Sivakasi: At a time when Indian engineering and pharmaceutical companies are making a hue and cry over establishing a marketing office, joint venture or a production facility in China, Sivakasi-based fireworks units have been doing that - noiselessly - since 2001.

Standard Fireworks, one of India's oldest pyrotechnic unit, has a joint venture in China - Standard Fireworks China - with a majority control, and has commissioned two production units there. Also, promoters and technicians from other units have started visiting China to keep abreast of the latest in pyrotechnics.

Says Standard Fireworks whole-time director S Maheswaran, who is also the president of Tamilnadu Fireworks and Amorces Manufacturers' Association (Tanfama): "Technologically, the Chinese, the inventors of fireworks, are well advanced. But what they lack is modern management acumen while negotiating with western corporate houses."

With China entering the World Trade Organisation (WTO) league, the entrepreneurs there want to sharpen their commercial skills, he says. "We formed this joint venture so that we can learn the technology while they sharpen their management skills." Already, Standard Fireworks, with its other overseas business connections, has helped its Chinese partner to increase its exports.

In turn, the Rs 60-crore-turnover Indian company, managing 20 production units, is deriving the benefits of technology transfer. For the past two years Standard Fireworks is playing host to Chinese visitors. "The one crucial aspect in fireworks is the time fuse/wick. The Chinese are good at it. We have to improve in that department," admits Maheswaran.

United colours of Sivakasi
11-1-1 is how one can describe the economic cycle of the Rs 700-crore fireworks industry in Sivakasi that houses 85 per cent of the total fireworks production capacity in the country. The 30-sq km radius around the small town generates business worth Rs 3,000 crore from three industries - printing, fireworks and matches.

Why 11-1-1? The pyrotechnic units in this small town carries out production activities for 11 months and sells the fireworks for one month which in turn is used up by consumers in just one day (at least 90 per cent of the production).

After recovering from a dull 2001, the 540 licensed fireworks units here today look robust. The reasons are many. First, the industry is not burdened with the unsold stock of 2002. (The unsold stock of 2001 Diwali worth Rs 100 crore had dampened the industry in 2002.) This year the industry hopes for higher realisations as they see a shift in customer preference towards colour and aerial display varieties that paint the night sky with colours.

Fireworks could be classified into four categories - noise (crackers), motion (rockets), display (flowerpots) and varieties that combine all these three. Currently, the ratio of colour fireworks:noise crackers is 60:40 and this is expected to change to 80:20.

"In addition, we are confident that our crackers will meet the noise-level restriction of 125 decibel levels at 4-metre distance," says Maheswaran. Following the Supreme Court order in 2001 a maximum noise level of 125 decibel was incorporated in the Environment (Protection) Rules, 1986.

According to him, the country lacks the necessary equipment to measure and implement noise restrictions. "A testing field of prescribed standards and a well-equipped laboratory are necessary for sound measurement. As a matter of fact, no country in the world has enacted any such legislation regulating the noise of firecrackers by measuring the noise levels, due to the impracticalities in noise measurement."

A simple restriction on the cracker size and its chemical content is a better way of noise control. The Department of Explosives has offered to the Supreme Court that it will experiment with various firecrackers and evolve prescriptions on the desired size and chemical content for each variety of firecrackers so that the noise level is retained below 125 decibel.

Nevertheless, the units on their own have reduced the cracker size and the chemical content to meet the noise level norms. This has a beneficial impact on the manufacturers' bottomline with the end product price witnessing a marginal increase. "The increase in raw material prices is only just 3 per cent," says P Prabhakaran, partner, Sri Murugan Fireworks Industries.

Adds S Rathinagiri, Rajkumar Fireworks Industries, and secretary, Tanfama: "The industry produces around 135 varieties using around six chemicals (aluminium and magnesium powder; potassium, strontium, barium nitrates; potassium chlorate; red phosphorous; zinc oxide; sulphur) as inputs. But it is the aluminium powder that is largely consumed."

According to industry officials, the price of aluminium powder - a grade that is largely used - hovers around Rs 140 per kg. Most of the major fireworks units in Sivakasi are fully integrated ones. Says Maheswaran: "The restrictions on raw materials storage and the high import costs forced us to go for backward integration. As Sivakasi is also popular for offset printing, forward integration into printing made good business sense."

Many units are more than 20 years old and the brand is built over a long period of time. "The increase in the number of units is not as it used to be five years ago. Not many go out of business though," says Prabhakaran.

National Fireworks is the one notable unit that went out of business some years ago. The company manufactured and sold Lion brand fireworks. A family dispute forced the unit to shut down and freeze the most popular brand. The closure of National Fireworks eventually benefited Standard Fireworks and Kaliswari Fireworks, selling Cock brand products. The two companies command a 10-per cent market share.

Exports fused out
Globally, the fireworks industry is estimated to be around Rs 10,000 crore. The Chinese share is around Rs 3,000 crore, whereas India's share is very minuscule. Indian units export just sparklers. Quality and shipment costs are what fuse the exports. "It costs just $1,600 to ship a container load of fireworks from China whereas it is $4,000 for us," rues Maheswaran.

The other reason for poor exports is the unit size. Only a few companies fall under the excise net while a vast majority is deliberately kept small to avoid excise duty. "The industry contributes around Rs 35 crore and Rs 15 crore as central excise and state excise duties, respectively," says Rathinagiri, a chartered accountant by qualification.

Apart from Standard Fireworks, the other major units in Sivakasi are Kaliswari Fireworks, Ayyan Fireworks, Sony and Ravindra. The small size has stunted growth and modernisation, which in turn has affected exports. Since time fuse/wick is a critical item in a cracker, getting international quality is proving to be a stumbling block.

Denying criticisms that the players are diversifying into service sectors (education, hotels) while not ploughing back into the fireworks industry, Maheswaran says: "Today big players are investing in research and development."

According to him the government should distinguish between hazardous and non-hazardous process. "While the production process is hazardous, the final packaging should not be categorised as hazardous. In China the final packing line is big and it is classified as non-hazardous."

Looking at the retail price of the products (the maximum retail price [MRP] is generally marked up by seven times), the fireworks industry seems to be a fit case for levying excise duty based on the MRP.

"The MRP is fixed taking into account the freight cost and the local taxes. The tax component alone is around 45 per cent. You should also keep in mind that the product is highly seasonal and the dealers and traders will have to hold the unsold stock for a year. Moreover, customers have the habit of bargaining at the retail outlets," says Maheswaran.

Units like Standard Fireworks also supply special ammunition to the armed forces. But the business from the defence services is not a steady source.

Made for, not by, children
The one flak that the industry faces is the employment of child labour. According to Maheswaran it is the unlicensed units that employ child labour and bring a bad name to the entire industry.

Industry officials blame non-government organisations (NGO) for tainting the fireworks industry to source foreign funds. The NGOs and the vocal middle class, however, turn a blind eye when it comes to households, city hotels and even golf courses that employ children.

Denying the charge that bigger units outsource fireworks from unlicensed units, Maheswaran concludes: "Some units outsource only packaging. The unlicensed units infringe on our brand name. It is for the government to take action against the spurious units."