How the country messed up a competitive advantage and what lessons it holds for the Indian economy even today
Policies still restrict competition and entry (and exit) of large-scale companies. Once quality and standardization is improved, Indian brands should be able to play on the global stage
Fountain pens are perceived to be collectors’ items, with shades of nostalgia. They have been ousted by ball pens and gel pens, as well as technology that has rendered redundant the art of writing by hand. Alternatively, fountain pens cross the fuzzy line and become items of jewellery. So runs the perception. Yet, in the market for writing instruments, fountain pens still retain a 10% market share.
Among that market share, where are Indian fountain pens and brands? In the world of Mont Blanc, Parker, Cross, Pelikan, Sheaffer, Waterman, Sailor, Aurora, Lamy and Pilot, where is the Indian version of Scrikss (Turkey), TWSBI (Taiwan) or Jinhao (China)? Note that unlike India, Turkey and Taiwan are relatively recent entrants in this market. The irony is that India had a head start.
Officially, the first Indian fountain pen was made by Ratnam Pen Works in 1932, with a complete swadeshi version handed over to Gandhiji in 1935. Even earlier, in 1911, R.N. Saha took out several patents in India and abroad and started Luxmy Stylo Pen Works in Varanasi (history doesn’t tell us what happened to this venture.) That was the time when Sailor Pens started in Japan.
Fact is, at the stroke of the midnight hour, there were many Indian brands—Ratnam, Ratnamson, Guider, Deccan, Sultan, Gama, Penco, Wilson. There were also many brands of fountain pen ink—Krishnaveni, Horse/Camel, Sulekha.
Clearly, there was an incipient Make-in-India story for fountain pens and ink. It dissipated because of policy-induced distortions— import duties, quantitative restrictions on imports, small-scale industry (SSI) reservations and the Foreign Exchange Regulation Act (FERA).
This is the story of how India messed up a competitive advantage and what lessons it holds for the country’s economy even today.
Protected from competition
In 1948, India was a founder member of GATT (General Agreement on Tariffs and Trade). GATT principles prohibit quantitative restrictions on imports. Till April 2001, India justified quantitative restrictions on balance of payments grounds. Tariffs are relevant only if an item can be freely imported. Stated simply, items were divided into open general licence (no licence was required), restricted (import licence required) and prohibited.
India invoked the quantitative restrictions clause first in 1954. That initial list of prohibited items had eight articles— canned fish; wine; toothpaste, tooth powder, talcum powder, shaving soap and shaving cream; lithopone; coal-tar dyes; glass beads and false pearls; safety razors and parts; and fountain-pens and parts.
Some context is required here: in the early years after independence, much of legislation and policy was inherited from a period of war-time shortages and 1939 Defence of India Rules. This was also true of the Imports and Exports (Control) Act of 1947, which gave licensing powers. When originally enacted in 1947, there was the qualification “for a limited period". But that bit was excised in 1971. Legislation meant to be temporary entered into the statute books permanently.
Fountain pens are consumer goods. Therefore, free imports of fountain pens had to wait till April 2001. Free doesn’t mean duty-free. (Today, basic customs duty on fountain pens is 10% and integrated goods and services tax is 18%). Therefore, domestic fountain pens were protected from competition. Initial smuggling through French territories or Goa, or subsequent smuggling through Nepal, doesn’t count as competition.
One could still argue that competition would enter through foreign investments. For instance, Pilot Pen Co. (India) Pvt. Ltd was set up as an Indian subsidiary in 1952. Unlike Pilot Pen Co. (India), Right Aids Orient (Pvt.) Ltd—a TTK (T.T. Krishnamachari) group venture, incorporated in Madras (now Chennai)—wasn’t a subsidiary. It had a licence to manufacture Waterman, as other Indian manufacturers would do later.
The Indian stage
Under the Factories Act, 1948, an enterprise is defined as large or organized, depending on usage of power and number of employees. In 1958, the labour ministry published a list of large industrial establishments in the country. For fountain pens, there were 16. There are some known brands in the list—Wilson, President, Wality and Airmail, and Flair. Most of the 16 listed enterprises employed less than 20 workers. With more than 200 workers, Dhiraj Pen Manufacturing Co. Ltd, Bombay (now Mumbai) and Bal Krishna Pen Pvt. Ltd Bombay (now Mumbai) were really large. Pilot employed around 150 workers.
That list is from 1958. A few fountain pen units were set up in 1960s. In 1963, there was Luxor, which introduced a fibre-tip pen in 1966 under the brand name Artist. Camlin (now Kokuyo Camlin) started making fountain pens. Then, Bril (Industrial Research Corporation) was set up in 1964. It started as a manufacturer of ink, but soon moved on to fountain pens. There was also a cottage industry of sorts in Calicut (Kozhikode), starting with Kim and Co. in 1955, to add to the cottage industry in Rajahmundry.
In all, there were four different categories of fountain pen makers: “Foreign" like Pilot; very large Indian units like Dhiraj and Bal Krishna; largish Indian manufacturers, “large" in the sense of being under the Factories Act; and small manufacturers.
Thanks to protection from imports, and fuelled by the spread of education and increased demand, these firms thrived and co-existed. They catered to different segments of the market. From a Council of Scientific and Industrial Research publication Wealth of India, we know wholesale prices of fountain pens in 1963, prices being for a dozen pens. For a gold nib Pilot, Champion, Swan or Black Bird, it was between ₹85 and ₹132. For a gold-plated steel nib Pilot, it was between ₹57 and ₹132 (there was an import duty of 65% on gold or gold-plated nibs.) For brands like Wilson, Doric, Clipper, Plato or President, a dozen fountain pens cost between ₹16 and ₹72. For imported pens, the price was around ₹208.
Other than a valid argument about absence of proper import competition, one doesn’t form the impression that unmake in India was going to occur for manufacture of fountain pens in India. But that’s precisely what happened.
This seemingly happy state changed because of three policy-induced distortions. The first was SSI reservations. Statutory powers for reservations were introduced through the Industries (Development and Regulation) Act (IDRA), 1951.
Actually, this Act gave government powers to introduce industrial licensing. Until IDRA was amended in 1984, the government didn’t possess any statutory powers for SSI reservations. It is a different matter that this was never challenged in court. No one quite explains who decided to introduce SSI reservations in 1967 and how the original list of 47 items (later expanded to many more) was drawn up.
Anyway, in 1967, fountain pens were in that initial list of 47. This prevented fresh entry from large enterprises. Since existing large enterprises weren’t asked to close down (when reservations were introduced), this cushioned them from competition.
After the Micro, Small and Medium Enterprises Development Act of 2006, the SSI nomenclature has of course been overtaken. There has also been some liberalization. First, definitions of SSI/MSME have become wider. Second, with an equity limit, foreign direct investment is permitted in SSIs. Third, large enterprises can also invest in SSIs, provided that at least 75% of production is meant for exports.
But even today, if price of a fountain pen is less than ₹100, it is still reserved for production by the SSI sector.
The second distortion was FERA of 1973, which was even stricter than the 1947 version. Everyone is familiar with IBM and Coca-Cola Co.’s exits consequent to mandatory dilution of foreign equity. But those same provisions also applied to “foreign" subsidiaries and joint ventures of fountain pen makers.
The final distortion was when Chapter V-B was introduced in the 1947 Industrial Disputes Act in 1976-77, making labour markets rigid for very large fountain pen makers. This was of course not specific to fountain pens. But as much of fountain pen manufacturing was concentrated in Bombay (now Mumbai), labour unrests in Maharashtra in 1980s made them close down.
Stated simply, “imports", “foreign" and “large" were all undesirable. Small was beautiful. This meant explicit encouragement to cottage industry-type fountain pen enterprises.
Fountain pens differ from old dip pens because there is a reservoir of ink. Other than the onslaught of ball pens, technology around that reservoir also changed, especially since the 1970s. From eye-dropper pens, technology moved to converters or other suction mechanisms and cartridges. Material for the body moved for ebonite to acrylic.
Technology has costs and there are economies of scale in production, as well as marketing. If one constrains that process, one is reduced to the wisecrack about fountain pens being more of fountains and less of pens. There is limited USP in creating a niche out of handmade, ebonite eye-dropper pens. There can’t be much of USP for dip-pens simply because the Constitution was written with one. (The draft was written with a Wilson.)
Competition requires entry and exit. Despite entry barriers, one started to witness this exit in 1970s and 1980s. Since 1991, with easier entry, there have been more exits and that’s inevitable and desirable. Despite liberalization, there are still vestiges of policies restricting competition—import duties (though not quantitative restrictions ), some SSI reservation, labour laws.
Faced with competition, different enterprises react differently. Some close down. Others move to other product lines. Some switch from fountain pens to ball pens. Others start to manufacture (under licence) international brands for the Indian market—Parker, Waterman, Pilot, Paper Mate, Senator, Pierre Cardin, Pentel, Uniball, Lamy, Bensia, Cross and so on.
Not unlike what happens to software, some choose to concentrate on the OEM (original equipment manufacturer) market. Others choose to focus on trading and importing fountain pens from China.
The way ahead
But there are slices in the fountain pen market. There is a segment for pens that cost ₹1,000 or less, even ₹500 or less. Why doesn’t the Indian equivalent of Shanghai Hero Pen Co. (famous in India for Hero and Wing Sung) or Shanghai Qiangu Stationery (Jinhao) exist?
Note that Shanghai Hero is decades old, but Shanghai Qiangu is relatively new. There are several reasons. First, as mentioned earlier, policies still restrict competition and entry (and exit) of large-scale firms. Second, legacies of inappropriate policies formulated over more than six decades require time to resolve. There are time lags.
For instance, as is in other sectors, designs of Indian fountain pens aren’t remarkably attractive, not yet. I can think of a few Indian firms (and their brands) that have transcended the hand-made, ebonite eye-dropper niche—Wality, Airmail, Flair, Camlin and Bril are examples.
Third, production is one thing, marketing and distribution is another, especially if distribution increasingly moves from physical shops to online ordering. However, unlike garments, the fountain pen space hasn’t been ceded to Vietnam or Bangladesh.
Finally, it all boils down to the price range. Like blind tasting of expensive and cheap wines, apart from snob value, there is little difference in writing quality between an international brand fountain pen priced at ₹3,000 and a Chinese brand that costs ₹700. Once we improve quality and standardization (this also means the ink and the nib), Indian brands should also get there.
But the best way of ensuring that is to ensure competition. In its absence, infants never grow up. The bane of import substitution has been known for other sectors. It’s also evident for as mundane an object as the fountain pen.
Bibek Debroy is chairman of the Economic Advisory Council to the Prime Minister.