TISA SEPT - OCT 2020



VOLUME NO X ISSUE V. SEPT-OCT.2020

COVER STORY.
 COPING WITH THE CHANGING SITUATION.
 CHINESE IMPORTS - THE KILLING OF MADE IN INDIA.
TISA
SEPT-OCT 2020

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TISA SEPT-OCT 2020

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How positive can one be?

President’s Message

Despite my normal desire to be positive and upbeat, I must confess that 2020 has been
testing us in ways that I cannot recall at any time in our lives. India has lived in poverty
and penury, through famines, floods and earthquakes, even through wars. But there
was always hope…some light at the end of the tunnel.
Today, even if I do see some light, it is at the very end of a very long tunnel which is
mostly dark.

Dr. M R Khambete

The year started ominously enough, with the continuation of a falling GDP and a host of economists predicting the
worst for India. The Budget, when it came, was pooh-poohed by the pundits and certainly did nothing for the
animal spirits needed to take our economy forward.

Then along came the Wuhan virus and a drastic nation-wide
lockdown. What was initially thought to be a brief skirmish, has
turned into a long night of falling productivity, destruction of
important sectors crucial for employment like hospitality and
automobiles and an uncertain economic future.
There is total uncertainty. When will we be rid of the Corona
Virus ? No clear answer. When will we have an effective drug or
vaccine? No clear answer. Will those who get it once, not get it
again?
They might. Will we develop herd immunity? We don't seem close to it according to Dr. Harsh Vardhan.
Is it any wonder that people are throwing caution to the winds? Most industrial units have resumed activities in a
limited way because all workmen have still not returned and there are still occasional scares due to Covid 19.We are,
at least, 6 months away from seeing an end to this problem.

Looking the Dragon in the eye
In the middle of all this Comrade Xi, who is increasingly looking like Adolf Hitler, has unleashed aggression on the
Indo-Tibetan border at Ladakh. China has stationed 50000 PLA and with mirror deployment by India, we now have
two of the world's largest armies at ominously close range.
It is clear that the Dragon grossly underestimated India's resolve, both the individual acts of bravery of Bihar 16
regiment which gave the PLA army its first battle casualties and the subsequent capture of the heights at South
Pangong Tso by the Indian Army.

Abnormal is the new normal
In these terribly difficult times, we need to stand united as a nation and help out the least fortunate among fellow
Indians. As entrepreneurs, this is a testing time for all of us. Some will fall by the wayside, others will see change,
re-generation and new opportunities. China having made enemies of most of the world, gives us the opportunity
we need, to position ourselves as the next driver of the world economy. It is in the midst of adversity that we have
a chance to show our resilience and strength.

TISA SEPT-OCT 2020

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15

Cover Story Interview Part I

Doing Business With China- Entrepreneurs Forum-

Dharmu Vanjani

Lalit Chadha

Sanjay Mehta

Of

33

India's small and medium
businesses are confident
of a post-COVID revival

Cover Story - Part II
B.L.Chandak

Coping With The Changing
Situation-- Chinese Imports
- The Killing Of Made In India

12 37

MSME News

TISA SEPT-OCT 2020

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MANAGEMENT KALEIDOSCOPE



42

ECONOMY
P.R.Vishwanathan

CAUSES, CONSEQUENCES AND CURES

VOLUME NO X ISSUE IV JULY 2020

48

TAX KORNER
TAX AUDIT REPORT
Tax Collection at
Source on sale of Goods

CA . Jayaraman P P
. .

55
A message from Seshan
Ranganathan, Executive
Editor , TISA

56
05

TISA SEPT-OCT 2020



OF THIS AND THAT

Of
India's small and medium businesses are confident of a post-COVID revival
73 per cent of small and
medium-sized businesses
(SMBs) in India are confident that
they will survive and bounce
back post Covid-19 according to
the "HP Asia SMB Report 2020".
Indian SMBs appear to be far
more confident than their Asian
peers in bouncing back after the
pandemic, as the regional
average stood at just 60 per cent.
This was based on the
survey of 1,600 SMBs which
completed the sur vey
between May 26 and June 7,
with 200 interviews in each
of the markets: Australia,
India, Indonesia, Japan,
South Korea, Singapore,
Thailand, and Vietnam.

many SMB's to resort to Work
from home and increasing
reliance on JioMeet and Cisco
Webex to conduct remote
meetings and Webinars, have
recognised that going Digital is
the future and a good way of
reviving their businesses. Almost
75% of those surveyed felt that
digital adoption is essential or
very important for their success.
It is pretty clear that one of the

key qualities of SMB's, namely
the speed and agility which they
bring to business decisions in
line with changes in the business
environment, is standing them in
good stead in this pandemicinduced crisis.

Almost 66% of Indian
respondents felt that the
pandemic may actually offer an
opportunity for reflection and
reformulation of business
strategy, with almost 50%
believing that it will ultimately
bring opportunities in the long
run.

Indian SMBs zero in on 4 key
factors which they think will help
them to bounce back

The pandemic which has pushed

 Using online tools,

TISA SEPT-OCT 2020

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 Flexible work option
Seeking advice on strategy and;
Innovation at work.
Out of SMBs who reported good
business growth last year,
almost 56% attributed it to the
adoption of digital tools. "A key
finding from the research is that
the more a company values
digital transformation, the more
positive they are about future
growth, and nowhere in Asia is
this reflected as strongly as in
India," Patel said.
Regarding key challenges Indian
SMBs listed, cash flow, accessing
finance and leveraging digital
tools.
They seem less concerned about
global stability.
That is remarkable considering
that India was already. in a
slowdown prior to Covid 19 and
we have an aggressive China
sitting on the Indo-Tibetan
Border, making threatening
noises!



TISA SEPT-OCT 2020

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OF THIS AND THAT

Govt looks to implement all 4 labour codes in one go by December: Gangwar
Finally, some sense in labour
laws
Parliament in its just
concluded session passed
three labour code bills: the
Industrial Relations Code, the
Social Security Code, and the
Occupational Safety, Health and
Working Conditions Code.

By December 2020
enterprises will be somewhat
unshackled
Talking to PTI, Labour Minister
Gangwar said, "Government is
taking all efforts to complete the
labour reforms by implementing
all four labour codes by
December this year...”

The labour ministry is expected
to finalise and implement rules
of the three codes along with
already firmed wage code rules
by December this year.
Thereafter, these four codes
would become law of land to
complete the game-changing
labour reforms in the country.
To p p i n g E a s e o f D o i n g
Business- APipe-dream
coming true?
The Government aims to
catapult India among the top 10
countries in the World Bank's
Ease of Doing Business
rankings, with the
comprehensive labour reforms.

The Wage Code Bill, 2019 was
passed by Parliament last year.
The Government is aiming to
implement all the four labour
codes in one go by December
this year and complete the final
stretch of labour sector reforms,
Union minister Santosh
Gangwar has said.
Though the Wage Code Bill,
2019 was passed last year and
the Rules were circulated, it was
not finalised and implemented
because Government wanted to
implement all four new laws
and the applicable Rules at the
same time, as they are all interlinked.

TISA SEPT-OCT 2020

After the passage of legislation,
such as the labour Codes in
Parliament, these are sent to the
President of India for his assent.
Draft rules under a law are
notified with a stipulated time
period to receive feedback. The
Codes will come into practical
effect only after notification of
rules.
It is understood that the draft
rules of the three codes on
industrial relations, social
security and occupational
safety, health and working
conditions are likely to be
circulated by the first week of
November for feedback.

8

As per the 'Doing Business' 2020
report, India jumped 14 places
to the 63rd position in the ease
of doing business rankings.
India has improved its rank by
79 positions in five years (201419).The higher ranking would
boost investment and job
creation in the country.
K E Raghunathan, Convenor of
CIA (Consortium of Indian
Association), said, "The COVID19 situation has made both the
life of employer and employee
difficult....Under these
circumstances, these new
(labour) codes are bound to
make new enterprises investor
friendly, increase ease of doing
business and make it attractive
to invite foreign entities which
want to come out of China."



OF THIS AND THAT
Govt decriminalizes Companies Act to promote greater ease of doing business
amount to a specified fund, it
shall be liable to a penalty twice
the amount required to be
transferred or Rs 1 crore,
whichever is less. Also, every
officer of the company, which is
in default, will have to pay a
penalty of one-tenth of the
amount required to be
transferred by the firm, instead
of the earlier provision of three
years imprisonment and
maximum fine of Rs 5 lakh.
The Companies Bill passed on
September 19th has
decriminalised 48 sections by
removing or reducing penal
provisions and omitting
imprisonment for various
offences that were considered
procedural and technical in
nature, a move that will help
corporates by adding to ease of
doing business.
The Bill, is very timely, as it
comes at a time when
companies are already reeling
under stress, and susceptible to
technical defaults. Finance and
Corporate Affairs Minister
Nirmala Sitharaman said
decriminalisation of various
provisions under
CompaniesLaw will also help
small firms by reducing the
litigation burden on them.
The Bill has proposed doing
away with imprisonment for
nine offences, which relate to
non-compliance with orders of
the National Company Law
Tribunal (NCLT).

TISA SEPT-OCT 2020

These include matters relating
to:
 Winding‐up of companies
 Default in publication of
N C LT order relating to
reduction of share capital
 Rectification of registers of
security holders,
 Va r i a t i o n o f r i g h t s o f
shareholders, and
Payment of interest and
redemption of debentures.
In case of Corporate Social
Responsibility (CSR), if a
company fails to transfer the

Punishment of imprisonment
under Sections 26(9) and 40(5)
of the Act relating toPublic
Offering of Securities by a
company, such as matters to be
stated in the prospectus, has
been removed but the monetary
penalty under each of these
provisions remains unchanged.
Imprisonment for noncompliance with procedure for
buyback prescribed under
Section 68 of the Act and also for
various lapses in financial
statements of the company are
also to be done away with,
according to the Bill.



OF THIS AND THAT

According to the new penal
provision, if any person fails
to make a declaration of
significant beneficial
ownership, the minimum
penalty has been reduced by
half to Rs 50,000 and in case
of continuing failure Rs 1,000
each day up to a maximum
level of Rs 200,000.
In the last amendment to the
Companies Act, the
Government had
decriminalised 16 sections.

The Government has also
rationalised several penalties
under the Act such as for delay in
filing the financial statement
with the Registrar of
Companies.

prospectus.
The punishment in these cases
includes a fine, as well as,
provision for imprisonment for
the company's directors or other
individuals involved.

The corporate affairs ministry
has decriminalised
sections where the
complainant can enter into
a compromise, and agree
to have the charges
dropped against the
accused.
Such offences include, for
instance,
 default with respect to
the section 8 (11),
 which deals with
formation of companies
with charitable objects,
section 26 (9) regarding
matters to be stated in the
TISA SEPT-OCT 2020

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Most of them covered lapses
such as prohibition on issue of
shares at discount or failure to
file a copy of financial statement
with the registrar.



OF THIS AND THAT
GOVERNMENT TO SAVE $1 BILLION WITH GeM
about a quarter of it can be
bought on the e-marketplace, as
the rest includes highly
specialized items such as
defence weapons and aircraft.
At present, only about $3.5
billion of the annual
procurement is being done
through the online marketplace,
but Kumar thinks it can reach
$100 billion in three to five
years.
He estimated the switch from
legacy procurement systems
could produce annual savings of
about $10 billion -- enough to
meet the federal government's
expenditure on health.

The Government move to shift
a part of the $400 billion public
procurement it does, to the
online market place GeM, has
already brought it $1 billion in
savings.
The paperless, cashless program
is gradually replacing the
archaic system, since 2016.
GeM, helps Ministries and Stateowned companies to connect
with sellers across the country
to buy ever ything from
computers, cars, chairs and
lakhs of other products and
services at the lowest possible
price.

TISA SEPT-OCT 2020

Sellers include some of the
country's biggest companies,
such as Hindustan Unilever Ltd.,
Maruti Suzuki India Ltd. and Tata
Motors Ltd.
16,00,000 products are sold for
$3.6 billion by 5,16,800 sellers
which 46, 800 Buyers buy!
“Every penny saved is a penny
added to the topline.
It's an addition to the
Government's kitty,” says
Talleen Kumar, GeM's CEO.
India spends about 18% of its
GDP on procurement but only

11

Kumar said the Government
aims to take the portal to the
next stage by consolidating all
its procurement at one place.
“Even if a category is not there,
vendors can still bid on GeM,
and later on the category can be
added,” he said.
“It will lead to economies of
scale, better price discovery and
dissemination of best
practices.”



MSME NEWS

Make in India -Rs 3 lakh crores incentive package
In a major push to domestic
manufacturing in the country,
the Government proposes to
pump in over Rs 3 lakh crore
through an umbrella production
linked incentive (PLI) scheme
that will run simultaneously in
10 identified sectors for a period
of five years.
The allocation under the
expanded PLI has been worked
out on the basis of savings made
by withdrawal of the MEIS
scheme and liabilities on account
of the new export incentive
scheme
Under the proposed PLI scheme,
the Government will incentivise
domestic production in 10 areas
to begin with.
These include:
 battery storage
 solar PV modules
 electronics (laptop, server, IoT
devices, specified computer
hardware)

TISA SEPT-OCT 2020

automobile and auto
components
telecom and networking
products
 textiles
 food processing
speciality steel and
 white goods (air conditioners
and LED).
Apart from these, large scale
electronic manufacturing
(mobile phones),
pharmaceutical drugs and
medical devices, which already
have an approved PLI scheme,
would be provided full
budgetary allocation for next
five years.
In the discussions by the EGoS,
the highest allocation of close to
Rs 60,000 crore (over the next
five years) has been proposed for
automobile and auto component
sectors.
This is with the belief that this
sector could help India become a

12

global hub of manufacturing and
source house for global
industries
 Large scale electronic
manufacturing at Rs 40,000
crore, where the mobile phone
manufacturing sector is already
getting a PLI.
 The PLI for pharma sector has
also been proposed for a higher
allocation of Rs 30,000 crore to
give a boost to production of API
that is largely imported at
present.
 The electrification of transport
considered for allocation of over
Rs 18,000 crore.
Telecom and networking
products, textiles, and food
processing at over Rs 10,00015,000 crore each.
Niti Aayog is to finalise a cabinet
note proposing extension of the
PLI scheme with separate
budgetary allocation for each
identified sector for the next five
years starting Fy22.



MSME NEWS
As of September 10, as reported
by public sector banks (PSBs) and
top 23 private sector banks,
“additional credit amounting to
Rs 1,63,226.49 crore has been
sanctioned to 42,01,576
borrowers”, the ministry said in
a statement.
“An amount of Rs 1,18,138.64
crore has been disbursed to
25,01,999 borrowers,” it said
while sharing the progress of
implementation of various
schemes under the Atmanirbhar
Bharat Abhiyan package.
The cabinet note will include the
phased manufacturing
programme (PMP) being worked
out for five areas, including
furniture and bedding; plastics;
optical, photographic surgical
instruments; toys, games, sports
equipment; low value electrical
machine parts and consumer

durables.
On May 20, the Cabinet
approved additional funding of
up to Rs 3 lakh crore at a
concessional rate of
9.25 per cent
through ECLGS for
MSME sector.

MSMEs and interested Micro
Units Development and
Refinance Agency (MUDRA)
borrowers in the form of a
guaranteed emergency credit
line (GECL) facility.
The Emergency Credit Line
Guarantee Scheme (ECLGS) for
the MSME sector is the biggest
fiscal component of the Rs 20lakh crore Atmanirbhar Bharat
Abhiyan package announced by
finance minister Nirmala
Sitharaman in May

Under the scheme,
100 per cent
guarantee coverage
will be provided by
the National Credit
Guarantee Trustee
Company (NCGTC)
for additional
funding of up to Rs 3
lakh crore to eligible

TISA SEPT-OCT 2020

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The scheme will be applicable to
all loans sanctioned under GECL
facility during the period from
the date of announcement of the
scheme to October 31 or till the
amount of Rs 3 lakh crore is
sanctioned under GECL,
w h i c h e v e r i s e a r l i e r.



MSME NEWS

TISA SEPT-OCT 2020

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COVER STORY

DOING BUSINESS WITH CHINACOPING WITH THE CHANGING SITUATION
– ENTREPRENEURS FORUM-

[A new free-wheeling platform for entrepreneurs to air their views hosted by our Executive Editor
Seshan Ranganathan. This month we have with us Lalit Chadha of Goodwill Group of Industries,
Sanjay Mehta of Protolab Electro Technologies Pvt.Ltd. and Dharmu Vanjani of S.S. Natu Plastics &
Metals Pvt.Ltd.]
Seshan Ranganathan: Can we have a few words of self-introduction before we start?
Dharmu Vanjani

Sure. I am Lalit Chadha, founder of the Goodwill
Group of companies and Managing Director of Val
Organics Pvt.Ltd.. I graduated from UDCT, Mumbai
and am a first-generation entrepreneur.

I am a forced firstgeneration
entrepreneur!!
When I say forced
entrepreneur I
mean, I was really
pushed by Godrej
to become an
entrepreneur in
1987. We were
initially the vendors for Lawkim, which is a Godrej
concern and from 1995 onwards we started making
brushless DC motors and exporting 100% to United
States.

Lalit Chadha
I started Goodwill
Chemical Industries
at Thane making
o r g a n i c
intermediates for
the dyestuffs,
pigments, agro
chemicals and the
pharmaceutical
industry.

In 2002 we gave out technology to China by sending
local technicians. I am a Gold certified personal
Income Tax payer. We have a turnover of around
Rs.15 crores and employ about 65 people. We have 3
units in India – one in Wagle Estate, one in Thane and
one in SEEPZ Mumbai and also one unit in China.

We manufacture
about 10 different
types of chemicals and our expertise is in
chlorination, nitration, reduction and the FriedelCrafts reaction. We have 3 units, Goodwill Chemical
Industries at Thane, Goodwill International in
Silvassa and Val Organics Pvt. Ltd. in Sarigam. VAL
Organics started when my sons returned from the US.

Sanjay Mehta
I am Sanjay
Mehta from
Protolab Electro
Technologies Pvt.
Ltd. We mainly
manufacture
input devices in
the Electronics

The name is derived from the initials of my elder son
Vivek, younger son Akshay and L is from Lalit! Total
employment in these three units is about 240
individuals, both staff and labor.
Today the total turnover of these 3 companies is
about Rs.250 crores.

TISA SEPT-OCT 2020

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COVER STORY

segment, Automotive parts i.e.
graphics for the automotive
industries.
We make speedometer dials
and allied components and we
do a lot of UID cards and PAN
cards in our facilities. We have 2
facilities adjacent to each other
in Mahape, Navi Mumbai and
we employ close to 200 people
now. We are a mid-sized
company.

is the basic raw material for
making the antibiotic
Ciprofloxacin. We convert this
fluoro benzene into 2 4dichloro-5-fluoro
acetophenone.
We do a Friedel-Crafts reaction
and make the acetophenone out

Recently, we got an offer from a
Chinese company from whom
we import this product, to put
up our plant in India, because
when you make acetyl chloride
you get another product which
they can buy back from us. But I
don't think the atmosphere at
present is good enough to go
ahead and invest
Rs.20 crores in putting up a
plant.

On the Chinese Connection
Lalit Chadha:
We don't export anything to
China. We did it once and had a
bad experience. We got a large
order. The first 10 containers we
sent; we got the payment on
time. Af ter the next 5
containers, they gave excuses
like damaged containers,
leakages and so on. We lost all
our profits.
This was about 10 years back
and since then we stopped
exporting to China.
But we do import from them.
There are certain critical raw
materials for the chemical
industry for which there is no
other manufacturer, in the world
or in India, but only in China. For
example, there is a raw material
known as 2, 4 dichloro fluoro
benzene.
China is ver y strong in
fluorination. They are the only
people in the world making 2, 4
dichloro fluoro benzene, which
TISA SEPT-OCT 2020

manufacturers Excel Industries
Ltd. and Aquapharm Ltd. can't
supply the demand that we
have.So we are forced to import
the balance requirement from
China. We require about 200250 tons a month, out of which
100 tons are imported from
China and we get 100-150 from
local suppliers.

of it and this acetophenone goes
for the manufacture of
Ciprofloxacin. Now, we import
this flouro benzene from China
to make flouro acetophenone
but are still competitive in the
Indian market, with clients such
as Aarti Drugs, Dr. Reddy's etc.
Though we buy the raw material
from them, our technology is so
good that we are able to
compete with them on the
landed price in India. That is the
one raw material we have to
import from China.
The second raw material that we
import from China is called
acetyl chloride. This we import,
because the two Indian

16

But I want to make one thing
clear. 10-15 years back, Chinese
chemical industries did not have
good capacities nor good
quality. But today, China is far
ahead of us, with larger
plants…. much larger plants
than European and American
plants… and their quality is as
good as any other country's
quality.
I would also like to give you a
caution. When we want to buy a
product from China, my son
goes to their factory with a
translator, checks the factory
and only then do we start
buying from them. This is
because there are a lot of
middlemen who claim to be
manufacturers, but are not.



COVER STORY

Secondly, traders can trick you.
There are bad experiences in my
f a m i l y. M y b r o t h e r- i n - l a w
imported some plasticizer from
China and you know what they
sent him? They sent him
polluted water which they could
not dispose off! Once you open
an L/C, their payment is assured,
but their quality is not. So
definitely ask to visit and see
their factory. All genuine parties
are very open to that.
Sanjay Mehta:
My connection with China has
been more in imports. I do no
other business with China, no
exports, no other
collaboration and no unit in
China.

years. That was 14 years ago
and the line continues to work
even today relentlessly!!
As far as raw material is
concerned, the whole world is
manufacturing out of China and
or branding it out of there. So,
whether we like it or not, we are
dependant on imports out of
China to remain competitive in
our domestic markets.
India just does not have the raw
material manufacturing base as
of today. I would not say India
doesn't have the capability to do

I have travelled the length
and breadth of China for
various materials that we
need for manufacturing. I was
cheated only once like Mr.
Chadha. In the last 15 years I
have, in fact, been
progressively importing more
materials from China.
We are certainly “happy” with
the equipments and materials
we have imported after due
diligence from China.We were
initially very skeptical about
their machines and were
advised by many that we would
regret our decisions..
We went ahead and imported
an entire card making line from
China after being mesmerized
by many that the machines
would not last more than 1 – 2
TISA SEPT-OCT 2020

it. We don't have the base nor
the ability to map and match the
prices of Chinese products.
H o w e v e r, o n e g o o d
achievement of Protolab is that
we export our products to the
US, by competing with Chinese
manufacturers using European
imported Raw Materials and
manufacture in India and export
to USA.

17

So, the truth is, I really don't
have a bad personal experience
doing business with the Chinese
but when we look at it from a
national interest or security
perspective, we should
definitely find an alternative.
Seshan:
How about interactions and
dealing with the Chinese in
terms of business?
Sanjay Mehta:
I think there are lots of wrong
perceptions about
cheap Chinese
products… well I
have seen two
facets of China.
One is that you can
get really cheap
products which will
have a life which is
not worth talking
a b o u t a n d
secondly, if you are
ready to pay a good
price
for
something, they
definitely are in a
position to give you
quality products.
I have been visiting China since
as early as 1990-91 and as Mr.
Chadha said, you visit, inspect
and verify before sourcing
material from them …we
followed the same pattern. But
as time progressed, I would
visit,, validate the company and
after that it was mostly on autopilot mode. Most of the raw
Materials come from the Jiangsu



COVER STORY

province, which is up north. As
far as Shenzhen is concerned,
where the electronic
components come from, we
have an agent who would
ensure that we got all the
materials required qualitatively
and price competitive.
For a new person who wants to
interact with the China….and if
you go with the perception that
China is cheap and you want to
squeeze prices, rest assured that
mostly what you get will be
squeezed-out quality too.

there. But yes, in the national
securi ty i nterest I would
definitely look for an alternative.
Dharmu Vanjani:
My experience with China starts
from my first visit in 1986. After
that I have been going every
year.

People would ask, what is toy
technology? I used to say toy
technology is like, no matter
how expensive a toy you buy for
your child, it breaks the next day
and you don't mind it. So that
level of quality and technology
…… is toy technology!
They are cheap in the sense that
they are economical. There is
another “cheap” when it is the

They are street-smart people,
and they have now seen
success, because the whole
world relies upon their
competencies. So, where
tooling is concerned,
engineering is concerned,
efficiencies and capability to
produce are concerned, they are
right on top.
The biggest advantage China
has is consortium
manufacturing. That is like a
cartel and to their advantage.
So, whether you go to A or B you
are going to end up with a
similar price, which doesn't
leave much room for
bargaining.
I used to visit China 3-4 times a
year, for various fairs and with
various other procurement trips.
Overall, I have enjoyed working
with them and getting the
moulding tools developed
there. I have really not had any
significant issues which will
prevent my getting work done
TISA SEPT-OCT 2020

I have seen places like Shenzhen
and other places when slums
were there. Now, they have
huge sky scrapers.
As far as quality is concerned,
you can get the best quality, if
you want it.
We put up this factory in China
in 2002 where we gave the
technology. People back then
used to ask, how are things in
China so low-cost? I said
basically you get two types of
technology there - one is the toy
technology and other one is the
normal technology.

18

toy technology I was talking
about. Remember you also get
high quality products like Apple
made in China under their
supervision. I agree with Mr.
Chadha and Mr. Mehta that you
must take the trouble of
inspecting and verifying, if you
want to get the best quality
products.
Seshan Ranganathan:
You said when you started out,
you supplied them the
technology for brushless
motors. Have they gone far
ahead?



COVER STORY

Dharmu Vanjani:
Not far ahead, but yes, they
have improved it. Whenever a
new technology comes into the
country and they come to know
about it, even the owner of a
company may work in your
company.

The brushless motor is an
efficient motor, small in size etc.
To a layman, you know, I give

Seshan Ranganathan:
How often do you all visit
China?

You obviously need people out
there to work for you, and
initially the thought that anyone
who applies to work may be the
owner of another company will
not even strike you.

Lalit Chadha:
Well you see, actually my son
goes more often than I do.

So, owners also joined our
company as workers, to learn!
So, they came and joined… they
learned things and within 5-6
years they have become the
major suppliers of brushless
motors.

the example of a ceiling fan.
We made ceiling fans in 2009
which drew only 30 watts
compared to the normal
products of Crompton, Usha and
others which consumed 70
watts.

We were the 1st in the world
making these motors in India in
1995 and exporting to US. Now
they export more quantities and
at a better price to US. In fact,
they now supply it throughout
the world.

But since my company is zero
debt, I didn't want to get into
marketing at that time. I was
a l s o a s p o i l e d e x p o r t e r,
supplying to US, with a good
margin. Who will run around
for the dealer, sub- dealer,
s h o p k e e p e r,
consumers? So
that's why I didn't
enter the market.
This is a different
technology
altogether.
People are now
learning. The
advantage now is
that we can be a
substitute for
China in brushless

TISA SEPT-OCT 2020

motors for which we have
applications in electric vehicles,
inverter refrigerators, inverter
Air conditioners etc. In fact,
wherever you find motors, you
will find brushless motors in
future.

19

We have about 2 agro chemical
exhibitions in China. One in
March and one in October and
one exhibition of
Pharmaceuticals i.e. CPHI which
is normally in June. So, my son
visits these 3 exhibitions –
normally ever y year and
sometimes I also accompany
him.
But the main reason of
attending these exhibitions is
only to gather intelligence
because in the products, we
make, China is the only
competition in the world
market. So, we attend in order to
get information about their
price, capacity etc.
We also need to understand the
overall scenario in China, new
developments in the chemical
industry there, what types of
changes are taking place,
whether the factories are
running or they have been
closed due to pollution.



COVER STORY

In the chemical industr y,
pollution plays a very big role
and in the last 2 years,
thousands of factories were
made to close down due to
pollution.

They could deliver neither
quantity nor quality but in the
last 10 years they have now put
up plants that are larger than
the European and American
plants.In quality and quantity,
they are quite superior now.

That gave us a big boost and we
got a lot of business.

Lalit Chadha:
The main thing is that they have
a lot of Government support.
The factory which I visited had
100+ acres of land though the
plant is only built on 2-5 acres.
The Government gives them
ample land and the country is
quite big. We don't have that
kind of support.
Our rate of interest is very high
while both interest rates and
electricity tariff there are low. All
infrastructure facilities are much
cheaper in China than in India. It
is, therefore, very difficult for us
to compete with them as we
don't have a level playing field.

Seshan Ranganathan:

Seshan Ranganathan:

Mr. Sanjay Mehta has already
talked a little bit about how we
do business, compared with
China.

Normally we tend to attribute a
lot of our problems to
Government.

Can you similarly compare, Mr.
Chadha? In terms of scale,
sophistication, quality.

I want to ask whether you think
there is something
fundamentally different about
the way their entrepreneurs
operate and we operate here?

Lalit Chadha:
As I told you about 10-15 years
back, in the chemical
business,in chemical
manufacturing they were far
behind us.
TISA SEPT-OCT 2020

Are they more risk taking? Are
they more capable of thinking in
terms of scale, vision etc. or is it
something mainly attributable
to the way our Governments
differ?

20

The biggest advantage they
have is their labour productivity.
8 hours of work, means 8 hours
of work. The workers have to
work continuously over 8 hours,
unlike India, where workers are
productive only for 5-6 hours.
This way, though they pay more
to their workers, their high
productivity makes it more than
worthwhile.
If we want to compete, our work
culture in India must improve.
Self-motivation is important.
Supervisors, staff and workers
should understand their
responsibilities and work. There
must be no need to always sit on
their head and get work done
from them. That is our biggest
problem in India. The moment
you turn your face away, the
worker just sits and whiles away
his time.



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TISA SEPT-OCT 2020

21



COVER STORY

Seshan Ranganathan:

Sanjay Mehta:

You said Government gives a lot
of benefits, infrastructure costs
less, interest rate is low,
electricity charges are low.
Agreed. But beyond that, the
fact that virtually every Chinese
enterprise seems to have grown
tremendously, seems to indicate
some X factor.For example,Mr.
Vanjani was talking about
having provided them initial
know-how for Brushless
Motors, but now they seem to
have forged ahead?

Just to continue from where
Mr. Chadha left off. In addition
to all the advantages that he

Monday or Tuesday depending
on the leave available.
With the workmen staying in
dormitories within the factory

What is the difference? Do the
Chinese have a better appetite
for risk-taking?
Lalit Chadha:
You are right. It is about risk
taking. If you go to any casino in
the US or Macau or anywhere,
the biggest gamblers are the
Chinese.
So, you can understand they
have tremendous risk-taking
ability, tremendous! Which we
d o n ' t h a v e . We a r e v e r y
conservative, very slow, but
they take lot of risk.
Seshan Ranganathan:
On a lighter note, in terms of
doing business which
community in India do the
Chinese most closely resemble?
Gujaratis, Sindhis or Punjabis?
Lalit Chadha: They are more
like Marwadis, I would say!

TISA SEPT-OCT 2020

shared about China; they have
two additional huge
advantages.
One is that their workforce is
actually at their doorstep. The
companies have dormitories
where they are made to stay. Its
just like we have workers from
UP or Bihar who are here
without their families. Having
nothing else to do, they prefer to
maximise working hours and
earnings so as to be able to send
money home. It's a lot easier
there because the dormitories
are in the industrial premises . In
addition, in China they ensure
that workers are just 24 to 36
hours away from their
hometown or villages.
As a result, if they want to visit
home, they can take a break on
Friday night and return by

22

compound, a standard 10-12
hours working day becomes
both possible and desirable
because of the additional
income and no commuting. In
the company I visited, where we
were getting our machines
made, the workers are given
three pairs of clothes and three
meals a day. The dormitories
have a television, a ping pong
table and carrom boards for the
workers recreation.
The system is pretty similar to
how the Kutchi shop owners or
people from Udupi run their
business. For example, the
employees of Udupi restaurants
stay within the premises.
The employees are from the
villages and the employer
ensures that a good part of the
wages is sent to support the



COVER STORY

families back home. It is an
unbeatable labour advantage to
have employees living in the
premises.
As against that, imagine the
plight of our workers staying in
slums, struggling to reach their
factories from long distances,
pushed and squashed in
congested trains and buses, in
extreme heat and pouring rain.
By the time they reach their
place of work they are totally
drained out.
So, when we say that we don't
really get that 8 hours output
from them, the fact is, that the
circumstances are simply not

But what is similar in both India
and China is that the ladies work
more efficiently than the men! In
China, more often than not, it is
the wife or other ladies who
speak English, handle sales and
interact with visitors while the
owner continues to speak in
Chinese! In the absence of that,
you will need to have an
interpreter or employ some local
person to help you negotiate.
Lalit Chadha:
We can emulate that mode of
stay-at-factory employees. For
example, Atul Products Ltd at
Valsad has 1200 acres of land
and even their sweeper has a 2-

So, it hardly takes a person 2-3
minutes on a bicycle or
motorbike or a car to reach his
workplace and that saves a lot
of energy. A tul Products'
purchase department has only 4
people. Amar Dyechems has 12
people for roughly the same
turnover. Why? Because Amar
Dyechems factory is at Kalyan.
So, commuting takes so much
time, people lose energy; and
output comes down
tremendously.
Seshan Ranganathan:
One thing I want to ask Mr.
Sanjay Mehta is that, the
Chinese have gone up in quality,
in terms of R&D and innovation.
What is driving them differently
from people here? I mean, I
cannot get over the fact that,
apart from the industry being
regulated by the Government
etc., is there a genuine
difference in the way we
approach things to the way they
do?
Sanjay Mehta:

comparable. Why, I myself am
finding the commute
increasingly difficult. I have a 2
hours journey one way from
where I live to the factory at
Navi Mumbai.

TISA SEPT-OCT 2020

room flat and stays in the
company premises. They have
different colonies for different
types of officers and for the
workers depending upon the
grades.

23

They are the largest consumers
of what they themselves
manufacture, unlike India,
where we have a huge
dependency on imports for most
of the product categories that
we are into.
The Chinese really did not have
to struggle. Technology, in the
form of Americans walked into
their house. And now they have
become a factory to the world.



COVER STORY

The Chinese are really ingenious
and they picked up things very
fast, and in ways the Americans
perhaps did not anticipate.
We too are very ingenious but
we lacked the leadership and
the focus they brought to
development. Without good
leadership, bad policies and the
lure of easy money, we slipped
into dependence and lethargy.

Sometimes their workplaces are
smaller than the galas in which
some of our people work. At
other times, where we would
have housed ourselves in 2000
sq.ft. their factories are 10000
sq.ft. with a limited number of
workers but like Mr. Chadha said
they are the big gamblers.
Recently we had to import a
Special Purpose Machine for a

I got talking to the Thai buyer
who said he had over 300
similar machines in Thailand,
with five machines operated by
one person.
Can you imagine the kind of
productivity such a line can
achieve, which could load the
printer, print auto lift to dry,
place it onto the packing line,
shrink wrap, and finally a
robotic arm would pack it into
the compass box, sleeve it
together and have it ready to be
shipped…. WOW!
Now when you have that kind of
scale of operations and you
have a limited number of
workers, you can really do
wonders.

As Mr. Vanjani said, there is a lot
of networking going on in
China, where the owner often
works in another factor y,
sometimes the worker sets up a
new factory and so on.
I n s o m e s e n s e s ,
entrepreneurship in China is like
a chain reaction, in which the
chain keeps growing all the
time, whether we are talking
about small companies or big.
I have also been to many setups
which are really very small.
They operate with a minimum
workforce
TISA SEPT-OCT 2020

product that required
automation. having explored
locally to get the equipment
manufactured the price and lead
time were prohibitive to even
consider. I then made a trip to
China and visited this factory
where I asked for a demo.
The made a similar machine to
print the plastic for 4
measurement elements of the
c o m p a s s b o x , t h e r u l e r,
protractor, Sets-Square etc. They
said they could show me the
process with the permission of a
Thai buyer who had come for
inspection.

24

With similar high population,
India and China approached the
problem of employment from
opposite ends. In both cases
labour was cheap and plentiful
to begin with.
We started by employing more
labour and less automation
which seemed sensible at that
time, though far less efficient.
The Chinese, on the other hand,
went for automation and high
productivity.
That enabled them to slash
costs, improve efficiency, widen
their markets and create more
employment. Whereas we went
into a tailspin and will now have
to play catch-up.



COVER STORY

have an office in Hongkong to
which they would over-invoice a
unit costing, say $1, at $10 to
collect a fat incentive in China.
The product would then be sold
to say India and the difference
would be collected in
“greenback” dollars through
hawala and carted back in bags
to China by train.

Mr. Vanjani said when he visited
Shenzhen in 1988 there were
slums and now there are highrises ever ywhere. I can
understand his surprise.
But the first time I landed in
Shenzhen and got into the car to
go to the factory where I was
visiting,I was completely
shocked, wondering whether I
was in California or Shenzhen!!
Dharmu Vanjani:
One major point of difference is
the political system, which is a
one-party system.
With a single party system, the
Communist Party of China, there
are no conflicting views because
of multiple political parties like
we have in India.

races, religions, languages and
customs.
Sanjay Mehta:
I would like to interrupt you
Vanjani Ji…... we have many
Gods but they also worship
Ganpatiji.
Dharmu Vanjani:
Yes. But they still have much less
of differences among the
people. As for innovation, they
are far more innovative than us.
The Chinese are a very practical
and single-minded people.
Also, as Mr. Mehta pointed out,
they stay in the factor y
compound, with hardly any time
wasted in commuting like us.
So, there is time to think of the
product and innovate.

Essentially, the Chinese are
materialistic and as Communists
don't believe in God.

Above all they have a lot of
Government support

So, they don't have many of the
conflicts and problems we have
in a nation with different

At one time If you exported
anything you would get 19%
incentive. So, the game was to

TISA SEPT-OCT 2020

25

All this was done pretty openly
and was known to the Chinese
Government.
Seshan Ranganathan:
With the current situation on the
Indo-Tibetan border at Ladakh
and our dependence on China,
from electronics to bulk drugs,
what do you think is likely to
happen?
Lalit Chadha:
I will restrict myself to the
chemical industr y. In the
chemical industry we will be
affected very badly. We have
banned their Apps and
cancelled some of their tenders
etc. If, in retaliation, they ban
their exports to India of APIs etc.
we will be in a terrible situation.
Now our Government has
brought out a list of 53 APIs, raw
materials and their
intermediates in a Scheme to
incentivize the production of
these API's in India.
It will take at least 2 years to go
from R & D in our lab, to pilot
and then put up the commercial



COVER STORY

plant that will make all these
intermediates. If something
happens abruptly now, we will
be in a bad situation.
But maybe 2 years down the line
the Atmanirbhar Bharat in the
case of APIs may be a reality.
Now I will tell you about this
one raw material which I
buy…... flouro benzene from
them. I have already started
doing R&D to make this product
in India and the R& D is going to
take me 6 months, then the pilot
plant will take 3-4 months.

For us to make those APIs, like
Dr Reddys, Lupin, Cipla; all
these Pharma companies will
take 2-3 years to put up plants,
to take care of our requirements
of these APIs. So, for 2-3 years
we definitely need to manage
the border conflict with them,
even if militarily we can take
care of China. We simply cannot
afford total disruption of
supplies from China at this
stage.
In the chemical field we are
definitely far behind, specially
Pharma products, intermediates

Lalit Chadha:
I don't think so, because
America and Europe are both
dependent upon China. We are
not the only dependent one.
Though we are much less
dependent than them, actually,
because we have good Pharma
manufacturers in India. But we
are mostly doing formulations
and the actual bulk drugs which
are required, the API, comes
from China.
Sanjay Mehta:
In the electronics sector the
scene is slightly different. As far
as manufacturing parts and
components, we are simply not
ready. If we even try to source
technology, we will be buying
obsolete technologies which
China will sell to us. .

The sequence is something like
this. First, R & D at the lab stage
in grams, then take it to the kilo
lab where I will make the
material in kilos, and then to the
pilot plant where I can make it in
hundreds of kilos. Ultimately, I
will have to put up the
commercial plant in which I will
make 1000 – 2000 – 5000 kilos
per day… whatever is the
requirement of the country.
All of this will take at least 2
years. It simply can't be done
overnight.
TISA SEPT-OCT 2020

for Pharma and even agro
chemicals. It will take us some
time before we can become selfreliant.
Seshan Ranganathan:
What about any alternative
sources which we can examine
apart from China? I know you
said that they dominate the
world market but if push comes
to shove, are there any
alternative sources available to
you for imports.

26

Japan and some of the other
countries are preparing to delink
with China but it will not
happen overnight. What will
happen to India in the short run
would be that Chinese parts,
components etc would, get rerouted to us from say, Indonesia
and Vietnam.
Without Chinese imports I think
it would be impossible for the
electronic and automotive
industry to exist, I am
deliberately not using the word
survive, I am using the word
exist. If China is gradually
de-linked by most of the
developed world, we could
definitely be one of the principal



COVER STORY

Sanjay Mehta:
What was SEEPZ doing all these
years? SEEPZ was the conduit
for exports to the US, which
China and the other Far Eastern
countries could not do. So, you
would get containers to SEEPZ,
repack and re-export it and the
incentive would be given to you.
If that conduit is not India, it will
be some of these other
countries.

beneficiaries, provided we get
our act together and the
Government stands solidly
behind us.
Like Mr. Chadha is talking about
the Scheme to manufacture APIs
in India, I received a mail from
the export promotion of
electronics Association in Delhi
that the Government will give
you incentives, to make
motherboards, monitors,
keyboards, mouse for the
computer hardware industry.
Now to get it at that price or to
get that equipment here… yes
you will be able to setup shop to
do the assembly, soldering, to
do the testing validation but will
I be able to get the components
and the silicon chips? No, I will
not!
We depend on imports for the
silicon wafer to embed and
power the board for which India
does not have even a single
facility today. We had it, once
upon a time, in Jammu and
TISA SEPT-OCT 2020

Kashmir. But even if it existed
today, it would be outdated
technology. I don't see India
managing its show in the
electronics industry, as well as,
in automotive, if Chinese
imports are restricted.
Seshan Ranganathan:
What are the alternatives to
China?
Sanjay Mehta:
Alternatives to China are
Vietnam, Philippines,
Indonesia… there is no other
country in Europe or America
who would be able to sell and
send it to you because they
closed shop long ago.
Seshan Ranganathan:
These countries you are talking
about will essentially be
re-routing Chinese products,
isn't it? What about Japan and
Taiwan?

27

See in 1982, if our Indian
Government had said, that we
are taking the manufacturing
route, today our story would
have been different.
But we choose the software
r o u t e . To d a y w e h a v e
software but we don't have a
box to call our own. We are
only coders, while China
became the manufacturer or
the factory to the world.
So now, to re‐strategize
ourselves is extremely
difficult.
There is only one philosophy
which is valid. That China
can make the components
but without the Indian value,
there would be no value to
those components because
we are the value adders. If
we start getting into
manufacturing without
Government support or with
such a low level of
entrepreneurship which is
visible today, we will fall flat
on our faces.



COVER STORY

Sanjay Mehta:
In one small sentence…. They
think big, we think small.
Seshan Ranganathan:
Ok…. would you agree to that
Vanjani Saab? Chadha Saab?
Lalit Chadha:
Seshan Ranganathan:

us. What prevented us from
creating those apps?

Are you saying they are not as
good value-adders as we are?

Sanjay Mehta:

I fully agree with Sanjay, they
think big, we think small. It is
right absolutely.

Sanjay Mehta:

Focus

Dharmu Vanjani:

Each one is good in their own
domain. We are very good at
adding value to something.
Maybe in small volumes, maybe
in large volumes but we add
value. And that is what India
would have been good for
because of the engineering
skills that we are having and the
kind of work force that is
available to us.

Seshan Ranganathan:

Yes, I do agree

We talked about China vis-à-vis
India; why they are ahead and
we are behind. Both of us
started at same level. Now they
are a 5 times larger economy. As
far as Apps are concerned,
where is the question of great
Government interference?

Seshan Ranganathan:

But that quality of our workforce
is now focused in the software
zone, as we are generating
more coders than what we
really require without a product
to
talk
about.

The creation of Apps is entirely
our baby. Is there something
wrong with the way we do
things, apart from government,
interest rates and electricity
rates?

Ok… there is consensus, at least
on this!
Dharmu Vanjani:
As far as raw materials for our
brushless motors are concerned,
one part, that is ceramic
magnets are 95 % made in
China. We completely depend
on them for that. Electronics
also…but electronic
components are available from
Japan, Taiwan and US.

Seshan Ranganathan:

Lalit Chadha:

Talking about innovation….
Because all the time we talk
about our software supremacy
and stuff like that but
paradoxically China is the one
which has got the best-selling
apps now. So that argues that,
there is something wrong with

Why can't you make the
ceramic magnets yourself?

TISA SEPT-OCT 2020

Dharmu Vanjani:
We can make the magnets but
it requires a huge plant and
there are some radiation issues

28



COVER STORY

while manufacturing. 95% of
the magnets in the world are
made in China.
Lalit Chadha:

What we really need to do is to
benchmark ourselves with
China. If you ask me, we are not
just 3 years, we could be 5 to 10
years behind China.

200% and all that on finished
goods.
Sanjay Mehta:
Yeah, it's possible, why not?

Yes. But we must find a
way to do that, you
know…
Dharmu Vanjani:
Yeah, we will have to do
that.
Lalit Chadha:
We will all have to do it one way
or the other. The chemical
industry, the APIs and all the
Pharma and Agrochem
companies are now working
day and night in their R & D labs
to make all the APIs which we
didn't make all these years and
depended on China. We got to
do it. It will take some 2-3 years
but we have to do it before we
run out of the alternative.
Sanjay Mehta:
The question today is, are we in
a position to take on China as a
manufacturing base? The
answer is no and yes in the same
breath.
It's not only that we need
Government support, we need
our own national spirit to also
awaken and get ourselves
going. Its not that we have not
accomplished great things or
not created great enterprises in
the past.

TISA SEPT-OCT 2020

We need Government to jump
into this in a big way… and not
in a bureaucratic way.
Bureaucracy would bring all
those old files back on the table.
We need a Government with the
kind of majority and policy focus
that Gujarat had. That can bring
in the kind of energy levels
needed for a real take-off over
the coming two decades.
In the short-term the
government should levy a
premium tax on luxuries and
non-essential products, semi knocked down products across
industry segments, promote and
facilitate component and basic
raw materials for production
and create seamless growth in
the economy, as well as,
employment leading to rapid
industrialization.
Seshan Ranganathan:
I doubt if it is permissible under
WTO to do this kind of
differential thing, at the level
you are talking about……

29

Other than our own
consumption, we also need
to tap the American market.
They are going to look for an
alternative to China. But they
are not going to give you
100% of the business. It will
take them 4-5 years to
even give you50% of the
business. They will start with
say, 20% to 30%, whether it is
Europe or the US.
Seshan Ranganathan:
But our own exports today are
so miniscule and so miserable,
that even if America, Western
Europe and everybody diverted
a fraction of what they are
getting done in China, our
exports would boom.
Sanjay Mehta:
With Japan having now
decided to give incentives for
moving businesses to India, lots
of Japanese will come to India.
Lots and lots of Japanese
companies … will be focused
on India.!
Seshan Ranganathan:
Tell me one thing, as far as
M r. C h a d h a ' s i s s u e s a r e
concerned it's pretty clear that
they can manufacture APIs and
other things.



COVER STORY

Seshan Ranganathan:
If this current face-off continues
and transforms into a genuine
cold war, do you think the
geo-politics will compel the
economic coming together of
Japan, Taiwan and India?
Taiwan will also be wanting a
large market like China which
they had earlier. Japan will also
be wanting it.
It will take them about 2-3 years
maximum and all of them are at
work on that thing. There is a
time frame within which the
drug industry will come out on
top, let us say.
As far as Electronics is
concerned, your prospects
appear to be very dubious right
now because you don't
manufacture chips, you don't
have the fundamentals in place,
you don't have the components,
you are saying there needs to be
a collaborative effort which is
not there at all today…..
so many problems are there on
this side of the game.
So, I am asking what is the
solution? Can Japan give you
the solution? Can Taiwan give
you the solution?

Sanjay Mehta:
They are the origins of the
technology in any case.
Seshan Ranganathan:
Ok.
Dharmu Vanjani:
I agree

Sanjay Mehta:
Yes

Sanjay Mehta:
Relying on them is a very safe
route. Easier than relying on
companies in Europe which can
be expensive. But if you really
work out a win-win deal, you
can have alternatives in Europe.

Sanjay Mehta:
Yes, they can.
Seshan Ranganathan:
They have the knowhow or they
have the capability to supply
you?
TISA SEPT-OCT 2020

The closest market of size,
potentially equivalent to China
is India. So, if we reform
ourselves in the sense that we
drastically improve the ease of
doing business, infrastructure
and policies, do you think this
scenario is feasible?

30

Dharmu Vanjani:
Yes
Seshan Ranganathan:
Ok. Last words on any issue



COVER STORY

Lalit Chadha:
Yeah
Sanjay Mehta:
The reference you are making
to as an automotive cluster is
more OEM ancillary. Most of us
supplying to Bajaj, are
supplying to Mahindra. That's
not what Mr. Chadha was
talking about.
which you want to talk about in
this particular area. Any
suggestion which you have, for
example, to the Government?

other utilities can be common so
that you can draw from the
utility, as much as you want, and
whenever you want.

Dharmu Vanjani:

Grasim has a plant in Thailand in
an industrial estate where all
these facilities are available.
Such clusters make a lot of
sense, in terms of saving,
technical give and take. Vendor
development etc.

They should rapidly create
infrastructure. China has good
common industrial
infrastructure. say electronics,
then you have whole industrial
areas with all conceivable
infrastructure in place for
electronics manufacture,
from machiner y to testing
machines.
Lalit Chadha:
In the chemical industry, if you
go to other places like Thailand
and China, you will find in the
industrial estate there will only
be 1 or 2 boilers, large scale
boilers and the pipeline goes
round to all the factories
supplying metered steam to
each factory.
So individual boilers are not
required, saving man-power,
cost etc. Even chilling plants and
TISA SEPT-OCT 2020

Now if you take the electronic
industry or electrical, if your
next-door neighbor is making
one product which you consume
and then the other person is
taking what you have made,
that can make a lot of difference.
Seshan Ranganathan:
That is what is
being done I
guess in Pune
and other
automotive
clusters but you
are asking for a
much larger
expansion of
that isn't it?

31

He was talking about a cluster of
say electronic industries, which
have certain common facilities
which would be too high cost to
set up individually, but are
capable of being shared at
relatively low cost.
More importantly, to be part of a
consortium and use its facilities
you need to trust, collaborate,
synergise and still be
competitive, by being Market
focused, to be price competitive.
Seshan Ranganathan:
Thank you so much gentlemen
for your time and for sharing
your experience and thoughts.



TISA SEPT-OCT 2020

32



COVER STORY

CHINESE IMPORTS -THE KILLING OF MADE IN INDIA
- A GROUND REPORT-

A predatory China
Globally anti-China sentiment is
the outcome of its protectionist,
mercantilist and predator y
approach to trade/investment
and exchange rate
manipulation. China is
notorious for systematic
intellectual property thef t,
imitation and production of
counterfeits of global brands.
A combination of these
characteristics in bilateral trade
continues to hit India's interests
in many ways.

calculated to destroy/paralyse
our manufacturing base and
make our consumption and
industrial structure overdependent on Chinese import.
Other visible and invisible costs
of massive unscrupulous
Chinese imports include, deindustrialization, generation of
black money and hawala
business, rise in cash economy,
leakages in GDP and savings,
m u t e d
c a p e x ,
underdevelopment of skill /
t e c h n o l o g y, g r o w i n g
unemployment, loss of tax
revenue, etc.

Its impact on the Indian
economy

Invisible destruction

Chinese imports are too
massive, too pervasive, too
predatory and too covert. It is

The officially recorded value of
Chinese imports are a small
fraction of the total Chinese
imports. Imports through

TISA SEPT-OCT 2020

33

various dubious / clandestine
c ha n ne l s i nc l ud e , und erinvoicing in terms of
price/quantity/ weight / misclassification, smuggling, passthrough imports via Hongkong /
Dubai / RECP countries, gift
channel, etc.
China-made counter feits
[1st/2nd/3rd copies] of leading
global brands are flooding the
markets/ecommerce sites.
China-made fake Indian autoparts impact auto industry and
road safety.
According to the Authentication
Solution Providers' Association,
Delhi [an anti-counterfeiting
organization], the overall
counterfeits across industries in
India are causing losses of Rs. 1
lakh crore annually.



COVER STORY

Even without counting for the
rampant under-invoicing,
smuggling and pass-through
imports; officially recorded
Chinese imports had whopping
CAGR of 25% over 2003-18
period.

To name a few, markets for
electronics, electrical goods,
solar panels, chemicals, active
pharmaceutical ingredients,
metals, furniture, many
household / gifts items, toys,
footwear, hardware, tiles,

u n d e r- i n v o i c i n g / m i s classification to evade customs
/ anti-dumping duties, sale of
different qualities of
counterfeits, economies of scale
compete-out indigenous
industry.
In mis-classification / high value
cases, invoice value can be very
nominal of the actual value.
These give price advantages to
Chinese imports.
Systemic level of connivance /
nexus among exporters,
importers, agents located at
China/Hongkong, clearing
agents and customs facilitate /
encourage unscrupulous
Chinese imports.

The destruction of Indian
manufacturing
Chinese imports surged with
trade liberalisation, reduction in
import duties followed by
steady appreciation of rupee
[annual average per $ rate of Rs.
48.40 in FY 2003 to Rs. 40.24 in
FY 2008] since mid-2000s.In
terms of US $ value of imports
recorded astounding 58% CAGR
over FY2003-08.
The results are closure of many
Indian businesses, growing
N PA s , s w i t c h - o v e r f r o m
manufacturing to trading or
assembly-line production with
steady increase in dependence
on Chinese products/inputs
since late 2000s.
TISA SEPT-OCT 2020

automobile parts, tyres , bicycle
parts, bearings, various
machinery and accessories are
dominated by Chinese products.
Make-in-India is swamped by
Made-in-China. No large
economy can prosper with such
an import-intensive
consumption/production
structure.

Why Chinese Products
Dominate?
Aggressive Chinese export
policies, wide-range of
incentives for exports,
reportedly use of bonded labour
[Uighur Muslims, Tibetans,
political prisoners], dumping,

34

Recently announced measures
like import restrictions, hike in
tariffs, quality standards will
have very limited effect if mis
declaration / smuggling /
massive under-invoicing, passthrough imports facilitated by
the too well-entrenched and
highly lucrative nexus continue,
as had happened with antidumping actions over the years.
It is informally learnt that
unscrupulous Chinese imports
business has again resumed
now. We need concrete antiimport actions on the ground.
High-pitched noise will not help.
Unequal competition forced
many manufacturing units to
switch over to trading /
assembling of Chinese products.
Besides these direct economic
costs, the invisible cost of
information failure in terms of
capex not undertaken, goods



COVER STORY

not produced, as businesses
anticipate in advance that they
cannot compete with dirt-cheap
Chinese imports, is very high
and real.
Market experience, R&D,
expertise in imitation and
production of counterfeits and
cheaper goods as per importers
requirements keep competition
out
Over the years, Chinese
products are well entrenched in
consumption/production
structure. This could not have
been possible without systemic-

level of connivance among
exporters, importers, agents
located at China/Hongkong,
clearing agents and customs.

and iii] higher on-money for
clearance of Chinese containers.

We l l - o i l e d i m p o r t - c u m trading/assembling network
and cash / hawala payment
system have become pervasive.

Information failure in terms of
price, quantity, quality of many
Chinese imports creates costprice risk/uncertainty for
indigenous manufacturers to
undertake production/capex.

Based on informal sources, a
few illustrative examples of the
level of connivance include: i] a
few of the containers may even
be taken out without customs
payment ii] negotiation at
organisational / industry level
for clearance of shady imports

Spill-over effects

Deluge of Chinese goods
contributed to widespread
industrial sickness. Number of
CDR references spurted from
225 to 622 during FY 2010-14
with corresponding aggregate
debt spurting from ₹95815
crore to ₹429989 crore.
Non-oil trade surplus of $6.4
billion in FY 2003 rapidly turned
into massive deficit of $37
billion by FY 2008 and to $91
billion in FY 2018
Import-intensive consumption
and production structure
dampen savings and capex deceleration in savings (37% to
30%) and gross capital
formation [ from 40% to 32%]
over FY 2011-2019
The high currency growth is not
generating higher growth /
inflation, as cash is used to
f i n a n c e
u n d e rinvoiced/clandestine part of
imports

Way-out
We need adequate market
intelligence / understanding of
ground facts about infectious
TISA SEPT-OCT 2020

35



COVER STORY

effects of unscrupulous Chinese
imports on eco-system and how
and why it has swamped our
market. Atmanirbhar Bharat
needs to be strategized
accordingly.
We need to understand from
trade and industr y what

measures are required to
promote capex and competitive
indigenous production structure
and encourage foreign / Indian
companies in China to shift
operations to India.
These require business
supportive environment /
bureaucracy, R&D, labour
reforms and infrastructure
comparable to China.

More measures
To take well-calibrated importrestricting measures without
creating sudden and large
disruptions, as many industries
are dependent on import of raw
material and components from
China.
We c a n f i r s t b e g i n w i t h
inessential goods and products

TISA SEPT-OCT 2020

where we have indigenous
capacity.
The Make in India strategy
needs to be synchronised with
planned phasing out of imports
and concomitantly spurring
domestic capex and capacity.
Dismantling
of the shady
network/
nexus and
blacklisting /
t a k i n g
punitive
a c t i o n s
a g a i n s t
importers /
exporters
/clearing
a g e n t s
/customs
involved in dubious imports are
sine-qua-non to control
unscrupulous Chinese imports
Random and surprise check of
imports at ports in terms of
invoice prices / description of
goods and their actual /
reference prices in the national /
international markets must be
undertaken frequently.

on illegal money transfers by
banks in hawala - havens like
Hong Kong, Dubai etc.;
Besides above, several
structural issues like growing
instability / fragility of financial
system in terms of low credit
confidence, severe liquidity and
payment gridlock facing trade
and industry, non-convergence
between the working of
financial and real sectors and
dysfunctional trade credit
network, etc; need to be
addressed to facilitate capex to
strengthen local manufacturing.
These are necessary for financeled recover y and higher
investment for the success of
Atmanirbhar Bharat initiative.
The author B.L. Chandak is a
former Dy. General Manager of
SIDBI. He is M.A. in Economics
from JNU [This is a revised
version of his article Crackdown
on Unscrupulous Chinese
Imports (Business line of Sept
16).He can be contacted by
email at blchandak@gmail.com

Fixing of minimum import prices
wherever possible and quality /
safety standards.
Scrutiny of suppliers to
e-commerce sites for their
import content and value
addition are required as these
sites get their supply of Chinese
products through the Chineseimport-dependent suppliers
International cooperation /
agreement to share information

36

B K Chandak



MANAGEMENT

MANAGEMENT KALEIDOSCOPE

BY RAJ APHALE
Recovery from Corona
downturn

“on the other hand do
something else!” The same
applies to experts of all sorts.

Current times are difficult, but
and I am sure most of you have
started recovering from the
corona downturn. These are
testing times.

There seems to be a broad
agreement on one point, at least
- the worst seems to be behind
us. That gives us some hope...
something we can thrive on.

Also, we expect recovery will be
slow. In any industry cycle, the
competent businesses will
almost always do better than
most other businesses.

Competent businesses
do better

There is no unanimity among
experts as to the nature of the
economic recovery. Some say it
will be V shaped, W shaped, M
or K shaped. Thankfully, the
English script has only 26
alphabets and 10 digits!
President Roosevelt famously
wanted a one-handed economic
advisor because his economic
advisors kept saying “on one
hand you should do this” and
TISA SEPT-OCT 2020

It is no secret that competent
businesses do better than others
in all economic cycles.
During boom times, they
achieve better returns, and so
do they, during downturn, as
well.
During tough times, all
businesses get hurt, but not
uniformly.
In fact, success or effectiveness
of strategy of a business is often

37

measured in terms of ROI
(Return on Investment) of a
business, compared to the rest
of the industry this business is
in.
A business that has great
strategy, and is able to create
and maintain competitive
advantages will consistently
earn a better ROI than its
competitors.

Competitive advantages
The name of the game,
therefore, is developing,
maintaining and growing
competitive advantages.
While we will deal with the
strategy development
challenges and areas at a later
date, let us bring our focus back
on operational excellence, the
chain of articles we started in
January.



MANAGEMENT

5 lean principles
We listed 5 lean principles –
Value, Value Stream, Flow, Pull
and Pursuit of Perfection. We
have already discussed Value,
Value Stream Map and Flow in

details; from January to March.
Let us continue the journey on
this road, to take the next steps.

Pull System
An effective way of creating
flow is to create a pull system. A
pull system demands that
nothing is produced or made
until the customer asks for it.
This means the finished goods
are not despatched until the
customer has “ordered” them.

In the first part we considered
who the customer is.
Within the operations of a
business, the next or
downstream operating process
is a customer for the prior or
upstream process. This means
that unless the next process
demands material or goods or
service, the earlier process will
not produce it. This is the
opposite of the push system,
traditionally followed, and
which still continues in many
companies.
The Pull system, therefore,
means that if the next process is
slower or is down for some
reason, the prior process must
stop producing.
This is
counter-intuitive.
The traditional performance
management systems which
puts a very strong emphasis on
utilization of equipment, finds
this very difficult to
comprehend. This is because the
upstream machine will have to
be stopped, if the downstream
machine has stopped or cannot
take any more product.
That means the upstream

resource will be idle, though it is
in working condition. This issue
can be clearly understood if we
realize that the customer pays
for finished product and not
Work In Progress. Further, the
business gets paid for what they
deliver and not what they
produced.
What matters is throughput and
not departmental or individual
machine production.
Throughput is not going to
increase by merely increasing
WIP Hence if the product of a
.
machine is going to sit as WIP
,
we have only increased the
muda (Japanese word for
wastage) of WIP
.
There is another side effect of
over-emphasising utilization of
equipment and that of
overproduction. As a running
machine goes on producing (to
fulfil target of utilization), that
does not move forward because
the next operation is not
running, WIP keeps piling up.
The matter gets worse when
such production ends up
becoming finished product, only
to sit in a warehouse, because
customers do not want it or at
least, not in such quantities.
Pull systems mandate single
piece flow, another powerful
concept. Most companies resort
to manufacturing batches of
products, where a machine
would produce a large number
of parts or large amount of
product once set-up is carried
out.
When we lived in a sellers'
markets, companies could ask
customers to wait for a few
days, or months or years to get
their products. This is not a good

TISA SEPT-OCT 2020

38



MANAGEMENT

idea when we are in buyers'
markets.
Even in a sellers' market,
considerable cost would be
incurred by making large
batches, creating large piles of
inventories.
This inefficiency on the part of
the producers was passed on to
the customers. As we saw in the
first article, this does not create

each. This is only to simplify the
issue, as in reality their batch
sizes would vary.
10 pieces of each arrive at final
assembly section. While making
the final assembly, a problem is
noticed in the quality of one of
the sub-assemblies.
Now it is possible that all 10
assemblies in that sub-assembly
would have the same defect.

Another important principle to
follow is to detect quickly and
correct immediately. Correction
of defects also needs to follow
the single piece rule. There is no
point in hoping that a defect will
not be noticed, or to wait for
elaborate power points in
elaborate and boring
management review
presentations.
If a defect is noticed, it must be
corrected ASAP. To notice a
defect, be on guard, clear the
clutter, and see the output
clearly.
We classify production from this
perspective into two groups.
Production may be done against
specific orders of a customer or it
can be done against a forecast.
In either case the intermittent
production steps need to follow
the discipline of producing the
exact quantity and nothing
more, nothing else.

value, as value is what the
customer is willing to pay for.
Single piece flow, therefore has
tremendous advantages, that
many business people often fail
to see. It cuts inventory and
reduces space requirement. It
also helps reduce clutter and
makes everything (quantity and
quality, and therefore any
related problems) visible. Above
all, it has a strong impact on
quality.
C o n s i d e r t h i s . Tw o s u b assemblies are made in two
different shops. Assume that
they are made in batches of 10
TISA SEPT-OCT 2020

You, therefore, need to inspect
all the 10 pieces before
assembly.
If you stop the assembly line,
there is loss of production. If you
do not stop the assembly line
(yes, this too happens), the final
product may carry the defect,
which may result in rejection in
final inspection, or worse, gets
rejected by the customer.
A single piece flow from both
the assemblies, on the other
hand ensures that the defect is
revealed quickly and hence is
corrected quickly.

39

While made to order systems
are comparatively easier to
convert into pull system, made
to stock systems become
complex. This gets particularly
serious in situations where
demand is variable. Various
approaches are required to
address these situations:
a)Improve forecast of demand
‐while forecasts are never
accurate, attempts may be
made to improve the
accuracy.
b) Maintain a small amount of
WIP – company can maintain
a small amount of carefully
calculated WIP. These WIP
levels will be a function of
seasonality of demand, extent
of variability in demand and



MANAGEMENT

lead time required to back fill.
c)Another powerful tool
therefore is to reduce the lead
time. Many companies regard
this as a given, with a “can't do
anything about it” type of
thinking. This requires that
the production or operating
systems must gear up to
produce as fast as possible,
requiring flexibility in
operations.
One impediment in this

If a process deploys changes
from product to product, (more
prominent in services), or where
people change frequently or
from time to time (such as
companies where seasonal or
contract manpower is
deployed), new people take
considerable time to learn the
process and achieve an
expertise to reach the level of
required quality and
productivity.

for display. Periodically, in small
batches as practical, the
warehouse is stocked with
material from vendors.
Equipment is often subject to
maintenance. Also, we have a
complicated line balancing
activity. Time required to
per form various steps in
production differ considerably
and it is an uphill task to balance
them. Even using tools like
Yamazumi chart (to be covered
in a later article) will leave some
imbalance.
To take care of these two factors,
often a limited WIP between
two processes is allowed. This
WIP limits have to be carefully
observed. Pull requires an
efficient system to communicate
the demand from the customer.
This can be effectively provided
by visual controls, by tools like
Kanban, two bin systems and
such tools.

endeavour is set up time.
Many companies resort to
large batch size due to the fact
that it takes a long time to
change over from one SKU or
product to another.
Various techniques may have
to be deployed to reduce
these change overs. SMED
(Single Minute (single digit ‐ 1‐
9, in practice) Exchange of
Dies) techniques can be very
useful in such situations.
Another ver y important
consideration in this regard,
which is mostly ignored is the
learning required for people.
TISA SEPT-OCT 2020

While each individual may have
her own pace of learning, and
hence a variability in this regard,
attempts must be made to
reduce the learning cycle.
This is often a neglected, though
critical part, in service
businesses, including IT.

What applies to manufacturing
operations also applies to
service industry. IT industry has
considerable challenges in
piling up of WIP A programmer
.
or a solution architect is given a
project. Some further
clarification or some tool or
additional resource which is
required to do the project is
stalled.

Consider the situation of a
supermarket. The demand is
variable. Goods on display will
be replaced, as and when they
are picked up by the customer.

While the person is waiting for
these issues to be sorted out,
she is given another project,
which may end up with the
same fate.

Likewise, goods in the
warehouse will be replaced
when an identified space for
that product is created when
goods are sent from warehouse

As a result, a person is working
on multiple projects at a time
and the WIP piles up, but the
throughput is still low.

40



MANAGEMENT

We now see all systems are
i n t e r- r e l a t e d . F a s t a n d
predictable delivery to the
customer requires Pull System.
This requires various tools and
requires Just in Time deliveries.
Both of these require zero
defect work because just in
time with defective products
will be a complete disaster.

FINANCE

It will be a good idea to go on
reducing the size of such storage
facilities, reduce size of bins, for
instance. If you are storing
material on the shop-floor or
pallets, mark out the areas where
it is kept, using yellow paint, and
go on reducing this are over a
period of time.
3.Target reducing it each week or
month depending on the type of

maintained. This may depend on
variability and seasonality in
demand.
6.Work with your vendors to
improve their quality and
improve deliveries.
Homework
I will request you to try and apply
these principles. Do let me know
what you observe in respect of
pull system in your business, any
improvements you make and if
you found this useful.
[Rajendra Aphale is a Consultant
and Trainer in critical business
areas including Lean
Manufacturing and operations in
India and internationally.
He is an engineer (IIT Mumbai),
MBA (Operations, Mumbai

Implementing the pull system
therefore needs working in many
areas of quality and operations.
The best way to start
implementing is to start from
deliveries.
1.Make despatch plans based on
customer delivery commitments.
Prepare a firm plan for this month
and the next. From despatch plan,
make plan for the final inspection,
then for the final operating
process.
2.Likewise keep working back
words to raw materials / vendor
parts planning. As it will take time
to achieve zero defect and small
batches, maintain WIP
.
However, make continuous
efforts to reduce the WIP
.

TISA SEPT-OCT 2020

the operation, and this can be
done best visually. One of the
best ways to reduce WIP, in
practice I found is to reduce the
size of storage. Most companies
use some types of bins, stands,
trolleys or such facilities.
4.Follow the discipline of planned
WIP Between two processes, you
.
may maintain a predefined,
limited amount of WIP. If this
inventory is already made, stop
the earlier process.
Remember pull system means
make a product or service only
when the customer demands it.
5.Carefully calculate this WIP that
needs to be maintained between
processes. Also calculate the final
finished goods inventory to be

41

University), Management
Accountant (ICWA) and LL.B.
He has total experience of 34
years. He can be contacted @
rajendra.aphale@gmail.com]



ECONOMY

-ECONOMIC RECESSIONCAUSES, CONSEQUENCES AND CURES

There is no standard definition
for recession but a rule of thumb
used by most economists and
analysts is that an economy that
is seeing negative growth rate
or shrinking GDP for two
consecutive quarters may be
considered to be in a
recessionary phase.
However, most of the TV
debates and articles in
newspapers on the current
downturn simply don't give a
holistic picture for our better
understanding.

TISA SEPT-OCT 2020

I. THREE-FOLD CAUSE OF
THE RECESSION
There has been nothing like
the present downturn in India
in the past, whether you
measure it in terms of how
widespread it is or the fact
that the GDP in the first
quarter of FY 21 is 23.9%
negative or how many
problems have come
together to create the
recession.

42

In India, the economic
downturn started in 2016
due to a combination of two
factors:
 The twin balance sheet

problem i.e. bad debts of
businesses, as well as, banks.

 A slew of much needed

cleanup measures taken by
the Government, which had a
dampening effect on growth.

These measures Demonetization 2016
(DeMo), Insolvency and
Bankruptcy Code 2016 (IBC),
Real Estate (Regulations and
Development) Act 2016
(RE R A ) and G ood s a nd
Services Tax 2017 (GST)were
expected to have and did
have a negative impact on
our GDP but for a temporary
period.As necessary cleanup
measures, a temporar y
reduction in our GDP growth



ECONOMY

rate was a cost well worth
incurring.
However, while we were
trying to resolve the twin
balance sheet problem and
the negative effects of the
cleanup measures were
playing out, a worldwide
recession was in the making
in the second half of 2018.
This was a factor
substantially beyond the
scope of India to influence.

if all this was not enough, we
now have the unknown
economic cost of the Chinese
aggression at Ladakh to add
to the list of negatives.
Each of these causes has
serially telescoped into the
other, each is of a different
nature, the impact of each
one of these is different and
therefore the corrective
action that is required to be
taken to counter or reverse
the current downturn is
highly complex.

renowned economist John
Maynard Keynes had
recommended Government
spending in order to reboot
the economy - to prime the
pump so to speak.
T h i s w a s b e i n g
recommended for India even
before the onset of Covid
and, thereafter, the voices
have only grown louder.
Demand must increase
manifold and spur economic
activity into a positive and
virtuous cycle of
consumption-productioninvestment.
As for methodology to get
this done, anything is good
enough, so long as more and
more money is placed in the
hands of people. We will now
examine the wisdom of this
solution in (a) the pre-covid
situation and (b) present
situation since January 2020.
Pre-Covid (up to December
2019)

But the worst was yet to
come.
Right at the beginning of
2020, India and the world
were still wrestling with this
recession for a little over a
y e a r, w h e n C o v i d - 1 9
emerged from China to cast
its horrific spell on the entire
world. This was the most
complex cause of them all. As
TISA SEPT-OCT 2020

II. SPEND YOUR WAY OUT
OF THE DEPRESSION KEYNESIAN STYLE?
Now, what has been the
reaction of the economists?
We f i n d m o s t o f t h e m
comparing the current state
of our economy to the Great
Depression in the USA of
1929. As we all know, during
the Great Depression, the

43

All depressions and
recessions are not the same
except in their effects or
symptoms – namely negative
g r o w t h i n G D P,
unemployment and reduced
economic activity in general.
In the 1920s, the American
economy was booming
with employment at nearfull levels. The stock market,
as it always happens, was



ECONOMY

booming far in excess of what
was warranted by the boom
in the real economy of good
and services.

high at near-full
employment levels to an
alarming low, leading to
layoffs.

Unproductive/speculative
financial transactions, which
in the times of the Great
Depression in US were
confined to the stock market,
constituted the force behind
the artificial boom of the
1920s leading to the
inevitable fall from 1929
onwards.

Under these circumstances, it
made sense to place more
and more money in the hands
of people and pull demand
up, giving a boost to the sales
of business firms saddled
with unsold inventory and an
impetus to use their excess
capacity to produce more.

An artificial boom is not
sustained by real economy
transactions; it is a bubble in
which money is made out of
money, by the sale and
purchase of financial assets
like shares. These bubble
incomes drive demand up for
goods and services (mainly
luxury). When the bubble
bursts, the demand slumps
leading to a downward spiral
starting with accumulation of
unsold goods and cutbacks in
production
to
unemployment, reduced
incomes, and further
reduction in demand.

Whereas in pre-Covid India
(2016 to 2019), in marked
contrast to the USA of 1929
1.We had a long way to go

towards full employment
levels

2.That is not all; there is also

no evidence that business
firms had built up large
inventories of unsold goods
or that they had large excess
capacity.
What is the policy implication
for India of these two facts?

Hence, the diagnosis by
Keynes - lack of demand. This
resulted in excess supply,
unsold inventories, and
excess production capacity,
resulting from previous
excess demand fueled by
excess money arising largely
from stock market trading.
Demand was slipping
downward from a previous
TISA SEPT-OCT 2020

44

Economic measures
designed to drive up
demand will not work.
Rather, we need to boost
the supply side. Business
firms must get more money in
their hands so that they
expand production; new
entrepreneurs enter and
overall, employment rises.
Increased employment and
incomes give rise to increased
demand for the goods being
produced.
Covid-19 – from January
2020
So, we have seen that
economic measures designed
to drive up demand would
not have worked to reverse
the recession in pre-Covid
India. We would have had to
work on the supply side.
Regarding the situation in
India due to Covid, Covid is a
non-economic cause that is
having devastating
consequences on the



ECONOMY

economy. When Covid-19
reared its ugly head and it
became known that it was
not going away any time
soon, economists should
have realized that this was
the crux of the problem and
we cannot spend our way out
of this recession, which has
been so badly aggravated by
a pandemic.

I I I . A VA C C I N E T O
PREVENT AND A DRUG
TO CURE
It is the pandemic which has
got to be attacked first before
we take up any other
economic measure.
A great deal of investment, a
great deal of expenditure by
Governments and a great
deal of spending money
placed in the hands of the
general public is not going to
help because the general
public is/will not be in the
mood to make purchases
now when they are hardly
stepping out of their homes.

prevention and a drug for
cure of this disease.
The Government should
focus on enhancing hospital
facilities. Already the
government and the public in
general have developed a
certain confidence in tackling
this disease. No longer does
Government insist on people
infected with the disease
going to hospitals; many are
treated in their own homes.
I V. A T M A N I R B H A R
PACKAGE
But does this mean that till
such time as a vaccine and a
cure for Covid is not found,
we do not take any economic
measures? Certainly not!
Government has done well to
announce the Rs.20 lakh
crore Atma Nirbhar package.

Nor will industrialists and
businessmen in general,
make investments, in a
situation in which, it is not
possible for anyone to
foresee even the near future.
It is therefore necessary to
emphasize that Governments
must focus all their energies
to finding a vaccine for
TISA SEPT-OCT 2020

This package is being
criticized needlessly and
undeservedly as too little, not
having enough of fiscal
stimulus etc.

45

It has just the right elements
for a supply-side stimulation
o f t h e e c o n o m y, w i t h
measures such as the
automatic loan for MSMEs
guaranteed by Government
of Rs. 3,00,000 crores, equity
infusion of Rs.50000 crores
for MSMEs and extension of
time for completion of
projects by Government
contractors.
This package is partially
successful in the four months
since it was announced. The
reason is many businesses
are not willing to open shop
due to lockdown, difficulty in
getting sufficient labour etc.
Most businesses, particularly
the labour intensive
construction industry, rely on
migrant labour, majority of
whom have gone back to
their states – UP Bihar and
,

Assam. While there is news of
contractors making special
arrangements to bring them
back, not all migrant
labourers are willing to come



ECONOMY

FINANCE

4.This may also be a good time

for introducing other reform
measures like in the matter of
labor laws and cumbersome
compliance laws. UP is likely to
be able to generate a good
deal of employment by
relaxation of labour laws for a
period of three years.

back, fearing the pandemic.
Their home states are also
making efforts to give them
employment.
The picture is far from clear. We
get good news and bad news
alternately: the daily addition
to number of active cases is
going up and up from 75,000
to 90,000 now but the
recovery rates have also shot
up to 70%+ and the death
rate continues to be low.
All things considered and this
will bear any amount of
repetition: everything
depends on finding a vaccine
and a cure for Covid.
V. THE WAY FORWARD
1.A great many people have

been badly affected by the
pandemic; they have lost their
livelihoods. These vulnerable
sections of our community
must not be wanting in the
basic needs of life. The
Government must do what it
takes towards this end without
TISA SEPT-OCT 2020

worrying about the fiscal
deficit figures. These are
extraordinary times requiring
extraordinary measures. These
are humanitarian measures
and must be taken come what
may.

5. Bureaucratic delays are
another area that the
Government would do well to
examine and correct. Central
Govt departments Central
and State PSUs who
reportedly together owed
the MSME sector
Rs. 5,50,000 crores as at FYE
March 2020. This is
shameful and must be paid.

2.The measures must be over
and above whatever our
poorer sections were getting
from Government in pre-Covid
days. The Government's
proposal to extend aid, by way
of food grains etc. is welcome.
But even more targeted
assistance, including payment
of school fees etc. are called
for.

under control with a vaccine
and cure, there still remains
the big question mark on the
bankers' willingness to lend as
they are saddled with bad
debts and the credit officers
will be greatly worried about
the issue of accountability.

3. Government should work

7.The following measures are

heart and soul towards finding
a vaccine and a cure for Covid19 exploiting all possible
domestic and global
resources. This is pivotal to all
our efforts to revive the
economy; it is, in fact, the
starting point. Without that,
the best, most generous
economic measures will be
little use.

46

6. Even af ter Covid comes

required to be taken by Govt
for the Public Sector Banks
(PSB):
a. Recapitalization as needed,

since the capital adequacy
could have been further
impaired due to Covid.
b.The idea of a Bad Bank – an

entity that will take over the



ECONOMY

this Government
are of a structural
nature in a sense
not commonly
understood.

bad debts of the
Banks -has been strongly
recommended by the former
RBI Governor Subbarao who
termed it not only necessary
but unavoidable in the
present situation.
c.Free the cooperative banks

entirely from State
Governments so that they
come under exclusive control
of RBI
d.Free the PSBs from GOI

control, so they come under
exclusive control of RBI.
Further a common body be
established for P S B s for
recruitment of staff, as well as,
for senior appointments
including Chairman.

VI. ITS NOT ALL THAT BAD
A few important points must
be emphasized that hardly
find mention in the media:
1.In the last few years some
of the reforms carried out by
TISA SEPT-OCT 2020

The economy has
acquired a propoor pro-welfare
bias. Schemes like
Swachha Bharat,
Ayushmann
Bharat, Awaas
Yojana etc. not
only provide much needed
essential facilities to the poor
but are also great
employment generators.

Thereafter it has declined to 8%
in August 2020. https:// un
employmentinindia. cmie.
com/)

It's not so bad after all.
India will bounce back.
Stay safe. Pray for a vaccine
and a cure.
[P.R. Viswanathan is an M. A.
(Economics & Politics) from
Mumbai University with the

But the value of the output in
these schemes is not very
high in terms of rupees.
Growth of GDP needs to be
looked at with this fact in
mind.
2.The annual unemployment
rate all through the period
1991-2020 has been between 5
and 6%. (https: //
w w w. m a c r o t r e n d s . n e t /
countries/I N D/ India /
unemployment rate.).
In December
2019 just
before the
Covid outbreak,
the rate was
7.60, in March it
rose to 8.75 and
shot thence to
23.52 in April
and 21.75 in
May.

47

rare credentials of having
worked in senior positions in
State Bank of India, Banque
Nationale de Paris (BNP),
CIBIL and lastly as COO of a
Mumbai‐based Microfinance
company.]



TAX KORNER

TAX inserted sub section 1HATSection 206C - APPLICABLE W.E.F 1ST October, 2020)
COLLECTION in SOURCE ON SALE OF GOODS
[Newly

T ax
C ollected at
S ource
‐ P.P. Jayaraman C.A
Introduction to TCS (Tax
collection at source)
Tax Collected at Source (TCS)
is the tax payable by a seller
which:
 He charges in the bill to the
buyer at the time of sale.
 The actual liability to pay TCS
to the Government arises on
receipt of the money from the
buyer.
 The rate of TCS is different for
goods specified under different
categories.
Section 206C of the Income Tax
Act specifies the categories of
goods on which seller has to
collect tax from the purchasers.
TCS provisions under Income tax
TISA SEPT-OCT 2020

Act are similar to indirect taxes.
Like an indirect tax:
TCS is mentioned on the
invoice
 Collected from the buyer and
 Is paid to Government account
by the seller.

TCS applicable on all
goods?
The concept of TCS is not new in
the Income Tax Act. The same
has already been levied till now
on specified goods like Timber,
Tendu leaves, scrap, minerals
like iron ore, forest produce etc.,
But for FY 2020-21, there have
been some new inclusions in the
applicability of TCS.

48

Let us now discuss about the
provisions of section 206C (1H)
which is currently relevant and
applies universally to all goods
subject to specified conditions
with effect from 1st October,
2020.
Sub section 1H has been
inserted in Section 206C by
Finance Act, 2020 for collection
of TCS by the seller on sale of
ANY GOODS. This means it is not
applicable to any specified
goods but to all goods. Though
collection of TCS on sale of
certain goods is already covered
under different sub sections of
Section 206C, however all the
remaining goods, which are not
so covered under other
provisions of section 206C, has
now been brought under the
ambit of TCS by inserting sub



TAX KORNER

section 1H in Section 206C.
Important point to note is that it
is applicable only on goods and
not on services.

Applicability
Effective from 01.10.2020, sub
section (1H) imposes
responsibility of collection of TCS
on every person whose total

calculating the threshold of
Rs.10 Crore, the total turnover
including gross receipts and
sales is to be taken into
consideration whereas for
computing the threshold of
Rs. 50 Lakhs, only sale of goods
is to be considered.
Non-Applicability of section
206C(1H) in the following

actionable claims, growing
crops, grass and things attached
to or forming part of the land
which are agreed to be severed
before supply or under a contract
of supply.
Time of Collection Of TCS : The
law envisages that the seller
shall collect from the buyer a
sum equal to 0.1% of the sales
consideration at the time of
receipt of such amount.
That means the liability to
collect TCS will arise even in
case of advance payment
received though the goods
will be physically delivered at
a later date.
So even though bill may
contain the TCS amount, the
liability to pay to the
Department will arise on
receipt of the money.

sales, gross receipts or turnover
during the preceding financial
year ( i.e Fin Year 2019-20) is
more than Rs.10 Cr.
 Such person is liable to collect
TCS @ 0.1% on the amount
exceeding Rs.50L during the
financial year in respect of sale of
goods made to a buyer.
However, in Non-PAN/Aadhaar
cases the TCS rate shall be 1% as
against 0.1% mentioned above.
(Please note that TCS Rate
has been reduced to 0.075%
for the period from
01.10.2020 to 31.03.2021
due to the COVID -19
pandemic.)
It is important to note that for
TISA SEPT-OCT 2020

cases:
1. If goods are exported from
India to any country outside
India.
2. If buyer is liable to deduct TDS
under Income Tax Act. This is
applicable only in specified cases
which will be covered
separately.
3. If the goods sold are already
covered under sub sections (1),
(1C), (1F) and (1G)* of section
206C (already covered by
existing TCS provisions)
As per CGST Act, section 2(52),
“Goods” means every kind of
movable property other than
money & securities but includes

49

Buyer : means a person who
purchases any goods but does
not include:
♦ Central Government, State
Government, an embassy, a High
commission, legislature,
commission, consulate and the
trade representation of a foreign
state; or
♦ A local authority as defined in
the explanation to clause (20) of
section 10; or
♦ Any other person as Central
Government may, by notification
in the official gazette, specify for
this purpose, subject to such
conditions as may be specified
therein.



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In case of software

Export sales.

Software is always a bundled
service which can either be
considered goods or services
depending on various situations.
There have been numerous
litigations in the past with
respect to software. Here too
with respect to TCS, there is a
confusion because softwares
can be either goods or services.

5.The TCS rate is 0.075% ( i.e
on a bill of Rs. 1 lac , Rs. 75 has to
be added as TCS)

Hence, the Government had
clarified, that If buyer is liable to
deduct TDS under Income Tax
Act, ( wherever TDS is
applicable), we need not bother
to collect TCS. However, in other
cases Sec 206C(1H) will be
applicable.

6.If no PAN / Aadhar of the
purchaser party is provided then
the TCS will be @0.75% in place
of 0.075%.
7.On sale to Government, Local
a u t h o r i t y l i k e Pa n c h a y a t ,
M u n i c i p a l i t y, m u n i c i p a l
Committee or Cantonment
Board, etc., there is no need to
add and collect TCS.
8.Although the bill contains the
TCS amount, the same is payable
to government only on receipt of
money from the party.

My opinion: Yes, it will be taken
for calculating the Rs. 50 lacs
limit. Whether GST should be
included in the value for
calculating the TCS percentage?
My Opinion: Generally, in TDS
there is not tax on tax and this
should not be added for TCS
purposes. However, pending
clarification from the
department, it is advisable to
charge and collect the TCS on bill
amount including GST.
3.Whether the receipt of money
af ter 1-10-2020 of old
outstanding are liable for TCS?
My opinion:Generally the old
outstanding of earlier periods,
collected af ter 1-10-2020
should not be taken into account
for TCS since the sellers have not
charged the same in the bills
issued to parties at that time.
In any case, we need to await
further clarifications from the
Department on these and
accordingly decide.

To summarize:
1.It is applicable only on sale of
goods and not on services.
2.It is applicable only if our
turnover exceeded Rs.10 Crores
in financial year 2019-203.
It is applicable on all sales bills
made on or after 1.10.2020.
4.It is not to be charged on
TISA SEPT-OCT 2020

9.If the sale bill is already subject
to TDS by the buyer, then no TCS
is to be charged.
Clarifications on the following
issues are still awaited from
the Department:
1.For calculating Rs. 50 Lacs
whether sales in this financial
year from 1-4-2020 till date the
amount will be taken?

50

It is also to be seen whether
the Government still wants to
put the business community
into further trouble by
bringing in this extra
compliance burden effective
1st October, 2020 itself.
Nothing much is gained by the
Government except that
advance collection of tax will
happen. The trail for the sale
is already available with the
GST returns being filed by tax
payers.



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‐ P.P. Jayaraman C.A
Issue
Coronavirus disease 2019
(COVID-19) has caused serious
disruptions to business and also
to the normal life of all people.
There was complete lockdown
for about three months and
partial lockdown in containment
zones.
Later local lockdowns in various
states were imposed. Many
professionals & businessmen
were not able to operate their
offices and are under undue
pressure for completing their
statutory compliance including
tax audits.
Due to penal provisions, many
professionals and businessmen
TISA SEPT-OCT 2020

are under tremendous pressure
to complete the tax audit work.
But is it correct on the part of the
department to expect assesses
to work by deadlines and impose
penalties for not doing so during
this life- threatening pandemic?
Tax audit under section 44 AB
of the Income Tax Act, 1961
and its due date and
implications if not completed
within the due date.
1. For the accounts of the year
ended 31.3.2020, the tax audit
was to be completed by
30.9.2020 and IT return to be
filed by 30-10-2020.
This was done to enable
prefilling of details in the ITR
form from the tax audit report.

51

2. Now the due date is extended
by one-monthi.e. for tax audit
report submission, in place of
30.9.2020 it is 31.10.2020 and
for ITR filing in place of
31.10.2020, it is extended to
30.11.2020.
3. Whether this extension of one
month for all returns including
tax audit is sufficient??
We are already locked down and
work is affected for almost the
last six months after the end of
the financial year on 31.3.2020.
In many cities and localities, till
date neither the client's staff are
available in office full time nor
the CAs or their staff to complete
the work. Under the



TAX KORNER

circumstances, it is just not
possible to file the tax audit and
the I T returns within the due
date as most of the records have
not yet been collected and
whatever is available till the last
week of March 2020 is what is
available readily even today.
4. What happens if the tax audit
report is not filed within the due
date?
Consequences of not filing Tax
audit report:
Section 271 B gives the details
of penalty leviable if the
assessee fails to get the
accounts audited.
A penalty is provided in the Act
under Sec 271B for not filing the
tax audit report on time. If any

CBDT and if you are unable to
file the tax audit report within
31.10.2020 will you be liable for
the penalty as per section 271
B?
Levy of penalty is not automatic
that if you do not file the tax
audit report, then automatically
penalty is levied. If the assessee
proves that there was
reasonable cause, then no
penalty can be levied. (section
273 B gives shelter)
Section 273 B starts with a Non
obstante clause which is of very
important nature. It says as
follows
“Notwithstanding anything
contained in the provisions of
section 271 B…………”’

pandemic be considered a
reasonable cause for delay?
Section 273B provides that no
penalty shall be levied under
section 271B if there is a
reasonable cause of delay.
Outbreak of COVID-19 and
consequent lockdowns,
absence of proper public
transport, non -functioning of
offices to full capacity is
definitely a reasonable cause
under Sec 273B, in the author's
opinion.
The Government had imposed a
complete lockdown of almost 2
months followed by local
lockdowns in States, forcing all
establishments except essential
establishments to remain shut.
CA offices were never
considered to be essential
establishments and were shut
during lockdown.
However, the Government has
extended the tax audit due date
only by one month, which is
totally inadequate.

person who is liable and fails to
get his accounts audited before
the due date, then he will be
liable for a penalty of 1/2% (one
half percent) of the turnover or
the gross receipts up to a
maximum penalty amount of Rs.
1, 50,000.

Section 273 B provides that no
penalty shall be imposable on
an assessee, for any failure
referred to in section 271 B, if he
proves that there was
reasonable cause for the said
failure.

5. So if no extension is given by

What is reasonable cause for
section 273 B Can COVID-19

TISA SEPT-OCT 2020

52

Initially, as per law, the due date
for furnishing the tax audit
report was 30th September and
due date for furnishing returns
for Tax audit assesses was 31st
October, 2020 but later due to
COVID -19, the same was
extended by just 30 days i.e.
upto 31st October, 2020 and 30th
November, 2020 respectively.
A 30-day extension is surely not
proportional to a sixty day
complete lockdown and almost
six months partial lockdown



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that was imposed across the
country and the existing fear
and irregularity in which
common citizens go for work,
even now af ter almost six
months of first lockdown.

as specified in Sec 273B and
judicial authorities will surely
consider it to be so, in the
opinion of the author.

circumstances of which the
a c t o r, c a l l e d o n t o a c t
reasonably, knows or ought to
know".

You can rely on the following
case law of Delhi High Court 252

Reasonable cause can be
reasonably said to be a cause
which prevents a man of
average intelligence and
ordinary prudence, acting under
normal circumstances, without
negligence or inaction or want
of bonafides.

The pandemic has actually
worsened in all the major cities.

ITR 471 in the case of Aazadi
Bachao Aandolan

Even after the Government
started stage wise unlocking,
public transport is not
operational as it was before
COVID-19 pandemic. For eg. Till
date in Mumbai, local train
services (being the life line of
the city) is shut.

The Delhi high Court observed
as under: “Reasonable cause,
as applied to human action is
that which would constrain a
person of average intelligence
and ordinary prudence.

Due to all these reasons, offices
of both businessmen as well as
professionals have not been
able to function properly but are
functioning only with limited
workforce and resources.
Internet connectivity in India is
not so very advanced to enable
working from home for all
persons and this cannot be
expected pan India.
All these will definitely
constitute a “reasonable cause”
TISA SEPT-OCT 2020

The expression "reasonable" is
not susceptible to a clear and
precise definition; for an
attempt to give specific
meaning to the word
"reasonable" is trying to count
what is not number and
measure what is not space. It
can be described as rational,
according to the dictates of
reason and is not excessive or
immoderate.
The word "reasonable" has in
law the prima facie meaning of
reasonable with regard to those

53

Referring to various
precedents Courts have held
that the burden under Section
273B is entirely on the
assessee, and that a case
which is beyond the control of
the assessee and which
prevents a reasonable man of
ordinary prudence acting
under normal circumstances,
without negligence or
inaction or want of bona
fides, make out a reasonable
cause.
So, all businessmen and
professionals, please take care
of the family and your own
health and do not worry about
the tax audit penalty for the time
being.
The department may in due
course, though delayed, come
out with an extension of the due
date, but even if that does not
come, do not worry as these are
situations and circumstances
which are beyond the control of
anyone and there is no
precedence for this.



The author or the firm which he
represents will in no way be
liable for any penal
consequences that follow by
adopting the above opinions).

“The liability to levy of penalty
can be fastened only on the
person who do not have good
and sufficient reason for not
complying with the law. Only
those persons will be liable to
penalty who do not have good
and sufficient reason for the
failure.”
6. What should the
businessmen and professionals
do under these circumstances.
What precautions they should
take, if the Government does
not extend the due date beyond
31-10-2020 and 30-11-2020.
Of course, this penalty issue is a
grey area as of now.
If there is loss in business, then
definitely we need to complete
and file the tax audit and income
tax return before the due date to
enable one to carry forward and
/ or set off the losses, in the
opinion of the author.
Although the Registrar of
companies has extended the
due date of holding the AGM
to 31.12.2020, that does not
alter the position under the
TISA SEPT-OCT 2020

Income Tax Act.
Author's opinion: Prioritise the
filing of loss return on or before
31.10.2020 thinking that no
extension will be given by the
CBDT. Carry forward of loss is a
very important thing and the
penalty issue takes a back seat
in that situation.
The Taxation and
Other L aws
(Relaxation &
Amendment of
Certain Provisions)
Bill 2020 is also
being introduced in
the parliament in the
days to come. Let us
hope for an
extension of time
limits for Tax audit
and return of
income.
(The above are
purely the opinion of
the author and
readers are
requested to take
legal opinion, where
necessary.

54

(C A P P Jayaraman is a
practicing CA of Thane and
can be reached at
ppjcaoffice@gmail.com)



Reforms

The Last Word

Over the last six years of this Government, one undeniable fact is that it has
consistently taken tough measures whether Demonetization or GST or Bankruptcy
laws.
This monsoon session of Parliament has been very important for India because the
Bills which have been passed are in three core areas on which India's future hangs.
Seshan Ranganathan

 Agriculture
 Education
 Labour

Arvind Panagariya, Professor, Columbia University and Former Vice-Chairman NITI AAYOG says “Those who
thought PM Narendra Modi is not a reforming PM must be stunned by the reforms of the last 2 weeks.”
“In agriculture, one new law frees the farmer to sell his produce where he wants, to whom he wants; another frees
him to sell produce to processors and exporters at an assured price; and a third creates greater certainty of prices
and storage of produce.
In labor, four new codes replace 29 antiquated labor
laws. The new codes reduce an inspector Raj and
compliance burden, create a superior environment
for the creation of well-paid jobs & growth of the
formal sector and empower women to do night
shifts.
A new era in medical education begins with the
launch of the National Medical Commission. A
reform we initiated in 2016 at Niti Aayog begins its
journey. A big change in medical education awaits us in the next 5-10 years.”
Huge urgency for strategic planning and reforms
India now needs to re-invigorate itself by bringing in all those reforms which are absolutely essential, both for
economic growth and overall rapid development. In an eye-opening talk he gave at IIT Kharagpur, the Strategic
Affairs expert Abhijit Iyer Mitra spelt out exactly why India will never be a superpower or even a major player. The
systemic problems are too huge to overcome and political fixation with micro patches means the macro is ignored”.
For example, he talks about the kind of ecosystem we need for innovation in the Information Age. He calculates that
we need $500 billion to provide reasonable education and training over 15 years to the 13 million youth entering
our work force each year. Against that we are annually spending some $ 16 billion, in private and public expenditure
combined. On the health front, he says 44% of Indians are malnourished and 38% have stunted physical growth
which actually impacts mental development and has very real consequences for India's development and
ambitions.
We need this understanding of our precarious situation nationally to infuse tremendous urgency to reform, develop
and grow. Otherwise, the 21st century will become India's graveyard.
TISA SEPT-OCT 2020

55



PUBLISHER INFO PAGE

VOLUME NO X ISSUE NO.II FEBRUARY 2020

VOLUME NO IX ISSUE NO. XII JANUARY 2020
PUBLISHED SINCE 1988

PUBLISHED SINCE 1988

In This Issue
Cover Story

In This Issue

Budget 2020-2021: The Larger picture

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DEFEXPO 2020 - Lucknow

Budget

TAX KORNER - Fresh Compliance
Japanese Low Carbon
Technologies

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INDIA CAN'T MISS

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MSMEs YOU CHOOSE –
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