Amid falling prices, the ailing rubber sector seems to have hit a rough patch again. First, it was the currency crunch following demonetisation. Now, this major commercial crop, is facing the heat due to the confusion prevailing over Goods and Services Tax (GST).
Stretched GST has struck the rubber sector hard, creating confusion and lack of clarity
The natural rubber sector has been in the grip of a crisis for the last four years, with the prices of this strategic raw material coming down below the cost of production. This has not only led to a drop in production, but also caused hardships for millions of small growers.
While rubber prices were at their lowest the sector was hit by demonetisation and GST, according to N Dharmaraj, former Upasi president. The impact of demonetisation was felt across the industry, but it was more pronounced in the non-tyre segment.
Though demonetisation and subsequent cash shortage diminished the demand for quite some time, the GST struck the sector hard, creating confusion and lack of clarity on many aspects. According to him, there were cumbersome procedures as well as infrastructural requirements in terms of Income Tax support and skilled manpower. This has increased the cost of compliance for small business in the short-term.
The rubber economy at the grassroot level of small users and manufacturers is undoubtedly a currency economy, and an overnight transition to the digital economy was extremely difficult. Thus, the main issues faced by the industry pertained to a transition to the new tax regime by small and very small dealers and manufacturers, he added.
P C Cyriac, President, Indian Farmers Movement (Infam), pointed out the authorities had even turned down the growers’ request to impose a safeguard duty to discourage imports during crisis. Several agricultural activities, timely farming and payment of wages have been affected, but the situation is now coming back to normal. However, the GST struck the sector with a new compliance regime, something the sector was not equipped to face.
The insistence of GST registration has put Rubber Producer Societies (RPS) on tender hooks as they are working on voluntary basis. RPS are self-help groups at the village level, assisting growers with technology transfer and common marketing at remunerative prices. All these RPS have been in existence for the last 30 years and were working on a no-profit no-loss basis. They will be forced to close down if the IT department goes ahead with its order, added Cyriac.
George Valy, President of the Kottayam Rubber Dealers Federation, said the need of the hour is to ensure a price stability at ₹150/kg so as to make rubber cultivation viable to small and marginal farmers. “A majority of the farmers may return to tapping if they realise a decent income, and that will ensure a revival of the sector,” he said. Today prices are hovering at ₹125/kg vis-a-vis ₹105/kg international prices, forcing tyre companies to depend on imports.
There are some input materials which have gone into a bracket of higher taxation, adversely affecting growers and increasing the cost of production. This includes plastic shells for tapping, fungicides, sheet rollers and other processing equipment. This has affected the sale of agricultural implements, which have witnessed a drop of 20-30 per cent, according to Rubber Board officials.