Keeping hope afloat

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: Natural rubber, which alone accounts for 42% of raw material costs, is seeing consumption outpace production in the country, as the latter slackens.

Market conditions are tight for this commodity. Domestic natural rubber prices have spiralled from an average of Rs 70 per kg in 2005-06 to Rs 105 per kg now. With the tyre industry’s annual consumption being 4.6 lakh tonnes, every Re 1 extra means a burden of Rs 46 crore. But even availability is a problem now. Yet, customs duty on the import of this raw material, at 20%, is double that on the finished product (10%). This distorts the tyre industry’s cost structure and is out of whack with accepted principles of tariffs, which should be lowest in basic raw materials, higher on intermediates and highest on finished goods.

To make matters worse, natural rubber exports are being encouraged. A pertinent question that needs to be debated is whether we should be exporting our natural produce in the form of raw material or value added finished goods. The export of value-added rubber products currently stands at

Rs 5,500 crore per annum, and is growing. Under these circumstances, is it prudent to allow the export of natural rubber (in its primary form) at all?

On the other hand, the import of finished products such as vehicle tyres—given the low import duties on these—is on the increase. According to DGCI&S, government of India, while the import of truck and bus tyres was up by 73%, that of passenger car tyres was up by 116% in 2006-07. Industry estimates point to further increases in the import of truck and bus as well as passenger car tyres in 2007-08.

Time is ticking away on the industrial clock. There is urgent need for a broadbased facilitative policy regime aimed at increasing the competitiveness of various sectors of Indian industry and providing them an equitable market environment vis-à-vis their international counterparts. Emergence as global players requires constant investments in process and product innovation. A conducive policy environment, aimed at rectifying policy inconsistencies, could go a long way in reversing the industrial slowdown currently being experienced in several sectors. It would keep hope afloat, and signal to Indian industry that the efforts are not at cross-purposes, but aimed jointly at a strong comeback.