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MUMBAI: India’s engineering sector, which largely consists of small and medium players from the electrical and electronics sectors, may see exports to the European Union (EU) plunge by a third if exporters fail to meet the new standards on hazardous materials.

The new restrictions on hazardous substance in electrical and electronic appliances, introduced by the EU on July 1, could cost India around Rs 1,500 crore worth of exports, said the Indian Electrical and Electronics Manufacturers Association (IEEA).

The electrical and electronics (E&E) segment is a major contributor to India’s engineering exports. According to rough estimates, exports from the E&E segment comprise as high as one-third the total engineering exports from the country.

Of the total, EU accounts for about Rs 2,000 crore of the sector’s exports, making it the second largest market after the United States.

Earlier, majority of the Indian companies in this sector were immune to the restriction of the use of certain hazardous substances directive (RoHS) in electrical and electronic equipment, said Sunil More, secretary general, IEEMA.

Large manufacturers like Larsen and Toubro (L&T) and Crompton Greaves had prepared themselves for the regulation issued in ‘05. But many small and medium-sized companies have failed to comply with the new norms as yet, said industry observers.

Experts said manufacturers should upgrade not just their own production equipment but also ensure that suppliers of parts too met the standards. However, many companies in the Indian engineering sector are unable to do so as it would hit their bottomlines.

The regulation requires a maximum concentration of 0.1% by weight of many environmentally hazardous substances such as lead, chromium and mercury that are inevitable in the production of electrical products.

As per the RoHS directive, all the member states of EU union shall ensure that from July 1, ‘06, new E&E equipment put on the European market do not contain restricted substances, which are toxic. The implementation of the directive is necessary to protect the environment as also through recycling of electrical and electronic waste.

The authorised enforcement agencies will purchase the material or equipment from the market to test for RoHS compliance. In case it is found to be non-conforming with the standards, the product will be banned throughout Europe. A heavy fine will be imposed on the producer that may differ from country to country in Europe.

For instance, a leading multinational lost e90m because the cadmium content was on the higher side in one of their products. The supply was halted by the Dutch who have implemented a ban on cadmium. To remain a ‘supplier of choice’ in the green markets, manufacturers must comply with regulations restricting the use of hazardous substances.