Capital Costs

This is a major factor that influences acquiring of machines or technology in India. Capital is difficult to come by and when one does manage to get it, the cost of the capital is high. The rates of interest on long-term loans in India are between 12% and 15% per annum, whereas, in most countries, in Europe and elsewhere, interest costs are only in the region of about 5%.

This plays a very important role in selection of machines. Higher capital costs also means higher operating costs and often the comparison needs to be made as to whether savings in labour would offset the higher cost of capital. Being taken together lower cost of labour and higher cost of capital as the condition exists in India is exactly the opposite of what prevails in Europe.

Therefore, machines, equipments and technologies designed for the European conditions cannot have a one to one bearing in processing in India. One argument, which often finds favour, is that high-end machines with more automation guarantee excellent quality. This is true, but it is also necessary to weigh the cost of high quality with what is affordable and acceptable in the market.

In an environment like India where most of the products of wood are produced in the unorganised sector, to mechanise and own a factory itself may prove to be a disadvantage in many ways. For instance, while the unorganised sector pays no taxes, a factory has to contend with reasonably high taxation at every level. Therefore, higher the cost of equipment, higher would be the disparity between goods produced by craftsmen and factory made goods.

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