he Union government’s recent announcement to increase the import duty on natural rubber had its psychological impact on the market on Monday.
The price of benchmark grade RSS-4 increased to Rs 160 a kg from the Saturday’s closing rate of Rs 155 a kg. “The market has reacted proactively to the government’s decision, hence the immediate increase,” said N Radhakrishnan, a leading Kochi-based rubber dealer.
The government had revised the import duty of rubber to 20 per cent or Rs 30 a kg, whichever is lower from Rs 20 a kg earlier. Although the Union finance minister was against it, under pressure from rubber growers and political parties the government had to take the decision.
Radhakrishnan said the market was poised for further increase in price, as there was a shortage for natural rubber during the peak season of October–December, thanks to fall in production. The overall production till November this financial year dropped 11 per cent compared to the same period in the last FY. This may badly affect the availability of the commodity over the next four–five months. Sheela Thomas, the chairperson of the Rubber Board, told Business Standard that the production in this financial year would be 870,000 tonnes only.
The Board had earlier projected a production target of 960,000 tonnes and consumption at 10,20,000 tonnes for 2013-14, with an overall annual deficit of 60,000 tonnes. According to growers, production is likely to drop to 800,000 tonnes, as per the current trend.
Radhakrishnan said tapping would come to a end in most of the plantations by January-end or early February. So, the supply to local markets might be tight from January onwards, triggering a rise in prices again. World over production is estimated to be slightly lower in this financial year.
Meanwhile, rubber consumers sharply criticised the increase in import duty, terming it as a retrograde step with long-term adverse impact on the entire rubber value chain. The All India Rubber Industries Association (AIRIA) and Automotive Tyre Manufacturers Association, accounting for the bulk of natural rubber consumption in India, said the decision was in total contravention to the government’s avowed position of increasing manufacturing competitiveness in the rubber sector.
“Politics seems to have taken the better of economics. Given the fact that the rubber consumers are already suffering from inverted duty structure, there is hardly any rationale for increasing import duty on rubber. The step has been taken to mollycoddle a set of rubber growers, while lending a deaf ear to the concerns of small scale rubber manufacturers who are already at the receiving end of large-scale import of cheap finished rubber products”, said Niraj Thakkar, president of AIRIA.
Raghupati Singhania, vice-chairman, ATMA, said the hefty increase in duty of Rs 10 a kg will significantly increase the raw material cost of the tyre industry and will add to the inflationary trends in the auto and transport sectors. “As such the tyre industry is witnessing lower off-take of tyres in view of slowdown in the auto sector, the increase in import duty on principal raw material will make it tougher for the industry to manage the challenging environment. The price competitiveness of the tyre industry will be impacted in the international market and the benefits from weakening of currency will be wiped away. Rubber industry exports are of the order of about Rs 15,000 crore annually,” he added.
According to AIRIA, while the duty on import of natural rubber is now 20 per cent or Rs 30 a kg, finished rubber goods can be imported with a duty ranging from 2.5 to 10 per cent. Many small scale manufacturers are turning to traders of imported finished goods. This increase in import duty on key raw material will have disastrous consequences for manufacturers of a large number of small rubber parts, including auto components, conveyor belts, footwears etc.
ATMA said as against 20 per cent duty on rubber, tyres could be imported from ASEAN countries at a duty of only seven per cent, which would be further reduced to six per cent, effective January 2014.
According to ATMA, India is a natural rubber-deficient country and the gap between production and consumption is widening. This makes import of natural rubber inevitable.