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India: Hike in import duty to push up rubber price in Kerala

The Union government’s decision to hike the import duty on natural rubber is likely to increase substantially rubber prices in the State.

The hike, aimed at bolstering the domestic prices and thus protect the interests of rubber farmers, was recommended by the Union Commerce Ministry. Commerce Minister Anand Sharma, at a top-level meeting of officials and United Democratic Front MPs from the State last week, had decided to raise the import duty rates.

The meeting decided to raise the import duty on natural rubber to reach a cap of Rs.34 a kg from the current Rs.20 a kg and communicated the decision to the Revenue Department. The latter has to okay the increase, which will create a ripple effect in the rubber-goods industry, especially in the tyre-manufacturing sector.

The All-India Rubber Industries Association had, in its pre-Budget representation, urged the government to scale down the import duty to 7.5 per cent of domestic price (or Rs.10 a kg, whichever is lower) from the current practice of charging 20 per cent of domestic price (or Rs.20 a kg, whichever is lower).

The duty hike is expected to discourage tyre-makers and other rubber-goods manufacturers from sourcing their supplies from Thailand, Malaysia and Indonesia — the three top natural rubber producers in the world — as the international prices will not be attractive compared with the domestic prices.

The Commerce Minister held the meeting with the MPs in the presence of Union Commerce Secretary and the chairperson of the Rubber Board.

Jose K. Mani, MP, told The Hindu that the MPs had met the Prime Minister a week earlier to seek a sharp rise in the import duty as domestic rubber prices had been free-falling for over a year. The Prime Minister had immediately asked Mr. Sharma to hear the MPs and, an hour later, they had held a preliminary round of discussions.

New duty formula

At the February 26 meeting, a formula for duty hike based on the average domestic price of rubber over the past three years was worked out.

The formula, the Rubber Board chairperson said, is: the new import duty on natural rubber will be 20 per cent of the domestic price until the price reaches Rs.171, when the duty will be capped at Rs.34 a kg. (The figure Rs.171 was arrived at by taking the average of the domestic price over the past three years.)

Since the current domestic price is Rs.157 a kg, the duty to be imposed on every kg of imported natural rubber will be Rs.31.40. If the domestic price goes up, the duty too will go up, until it reaches Rs.34 a kg, where it will be capped.

Rubber Board data shows that Indian manufactures imported 2.14 lakh tonnes of natural rubber during the 2011-12 financial year.

The Automotive Tyre Manufacturers Association (ATMA) estimates that 44 per cent of the raw material cost of tyre production goes for natural rubber.

Kerala produces roughly 90 per cent of India’s natural rubber output.

While the current domestic rubber price is Rs.157 a kg (for RSS-4 quality), the international rate is Rs.162. After the duty hike, the international rubber will become costlier.

Source: Business Line

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