Rubber industry needs a tech upgrade like textiles

Written by Sandip Das | Updated: Apr 30 2013, 05:49am hrs
The rubber industry, worth more than R60,000 crore annually, has been helped in recent months by a sharp decline in the prices of natural rubber. However, around 6,000 rubber units, mostly SMEs, have been facing challenges in technology upgradation because of the fragmented nature of their spread. Niraj Thakkar, president, All India Rubber Industries Association, tells FEs Sandip Das on the range of issues affecting the industry.

What are the key challenges faced by rubber industry

It is largely fragmented with medium and small enterprises accounting for a large proportion. Out of the 6,000-odd rubber units in the country, 5,500 are micro and small-sized and not in step with changing technologies.

However the acquisition of new technology is expensive and the cost of interest outruns the profit margins. A technological upgradation fund for the rubber industry on the lines of the textiles industry is dire need of the hour. Technology upgradation is a key factor to gain competitiveness at international level. We have already taken up this issue with the government. Being SME dominated, the employment potential of the industry is huge as 5 lakh people are directly employed.

What are the opportunities and challenges facing the industry

The opportunities for growth are immense. Notwithstanding the economic challenges, the rubber industry has been posting a growth of more than 10% per annum in revenue terms in the last three years. Large natural rubber plantations, diverse usage of rubber across industries and wide manufacturing footprint augur well for the continued development of rubber industry in India. However, the potential for growth of rubber industry is much larger than is being harnessed. Raw material and technological issues are two key challenges that are holding the industry back.

How is raw material scenario shaping up for the industry given the fact that prices of natural rubber have come off from their peak level

The decline in natural rubber prices is a big relief but that has come at a time when the vendors of rubber industry, particularly the automobile industry, are in the grip of a slowdown. As much as 65% of the rubber products made by rubber industry are consumed by the auto industry, which is facing one of its worst slowdowns in years.

Moreover the import of NR continues to be an expensive proposition. The import of NR is imperative since its domestic production is far lower than domestic consumption by the rubber industry. However, hefty import duties make the imports expensive. Currently, the import duty on NR comes to 12.5% while finished rubber goods can be imported at a duty ranging between 2.5 to 10%. In China, the import of NR enjoys duties of less than 5%. High import duty on NR increases the cost of production, making Indian rubber industry non-competitive globally.

What kind of impact rubber industry is facing because of high import duty on NR

A worrisome outcome of high import duty on NR and low duty on finished goods is that many of the manufacturers are turning to imports, making them traders and shunning manufacturing. If it continues, this could deal a body blow to rubber manufacturing industry in the long run.

In view of govts focus on manufacturing and objective to increase manufacturings proportion in overall GDP, it is necessary that manufacturing is incentivised. We have requested the govt that import duty on raw materials should be lower than that of rubber products being imported.

The gap between domestic production and consumption of NR should be bridged by import of duty free NR to the extent of domestic deficit.

There should be a complete waiver on duty on raw materials that are not indigenously manufactured such as most of the synthetic rubbers.