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Industrial growth in small and medium towns and their vertical integration:
the case of Gobindgarh, Punjab, India
by
Amitabh Kundu and Sutinder Bhatia

- Chapter 4 -

4. Functioning of steel linked activities in Gobindgarh Structure of consumption and production The field survey conducted during December 1999-March 2000 reveals that Gobindgarh has a total of about 300 rolling mills and 50 furnaces, a few being located just outside the boundary of the town. The registration records with the MC, however, place the total figures of rolling mills at 340. The closing down of some units has been noticed during the last three years. In fact, out of 300 re-rolling mills, around 80 units were not functioning for some reason or other, at the time of the survey. Presently about 150 units seem to be operational in the town proper, while another 60 are in its vicinity. Similarly, against a total of 50 furnaces manufacturing pencil ingots, only about 40 are currently functional. About fifty percent of the small-scale units are owned and managed by ‘Ramgadia mistries’. They are also partners in several other units. About 80 units have been taken out by the entrepreneurs on lease basis from their owners. Most of these units belong to people of the Ramgadia community as they are economically more vulnerable and have difficulties in facing the fierce competition caused by the slump in the steel sector. Also, they are less educated and are unable to cope with the complexities of the new technology and modern marketing practices. Generally, the Punjabi Baniyas and Marwari entrepreneurs take over these units on lease. The lease agreements usually remain valid for three to five years, for a fixed amount per annum. Such amounts, however, are rarely above the opportunity cost and interest on the investment. The major advantage of the leasing party is the gain in terms of the capital appreciation of the assets. Unfortunately, however, there has been a decline in the value of the assets in the recent years, as mentioned above, putting thereby the leasing parties at further disadvantage. Other steel linked units functioning in Gobindgarh are six forging enterprises. Besides these, fifteen gas plants have been established for the supply of oxygen cylinders, required for the cutting of steel items. Eight of these have been set up during the last three years. In addition, one machine tool unit, one PVC pipes/fittings unit, one rubber plant and one ply-board manufacturing unit have been established in the town. These are all linked to the steel rolling units, directly or indirectly. Due to rise in demand for HR coil, the production of Patra by the re-rolling mills at Gobindgarh has gone up substantially recently. These Patra are being used for the manufacture of small pipes and are mostly sold to the tube makers who require thinner gauge HR strip with narrow width. Details of current consumption and sources of supply of steel, together with production pattern of the units at Gobindgarh, are given below: Table 4.1: Consumption of Steel at Gobindgarh (1) Pencil Ingots from local furnace (Average daily production 50 Metric Tonnes (MT) per furnace) Total availability from 40 units 2,500 MT per day (2) Re-rolling scrap from Bhavnagar 1,000 MT per day (3) Prime re-rolling materials from Integrated Steel Plants: SAIL 1,000 MT per day TISCO, Essar & others 500 MT per day GRAND TOTAL 5,000 MT per day The total monthly average consumption of steel in the town can, thus, be estimated at 125 thousand MT by taking into account 25 working days per month. The production pattern of finished goods in Gobindgarh is presented below: Table 4.2: Production of finished steel at Gobindgarh Type/nature of product Amount Percentage Share Tor/Rounds 50,000 MT per month: 40 Structurals 30,000 MT per month: 15 Patra/flats 30,000 MT per month: 35 Others (squares/hexagons) 12,000 MT per month: 10 Total: 1,22,000 MT per month   Setting up New Manufacturing Units The process of installation of new manufacturing units in any town works out as very cumbersome and lengthy in most of the states in the country, including Punjab. To install a new unit, an entrepreneur must ensure that its location is as per the framework of the Master Plan of the town or region. He or she must then submit the project report to General Manager (Industries) at the district headquarters together with the documentary proof of ownership of land, production plan and "no objection certificate" from Pollution Control Board. Completing all these formalities, however, does not appear formidable or time consuming in Gobindgarh. The industrialist coming from within the town or neighbouring areas are generally well conversant with the procedures and formalities. There are a large number of middlemen and intermediaries who are happy to undertake the responsibility of completing the formalities for a price. Many of them would be in a position to work their ways out of difficult situations through legal or illegal means. Even when things are not being done strictly as per the law, people are aware of the "norms and requirements" and would not like to go against that for fear of earning a bad name. The industrial environment, existing in the town owing to historical reasons, thus, makes compliance to procedures and formalities somewhat easier. Certain minor incentives and subsidies from the Government are available in the district (as in many other districts in the state) for setting up new units. The most important one is the sales tax rebate available for a period of seven years after the establishment of the unit. The concessions are, however, matters of common knowledge among the concerned people. The house tax or property tax charged by the MC appears quite reasonable in view of the soaring land values in the town. Entrepreneurs, however, argue that these are on the high side, particularly since the local body does virtually nothing to develop the area, improve the quality of environment or provide infrastructural facilities. The pressures exerted by them, individually and as a group, deter the local body from enhancing the rates. The low rates of local taxes would, thus, be a factor in attracting prospective entrepreneurs into the town. Organisation of production process in rolling mills The basic responsibility of carrying out the production process in the steel mills rests with the foremen of the unit. Most of the foremen are employees of the enterprises, working for a monthly salary. They are responsible for organising the production process through a few technical staff like fitters, electricians, turners, blacksmiths and helpers and a band of skilled and unskilled workers. Most of the workers, including the technical staff, do not have any formal training. Nonetheless, many have acquired skill mostly being on the job for a long period of time. The technical staff are usually employed on a semi-permanent basis and paid regular salary. The foremen and the technical staff are paid reasonably well, commensurate with their capabilities and skill and sometimes have a share in profits. A few large-scale units also employ supervisory staff to ensure the quality of the products as well as an uninterrupted functioning of the units. Otherwise, the total responsibility rests on the foremen, as discussed above. Needless to mention that the owner/proprietor of the unit generally overviews the management and functioning of the mills through occasional visits and other channels of communication. The responsibility of arranging labour and ensuring their uninterrupted supply in most of the units is that of the foreman. He determines the requirement of labour depending on the production plan, which, in turn, is regulated by demand and marketability of the products. The wages are, however, paid by the entrepreneurs. The wage payments are made to the unskilled workers based on prevailing norms, generally on a weekly basis. It is important for an entrepreneur to follow the prevailing codes of payment in the town and to be seen as fair in wage disbursement, to ensure continued availability of labour and loyalty. Most of the workers are called helpers. They are placed at specific positions in the production cycle and are paid according to the revolutions per minute (rpm) of the wheel they are attached to. Such work involves toiling under extremely high temperatures for long hours. Sometimes, the payments are based on the weight of the hot products, the workers are required to lift and put into the rolling wheels in the production chain. Many of these workers, managing the rolling wheels, are given one hour’s rest after every hour of work. In a way, they are paid double the amount the workers are entitled per hour. A few of the helpers, placed at wheels with very high rpm, are paid thrice the standard wage rate. Such workers, however, often engage in over time duty, on an average of ten to fourteen hours a day, to maximise their daily earnings. Their average earning being about 120/-, occasionally, they earn even up to Rs. 150/- per day. It is worthwhile to note that a few of the skilled and semi-skilled workers, engaged mostly in the roughing and finishing sections, are employed on a monthly basis and remain attached to a unit for a long time, sometimes for ten years. Entrepreneurs do not show most of the labourers engaged in their units in the register, even as daily wagers. Only the permanent and semi-permanent staff with the Administration and Finance departments and a few technical personnel are formally entered in their official documents. The workers employed on daily/weekly basis are sometimes recorded in order to meet certain statutory obligations imposed by the government, particularly with regard to labour welfare measures like ESI, provident fund, gratuity etc. But these are invariably manipulated, as and when needed. Names of a few workers are shown at periodic intervals so as to ensure that they can not stake any claim to the rights and facilities that are available to permanent employees. In case of accidents, the owners/proprietors chip in occasionally and make a contribution on a case to case basis, mostly "on humanitarian grounds". They may render assistance in settlements with ESI and other government agencies so as to retain the loyalty of the workers and ensure their regular availability. Their involvement is, thus, seen as an act of generosity and not a matter of obligation. The liability of the entrepreneurs of the mills as the principal employer of the labourers, thus, becomes extremely limited. Many of the unskilled and semi-skilled workers are recorded as contract labourers of the foremen, firemen or supervisor. All these make it possible for the proprietors to handle the statutory requirements of the Government of India and that of the state of Punjab, stipulations of Provident Fund and ESI etc. quite easily without bearing much cost. These are managed in a manner whereby the responsibility of welfare of the labour and compensation against accidents is technically passed on to the foreman or other lower level staff. The latter, in turn, are in a position to by-pass this by showing that the workers are hired on daily or weekly basis. There exists a system for paying bonuses to workers attached to a mill for a whole year or more. The bonus amount should normally be 8.33 percent of the monthly emoluments and 15 days leave salary per year. In addition, they should get one to two months salary when quitting the job. Unfortunately, there is no regulation or administrative system ensuring compliance of these norms and the majority of the units do not pay any of these benefits. What is more unfortunate is that, given the existing labour arrangements in the factories, it is impossible for the Labour Commissioner or any other government official to intervene on behalf of the workers and give them a fair deal. The above system, however, has undergone some transformation as a result of the slump in demand for steel products, triggering off some sort of recession in the industry. A few among the entrepreneurs are contracting out the production responsibility to their foremen. It is difficult to obtain precise data with regard to the recent changes in the organisation of production or the number of units functioning under sub-contracting arrangements through a field survey. Understandably, the job of dealing with external environment and exercising overall control over plant operations remains with the proprietor or entrepreneur even under this arrangement. The foremen are provided with the raw materials and paid according to the volume of the production, at a rate fixed per ton of the finished products. The conversion rate offered to the foremen is generally Rs.150/- per MT. This sub-contracting system has, to some extent, improved the efficiency by increasing the stake of the foreman in the production process. It allows the entrepreneurs to decentralise not merely the responsibilities but also some of the risks associated with the production process. A few of the foremen take the contract of running more than one unit. This increases the efficiency in the system by giving the foremen the flexibility to shift his workers from one unit to another and reducing the incidence of idling of labour. However, it is important that the foremen generally would not share in the losses due to the failure in electricity supply, overheating of machinery or any such factor. It is, perhaps, because of this that the system is not practised on a large-scale and has remained confined to only a few units. The field study reveals that sub-contracting the total production process to the foremen has been done in case of only about ten percent of units. However, engaging firemen (who manage the furnace) and others through contracts is quite common. Jobs like heating and feeding the furnace, cutting, twisting, breaking the angles etc. come under this category. These jobs are given out to contractors on payments, made on the basis of the volume of production. The majority of the workers engaged by the contractors are unskilled but they are also paid on a contractual basis. They are paid an amount based on the production in their sections. These workers are generally hired on a daily basis. They mostly receive the minimum applicable wage rate as declared by the state from time to time. Nonetheless, they are deprived on account of denial of all social security benefits like pensions, gratuity, medical reimbursement etc. Still, most of them stay with the same contractors for several years, possibly for reasons of job security and personal relationships. The maintenance of the equipment installed in the units is the responsibility of the entrepreneur. Since the payments to most of workers are linked directly or indirectly to the output of the finished steel, the foremen as well as the workers are equally interested to avoid breakdowns. Also, they effect repairs as fast as possible to carry on the plant operations without interruption. Although most of the units are in fierce competition with each other, they often cooperate and assist by providing spare parts and other tools. This helps to minimise the breakdowns of the mills and keep them operational in periods of peak demand. The other areas where the system of employing labourers on a contract basis exists are in the loading and unloading of raw materials and finished products. These jobs are done by groups of unorganised workers who wait for work at train and truck terminals, stockyards of SAIL and large traders, and other probable places. The group leaders are known as the ‘thekedars’ or ‘lanedars’, each having 20 to 25 workers with them. Each group is attached to a few traders or factory owners and gets jobs from them on daily basis, depending on availability. The leader takes the job, deputes a certain number of workers and receives the payment. He is responsible for arranging food and drink for "his people" and disburses the payment on a weekly basis. The payment received by each worker within a group is the same, irrespective of the work actually done by him. The rates for loading/unloading are made based on tonnage and the volume of work varies depending on the level of economic activity in the town. On average, a worker makes about Rs. 1,500 to Rs. 2,500 per month. The group leader in periods of slump can ask a few workers to leave the group or take a break to visit the village. There is no job security, no bonus or leave salary for these workers. The leaders or thekedars usually do very little physical work, as they are busy in managing the other activities associated with the job contracting. It is difficult to assess the commission redeemed by them from the wages of the labourers. Interviews with some of the mill owners, however, reveal that they get about five percent as commission. One of the striking revelations, however, is that unlike the large-scale trade unionism in other parts of the country, labourers in Gobindgarh are totally unorganised. There is no organisation that can take up their cause and agitate for them in a collective manner. This is the main reason for the indifference and condescending attitude of the factory owners towards the welfare measures for the workers, as discussed above. There are certain so-called social organisations/leaders that occasionally take up their grievances and lobby with the Labour Commissioner. But most of them do not enjoy the confidence of the workers as they often act as agents of the mill owners or as middlemen interested in their commission or a kickback. On the other hand, disputes with an employer may lead to the worker being thrown out of employment. This may give the latter a bad name, whereby it is difficult for him to get a job even with another employer. The labourers, thus, prefer not to complain for fear of inspiring the wrath of the owner, and accept the semi-feudal working arrangements that are highly exploitative in nature. As far as the entrepreneurs and traders are concerned, they have several Associations that take up management and policy issues with the state and central government agencies on their behalf. The Steel Chamber of Commerce and Industries is one wherein both manufacturers as well as large traders are members. In addition, there is Steel Re-rolling Mills Association whose membership is open to all the mill owners belonging to large and small categories. Presently, the Chamber has 700 members and the Mills Association has 200 members. The third and possibly the most active organisation is the Small Scale Steel Re-roller’s Association which has only about 200 members but interacts actively with the Central and state Government agencies on macro policies. Many mills have memberships in more than one association. The major responsibility of these associations is providing information about taxation, input and output pricing policy of the government, technological options and market variations. They organize seminars, workshops and lectures by experts from organisations like NIST, NITCON etc. for the benefit of their members. Unfortunately, they have not taken up the responsibility of facilitating quality control, marketing, procurement of loans etc. They become active and take joint stands only when there are specific government decisions affecting their members. Profile of the Entrepreneurs, Supervisors and Other Workers in the Steel Mills A large number of mills in Gobindgarh are owned by wealthy families who migrated to the town from the Marwar region of Rajasthan. These families are not large in number but many have three to five units each. In the absence of large volumes of institutional finances, investments in new industries have been undertaken through personal/family savings or borrowings from relatives and friends. As a consequence, the ‘Marwaris’ and the related ‘Bania’ community coming from other regions of Punjab own about 95 percent of the large rolling mills. As far as the small mills, based on scrap, are concerned, these communities own about 40 percent. About 40 percent of the small units are owned by local Punjabis – people from Ramgadia community. Mostly, they are the people who had started their career as specialised workers or foremen and could organise resources to set up their own units. Many of these units have been leased out to other entrepreneurs on a contract basis, as noted earlier. Another 15 percent of the units are running on partnership arrangements between people belonging to Ramgadia and Bania/Marwari community. Most of the foremen, supervisors and technical staff in the steel mills are local Punjabis who have acquired the required skill and ability to manage the production processes by working over the years. In many cases, this has come to them through the family line. A skilled worker inducting his son or relative as a junior level supervisor and training him on the job is a common phenomenon. Mostly, this young relative graduates to become a supervisor and starts handling the operations independently. The rolling units have a large number of skilled and semi-skilled workers, managing the activities in various stages, as mentioned above. They are mostly in-migrant labourers, coming from Bihar and Uttar Pradesh. The workforce composition of the industry can thus be presented as follows: proprietors: Marwaris coming from Rajasthan, Banias and Ramgadias of Punjab; foremen and technical staff: coming from different regions of Punjab; skilled and semi skilled labourers: coming from Bihar, Uttar Pradesh and Rajasthan. In addition, a large number of unskilled workers who are also migrants are engaged in loading/unloading activities in the mills. A few of them come to the town for a short duration every year. Most of them, however, are migrant labourers who living there for a long period. There is an informal system of labour contracting in the town, as mentioned above. There are several skilled workers taking up specific contractual jobs in the production chain from the mill owner or foremen who, in turn, engage workers on contract basis. Also, there are thekedars, each having certain number of unskilled attached workers, who undertake loading unloading and other tasks for traders and mill owners. A few of them maintain contact with workers in the villages of their origin, directly or through other workers in the group. A section among the labourers, however, come to the town on their own and seek employment through their friends and relatives or approach the contractors directly. Some of them seek employment individually by standing at terminals, stockyards and other probable places, until they are able to find a thekedar who can include them in his group. All these channels of labour supply, in general, ensure adequate availability of labour. Most of them reside in nearby villages and periphery of the town in rented houses. A few live in the premises provided by the mill owners. The real reason of concern, however, is the economic and social well being of the skilled and unskilled workers engaged through the foremen, contractors and thekedars on monthly, weekly or daily basis. Understandably, the system of sub-contracting to the middlemen – from the mill owner to foremen and from foremen to other technical staff, contractors etc. – reduces the wage payment for the workers and increases their vulnerability. Engaging them through informal/contractual arrangements enhances the possibility of production activities being carried out in violation of safety regulations and their being engaged in hazardous activities. They get very little or no compensation in case of casualty at work and receive vary little medical assistance. These come not as a part of the system but depend on the generosity of the mill owner. Financing Operational Expenses Entrepreneurs having set up their own units depend largely on traders for their requirements of working capital, including finances for buying machinery and raw materials and selling their products. Traders deal with the entrepreneurs largely through brokers. There are 10-12 large traders and hundreds of financiers who provide capital at varying rates of interest. Besides, there are many brokers who work as middlemen. The incentives for cash payment and interest to be charged to the entrepreneurs or traders for delayed payments, depending on the period of delay etc., are governed by definite norms that are accepted by everyone. For example, while buying items on immediate (cheque to cheque) payments, one is entitled to 1.5 percent rebate on the total payment. For payments made on the second day and onwards, up to the tenth day, the rebate is reduced to 1 percent. Thereafter, it is reduced daily by 0.1 percentage point. This means that the actual payment would equal the value of the deal if the payment is made on the twentieth day. Thereafter, interest is charged on the amount advanced by a trader or manufacturer at a fixed rate. Loans are often given without any formal written agreement or letter of guarantee. This system seems to have worked very well in the past. However, during the past two years, a few cases of default or fraud have arisen. This can possibly be attributed to the recession, which is adversely affecting the financial viability of producers, traders and middlemen. However, the problem has not yet acquired an alarming proportion and the financiers continue to advance money for operational purposes without any formal guarantee. The rate of interest in the off-peak season can be as low as 1 percent per month, which is less than the cost of borrowing from formal institutional sources. The rate rises up to 3 percent during the peak demand period, particularly at the end of financial year, when there is demand for money for clearing the accounts. Borrowing from banks is quite common among the established entrepreneurs. Depending on the assets and credit record, individuals are given a borrowing limit by the banks. Unfortunately, the induction furnaces are not entitled to receive loans from nationalised banks. In recent years, there have been a few cases of fraud, possibly with the complicity of the bank officials. As a consequence, the system, which in any case was bureaucratic and cumbersome, has become more stringent. The banks are seen, particularly by the small entrepreneurs, as the financier of the last resort. This is also due to the low rate of interest at which funds are available in the private capital market. Availability of raw materials in the steel mills Prior to the establishment of integrated steel plants in the late 1950s and early 1960s, the secondary sector in India was dependent on raw materials that comprised basically re-rollable scrap. This was the case in Gobindgarh as anywhere else in the country. A large volume of the scrap went directly into the mills for re-rolling. Segregation of re-rollable materials from the rest of the scrap became a lucrative industry, which was highly labour intensive. In addition, a number of induction and arc furnaces started all over the country including Gobindgarh for converting melting scrap into pencil ingots. From 1960 onwards, semis, i.e. ingots, blooms and billets became available from the integrated plants but the supply was limited. As the demand for these products outstripped the supply, the local furnaces in Gobindgarh did not have any marketing problems. The partial withdrawal of the freight equalisation scheme in 1992 and the resultant recession in the steel industry during subsequent period led to significant changes in the supply of raw material at Gobindgarh. The demand for pencil ingots, re-rollable scrap etc. increased manifold at the cost of semis from integrated producers. Currently, about 40 percent of the requirements are being met through pencil ingots produced by local furnaces, as shown in Table 4.1 above. Around 20 percent of the demand is of re-rollable scrap which is obtained from Bhavnagar. Only the remaining 40 percent comes from the integrated producers in the form of semis. The public sector steel plants of the Steel Authority of India Limited (SAIL) supply the bulk of this. Of the total semis consumed at Gobindgarh, 50 percent come in the form of slabs while 40 percent are in blooms. The remaining 10 percent, coming from outside the town, are in billets. Import of scrap is carried out for two purposes – melting in the furnace and re-rolling into finished products. There exist differential rates for taxation depending on the use. While the scrap for the furnace is taxed at the rate of 5 percent, the items that go into the re-rolling mills are subjected to 25 percent tax. This opens the door for corruption as the two categories of scrap are not clearly distinguishable – scrap of one category can easily be used for the other purpose. Some of the integrated producers like SAIL have conversion arrangements with rolling mills at Gobindgarh. Conversion is often done locally to meet customers’ requirements of specific items of certain size and grade that have limited demand or are not remunerative to roll in the integrated steel plants. This enables SAIL to market their own semis after the conversion, giving a guarantee of quality to the secondary producers who may not have the same degree of confidence in the products of other producers. Electricity is yet another input in the production process, which accounts for a high percentage of the total operational expenses. The Punjab State Electricity Board (PSEB) provides electricity directly to the mills at Gobindgarh. It is important to observe that fixed loads have been sanctioned to different units at Gobindgarh, placing thereby a lower limit to the electricity charges. This reduces the possibility of tampering with electricity meters/ bills. The monthly charge for electricity, however, depends on the actual consumption, which exceeds the limit substantially. A critical factor attracting the steel mills at Gobindgarh is the relatively lower tariff charged on the industrial use of electricity in the state. Despite frequent tariff rises recent years, it is still lower than that in the adjoining states like Haryana, Gujarat, Maharashtra, Uttar Pradesh, Madya Pradesh and Rajasthan. There are, however, complaints of frequent power cuts and load shedding which neutralise the advantage of low price electricity in the state. There are very few cases of theft of power by the industrialists at Gobindgarh, as compared to units in other states. It has been argued that due to rampant power theft by the industries located outside the state, the latter are able to produce re-rolled goods at competitive costs. The other important energy input in the mills is furnace oil. Its price, too, has been raised several times during the past few years, the increase being 100 percent in 1999, mostly due to the increase in freight charges. It is because of this that the price of this oil is higher at Gobindgarh than at other places. Trading through a System of Brokers In view of the fact that the daily requirement of individual units is not very large, the procurement of raw materials by most of the units is done through brokers who, in turn, depend on the traders for bringing in the supplies of scrap, semis and other items. Only a few large rolling mills buy their supply directly from integrated producers. For example, out of 14 major customers of SAIL at Gobindgarh, only six have manufacturing units of their own. The remaining are traders. Presently, the share of the materials sold to actual users by SAIL is only 45 percent, the rest being bought by traders. Some of the manufacturers, too, buy in bulk and sell a part of the materials locally to other producers. Brokers are important links between traders and manufacturers, operating through well-organised marketing networks. Traders buy in bulk from various industries and cater to a large number of buyers simultaneously. Brokers collect orders from the buyers and give that to the traders so that the latter can organise their bulk purchase. Their job is to communicate the requirements of the manufacturing units to the traders and establish linkage between them. The emergence of the nexus between manufacturers, traders and brokers and the orders being placed through a number of middlemen or brokers is due to mutual convenience and division of responsibility. Brokers are constantly in touch with entrepreneurs as well as traders and monitor the demand and supply situation in the market. Traders have the money to procure raw materials in bulk and store them for some time. Some of the traders in this region are so big that they are in a position to take rake loads of semis from integrated steel plants and buy scrap from Bhavnagar (both of melting and re-rollable type) in truck loads. In fact, 150 trucks loaded with scrap enter into Gobindgarh every day from Bhavnagar. The traders retail-sell these to the units based on their requirements on daily or weekly basis. It is their responsibility to arrange handling and transportation of materials, meeting the customer’s deadline and obtain realisations from sales. Further, in case of large requirements from a few entrepreneurs in the town and its neighbourhood, the traders can organise supply at short notice by procuring them from long distances. This becomes possible as the traders have their brokers posted at major centres of supply and demand. The brokerage system performs an economic function as it takes care of the daily fluctuations in demand. It, thus helps in arresting the movements in prices. As a result, even those who buy their inputs from the local arc furnaces operate in the market through traders and brokers. The brokerage system at Gobindgarh operates on a very small margin and high turnover. The brokerage fee is mostly as low as Rs.20-25/- per MT. With the supply outstripping demand in the country in recent years, the realisation of even these rates has become difficult. As a consequence the margins are getting thinner over time. The present rates for the middlemen per MT of steel at Gobindgarh are as follows:   - Commission : Rs.125/- (1%) - Octroi : Rs. 40/- - Cartage : Rs. 50/- - Testing/Brokerage : Rs. 20/- - Billing charges : Rs.50/- -------- TOTAL : Rs.285/- (say Rs. 300/-) It is thus evident from the above that both the traders and brokers are operating on a small profit margin. That makes it cheaper for the mill owners to deal with brokers or traders than with the suppliers who are located at distant places. They can, thereby, cut on the cost of travel and of marketing personnel, whilst benefiting from the economies of scale made by moving semis in large volumes through the traders. The system of having the middlemen, thus, enables the manufacturers in the town to have linkages with buyers located in remote corners of the country, through an unofficial network at very little cost. Back: Table of Contents Continue: Chapter 5 © UNESCO 2001 The opinions expressed in this publication are those of the author and do not necessarily reflect the views of UNESCO.

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