiefly in textile and, secondly, in the humble bicycle. 

Ludhiana has given the world brands such as Hero Cycles and Avon Cycles, and makes 80% of India’s bicycle parts. It sends out 17 million new cycles every year from its 3,500 to 4,000 MSMEs, which employ about 500,000 people. But, today, it is facing the might of the dragon. China is flooding the market with cheaper components and the industry here is slowing down, says Manjinder Singh, CEO, Citizen Group, which is a leading manufacturer of cycle components. 

India began manufacturing bicycle parts more than a century ago, around 1910, with small-scale units set up in Kolkata. The industry expanded and production improved multifold when WWII was nearing, around 1938. Initially, domestic companies manufactured only spares and accessories. In 1943, the production of indigenous cycles began and Cycle Manufacturers’ Association (CMA) was founded, for better coordination between local units and keeping competition out, among other things. The biggies in the industry then were LN Birla, Janki Das Kapur of Atlas Cycles, Murugappa Chettiar of Tube Investments, and SK Sen of Sen Raleigh and the CMA. 

Today, the big four companies here are Hero, Avon, Atlas and Tube Investments — which manufacture close to 90% of the bicycles in India. MSMEs simply supply components to the larger units.  

“India is now the second largest cycle manufacturer in the world. But the reality is that we are a distant second. China supplies close to 70% of the world’s cycles, and we’re lagging far behind at only 10-12%,” says Singh. He wears many hats: he serves as the president of the Bicycle Research and Development Organization and general secretary of the United Cycle and Parts Manufacturers Association (UCPMA). We reach his factory after travelling through the pot-holed, dusty lanes of Focal Point, Ludhiana’s industrial area. This is where his father had run a zinc plating unit till 1981, when Singh joined after completing his degree in commerce and expanded the unit to manufacture bicycles. Those were the good days, at the cusp of bicycle’s reinvention as a mountain bike, a way to escape into the wild. 

Manjinder Singh CEO, Citizen GroupBut the industry has always been competitive in low-end models. It remains so even today. The Energy and Resources Institute’s (TERI) report, in collaboration with All India Cycle Manufacturers’ Association (AICMA) on the Indian cycle industry, Pedalling Towards a Greener India, confirms that. Cheaper bikes (<3,000) make up 60% of our total production. Those for children, which is a highly price-sensitive segment, account for 35%; medium-value ones (3,000–6,000) for 4%; and high-value ones (>6,000) for less than 1%. “China dominates the medium and high-end segment of the market. They have been in this business for 20 years,” says Singh. It is not just the years our neighbouring country has put in. KB Thakur, secretary general, AICMA, says that their government subsidies have also helped. Manufacturing and export subsidies reduce their cost by 15%. 

Big money is at the higher end. However, cycle and part manufacturers in Ludhiana just can’t seem to make it to this league. They will need better technology, and business owners say the challenge is not just in finding the financing. “It has been our long-pending demand for technology transfer, not only from China, but from several European countries such as UK and Germany. It’s the only way to crack the international market,” says Singh. These technologies relate to premium components such as BB cartridge (which helps the bike withstand rough use for longer) or the disc brake (which makes braking less strenuous and therefore biking through uneven terrain easier) and for materials used, such as aluminium alloy, carbon fibre and titanium. 

Gurmeet Singh Kular President, FICO“Even as the second-largest bicycle industry in the world, we are facing technology-related challenges in both the low and high-end segments, here and abroad,” says Gurmeet Singh Kular, president, Federation of Industrial & Commercial Organization (FICO). While many companies abroad are not open about their technology, the other problem smaller companies face is a capital crunch. Thus, technology transfer deals with western countries is high up on the wish list. Kular brings forth more concerns that his association is tackling head-on. “We have a serious lack of raw materials. We still manufacture steel-based components and not aluminium, carbon, and titanium-based components due to lack of right specifications,” he says. These materials can be used to make lighter bikes and, more interestingly, foldable ones.

Losing Out
Another exciting opportunity the SMEs are missing out on is in e-bikes. This is a market dominated again by, you guessed right, China. E-bikes need electric drive unit (EDU), controller, and e-motor, which India doesn’t have the capability to manufacture. “In India, companies are struggling to launch e-bicycles in varying price ranges, for the domestic and international markets. But importing battery, motor and controllers is prohibitively expensive,” says Thakur. 

The industry’s general lack of advancement was clearly visible at the facilities visited by Outlook Business. Most were loud, mechanical and rusty. Very few processes were fully automated. Labourers, primarily from West Bengal and Bihar, crowded the unpaved floor strewn with hand tools. In one of the units, parts for the Roadster cycles to be given away by the Tamil Nadu government were being made. 

Today, such orders from various state governments and the Centre are essential to the survival of the Indian cycle industry. These bikes are distributed among school children to reduce dropout rates, an intervention which has been adopted since 2004. “The large orders from governments such as Bihar, Tamil Nadu, Kerala, Chhattisgarh and several others keep us afloat,” says Singh, adding, “The sales otherwise is miniscule.” These government programmes generate 60% of the overall industry revenue, which stands at around an estimated 70 billion.

It is a dire situation for MSMEs to be in, to be so heavily dependent on one category of customers. Meanwhile, the dragon next door is not even fighting fair. China has found a way to sneak in imports into the Indian market, through a loophole in the Agreement on South Asian Free Trade Area (SAFTA) signed in 2004. Under the agreement, zero import duty is levied on imports from signatories such as Bangladesh and Sri Lanka. China is not a signatory but it routes its much cheaper wares through these two countries. “It has made our business a lot tougher,” says Kular, adding that is a recent phenomenon. The TERI report says that imports into India is growing at 25% annually, while domestic sales is increasing only at 6% and our exports at 10%. He says the answer lies in placing sourcing restrictions on the SAFTA countries, which stops them from using components imported from countries that are not signatories (such as China).

Indian exports from Ludhiana are also uncompetitive compared to those from China. This is because the units located in Ludhiana are far from the ports. The transportation cost adds 10% to operating expenses. This sounds incredible but domestic freight tends to be more expensive than sea freight to other countries! 

The Indian manufacturers have tried fighting the pricing war, like they did in 2018. Until two years ago, China supplied reflectors at 80 per set, which was eventually slashed to 45. “Earlier, China sold it at a premium since they enjoyed a monopoly. We put in a lot of our own money to develop the product here. After an intense undercutting war, we settled for 55% discounted price, which made our margins wafer-thin. The Chinese are ruthless,” says Singh.  

Need of the hour
There have been small mercies, like when India did not sign the Regional Comprehensive Economic Partnership (RCEP) agreement. It would have been a death blow, says Hardeep Singh Bhamber, who owns a small components unit, Bhamber Mechanical Works, in Ludhiana. He adds, “The Chinese already are ahead of us with freight subsidies, duty-free relationships and cheaper capital. RCEP would have opened up the Indian market leaving MSMEs unprotected.”

Hardeep Singh Bhamber Owner, Bhamber Mechanical Works

There is more the government can do, more actively, according to the bicycle manufacturers. First could be to reduce the GST on bicycles and bicycle components from 12% to 5%, which could make domestic products more affordable, says AICMA’s Thakur. Then, to get on the e-bike bandwagon, he believes we need faster implementation of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME –II) scheme. Its ‘demand incentives’ — which is given to buyers to encourage purchase of e-bikes and is reimbursed by the seller from the Department of Heavy Industries — could be done through a digital-transfer mechanism.

Finally, the most pressing demand is to have state-of-the-art testing facilities at the R&D Centre for Bicycle & Sewing Machine. This centre in Punjab was set up in 1982-83 by the state government to help small-scale industries upgrade their technology. Better testing facilities at this centre could help Indian manufacturers of bicycle and its components meet European standards, which would help increase their exports. 

The world seems to be moving towards a cleaner and more responsible mode of travelling. India, as the second biggest manufacturer of bicycles in the world, is rightly placed to ride this trend. Therefore, it seems foolish to squander our advantage away. Ludhiana and its industry has held fort against China’s aggressive play, so far. But now the city can use every help it can get. There is a dragon at the door.

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