Tyre cos get jitters as Centre hikes import duty on rubber

Written by M Sarita Varma | Thiruvananthapuram | Updated: Feb 27 2013, 07:50am hrs
The Centres decision on Tuesday to raise the customs duty on natural rubber, lifting its import price by R14 per kg, has the tyre industry upset. The entire rubber sector value-chain is expected to feel the adverse consequences of the customs duty hike in the long term, according to tyre manufactutrers.

It was on Friday that a delegation of MPs belonging to Keralas Congress-led United Democratic Front alliance met Prime Minister Manmohan Singh,seeking a higher customs duty on natural rubber. The MPs wanted the current duty structure, which pegs it at 20% or R20 a kg, whichever is lower, changed.

Anand Goenka, chairman of the Automotive Tyre Manufacturers Association (ATMA), told FE: The interests of stakeholders were not even looked into.

Rubber farmers had been disturbed by the fall in rubber prices to levels below R160 per kg. Last year, in the same period, NR price had been hovering around R230 per kg. With the rubber board also supportive of the duty hike, the government jacked up the duty rates to R34 per kg.

ATMA sees natural rubbers peak price level in 2011-2012 as an aberration as prices zoomed 100% in a short span. Comparing the current prices with the peak level prices is, therefore, erroneous and should not have been the consideration for the increase in duty, the organisation argues.

The import duty hike has come at a bad time. It is at a juncture when the automobile sector is suffering sharp negative growth in major vehicle categories including commercial vehicles. Correspondingly, there is a demand slowdown in the tyre industry as well, says the ATMA chief. Commercial vehicle tyres account for over 60% of the tyre industrys turnover.

In the context of the widening gap in domestic production and consumption, the import of natural rubber is inevitable, says the industry. The gap between domestic production and consumption was more than 60,000 tonne. During the current fiscal also, production is likely to lag behind domestic consumption by 50,000 tonne.

A communique by ATMA says that while natural rubber consumers in India stand disadvantaged, China has reduced the effective rate of customs duty on its natural rubber imports from 7.5% in 2012 to approximately 6% from January this year. Moreover, the duty on import of compound rubber into China is nil, thereby giving a significant competitive edge to Chinese tyre manufacturers.