The government of India has taken the unusual step of restoring excise duty exemption for three small-scale industry (SSI) sectors, including ball and roller bearing manufacturers. The excise duty exemption was taken away in the 2001-2002 budget.

Small Scale Industries are defined by the government in terms of their investment in plant and machinery. Currently, a SSI is defined as any company with total invested capital of Rs 1 crore (10 million Rupees) or less. SSIs are critical to the Indian economy and benefit from a variety of programs to encourage their development.

The Finance Minister described the SSI duty relief program:

For non-SSI businesses, the excise duty on ball and roller bearings is 16%.

In his fiscal 2001-2002 address on February 28, 2001, the Finance Minister dropped a bombshell on India's small bearing manufacturers. The SSI duty exemption for ball and roller bearings was eliminated -- the FM citing, "misuse of the exemption."

The reaction from India's small bearing manufacturers, representing over 20% of the market, was immediate. Most claimed that an overnight 16% price increase would destroy the entire SSI bearing sector. The next day, they formed the Small-Size Bearing and Components Manufacturers Association to fight to restore the excise exemption.

The arguments made by the small bearing manufacturers were not only claims of unemployment and financial hardship. They also cited the fact that none of India's larger bearing manufacturers were being affected, and that the largest of those companies (FAG Bearings India, SKF Bearings India) are majority-owned by non-Indian parents. In addition, they argued that India's small bearing companies were already at a disadvantage competing against low-priced bearings imported from China and other countries.

Finance Minister Jaswant Singh did not directly indicate that the large foreign-owned bearing companies were an issue in restoring the duty exemption. But small manufacturers do believe the recent government action against alleged dumping of ball bearings from China and three other countries did play a part in the decision to restore the exemption.

On September 25, India's Directorate General of Antidumping and Allied Duties (DGAD) launched a formal investigation into the alleged dumping of ball bearings into that country from China, Poland, Russia and Romania. The investigation is the result of a compliant filed by the 12-member Ball and Roller Bearing Manufacturers Association of India. In their complaint, members allege that ball bearings and parts are being sold into India at below market value from those four countries.

Although the exemption is being restored -- retroactively to the beginning of this fiscal year -- no refunds will be made for excise duties paid prior to September 6, 2002.