High raw material prices impact the competitiveness of the tyre industry

Written by Malabika Sarkar | Malabika Sarkar | Alokananda Chakraborty | Updated: Jul 12 2009, 04:58am hrs
After the announcement of Budget 2009-10, Rajiv Budhraja, director general, Automotive Tyre Manufacturers Association of India, told FEs Alokananda Chakraborty and Malabika Sarkar, why players in the Indian tyre industry remain a worried lot. Excerpts from the interview:

What does Budget 2009-10 mean for the Indian tyre industry

Budget 2009-10 has failed to address the long pending anomaly of an inverted duty structure. Customs duty on natural rubber, the principal raw material for the tyre industry is at 20%, whereas the duty on tyres (finished product) is 10%, or even lower, under regional trade agreements. The current price of natural rubber in India, at Rs 97-100 per kg, is higher by Rs 15-20 per kg than the corresponding international natural rubber price. Coupled with higher domestic price is the issue of extremely tight natural rubber availability domestically. In such a scenario, the inverted duty structure only adds to the woes of the industry, depriving it of accessing a key raw-material at a competitive price. By letting this anomaly continue, the government has failed to demolish one of last bastions of tariff inconsistency.

The domestic prices of natural rubber have increased significantly in recent times. What does this mean

The sharp volatility in the raw material prices, in particular natural rubber prices, has been the bane of the tyre industry in India. In the last three months, the natural rubber prices have gone up by as much as 40% forcing the industry to import the commodity as international prices have been ruling at a much lower level. Unfortunately, the tyre industry in India is faced with a situation wherein the import of rubber as raw material is discouraged, while the import of tyres as finished product is encouraged. In a globalised world where tyre companies in other countries have benefitted from a worldwide dip in raw material prices, tyre companies in India had to make do with high raw material prices impacting the competitiveness of the industry.

Have tyre imports increased substantially over the past few years

The passenger car tyre imports have gone up by a whopping 51% in the last three years. According to figures supplied by DGCI&S (Director General of Commercial Intelligence and Statistics), the import of passenger car tyres has gone up from 1,94,000 units in 2002-03 to 22,66,000 in the first nine months of fiscal 2008-09.

Tyres imported from China, which are 25% cheaper, constitute about 5% of the market. How is the industry hoping to correct the situation

Besides large-scale dumping of cheap Chinese tyres into India, it is the unfair practices undertaken by independent importers through means such as underinvoicing and sale of imported tyres on cash without paying VAT etc that has given imported tyres huge cost advantage over Indian tyres. Putting the import of radial bus and truck tyres on the restricted list in November last year has certainly helped in checking the no-holds-barred entry of Chinese tyres in India. The domestic market is also showing signs of resurgence. After languishing in the negative territory in 2008-09, the truck and bus tyre production saw a jump of 6% in April this year. Similarly, sales of passenger car tyres which remained stagnant in the last fiscal has grown 7% in April. However, the export scenario continues to be grim with truck and bus tyre exports plunging 18% and passenger car exports down 33% in April 2009 over April 2008.