Though the tyre industry is in top gear, revelling in the replacement market that makes up 51% of demand, there could be speed-breakers ahead. Stagnant demand for retreaded tyres, non-tariff measures on imports of tyres & raw materials and high incidence of taxes can slow down the industry?s growth pace.
Despite better retreading technology, retreading rates are low and stagnant in the passenger car tyre market, primarily because of a stagnation in tyre prices and comparatively low prices of new tyres, which make retreaded tyres price uncompetitive, a report by Icra said.
The annual retreading market in India is around 14-15 million pieces. A lion?s share of that comes from the truck & bus segment (58%), followed by light commercial vehicles (13%) and passenger cars (17).
But natural rubber, the primary raw material for the tyre industry, is costly, thanks to the high tariff on its import. Although import of natural rubber and other raw materials is under the open general licence, the domestic prices are fixed by the government through minimum statutory price (MSP). Even if international prices are lower than domestic, imports can be made only at MSP. Such import restriction is squeezing the margins of the tyre industry, Icra said.
There are other restrictions as well. For instance, natural rubber can be imported only through two ports?Kolkata and Vishakapatnam. Moreover, customs duty on natural rubber is a high 20%.
Although the tyre industry is subject to an excise duty of 16%, the total tax incidence, including excise duties and octroi, is considerably higher and this makes Indian tyres uncompetitive vis-?-vis the imports of tyres from neighbouring countries.
For instance, the percentage of total tax to the tax excluded price for various categories of tyres is 35% for passenger car radials, 35% for truck tyres, 37% for tractor tyres (rear) and 42% for truck tyre tubes. The production in the Indian tyre industry grew by 10.3% in 2008 at 81.1 million tyres from 73.5 million in 2007.