industry is in the doldrums as prices of phenol and other chemicals used by it are on the rise due to a surge in crude oil prices.
A high goods and services tax (GST) of 28 per cent on plywood
was already proving to be a drag on the industry.
industry has witnessed a sharp fall in demand; units are working at lesser capacities; sales have fallen; farmers’ income from selling tree wood
has fallen; and the threat of unemployment is looming, according to industry players.
Janak Ladhani, director of Mumbai-based Sonkamal Enterprise
and one of the largest importers of phenol, said, “Phenol (a crude oil
derivative) is used in the plywood
industry to join thinner sheets. It is also used for lamination. Now, following a spurt in crude oil
prices, phenol prices have increased 18-20 per cent in two months, resulting in a reduced demand and impacting overall business sentiment. A 28 per cent GST
has further hurt the industry.”
In India, phenol prices have increased from Rs 68 to Rs 80 a kg in the past two months, while international prices have gone up from $900 to $1,150 a tonne. Prices of other chemicals, too, are up nearly 30 per cent.
Apart from phenol, other chemicals used in laminates
are methanol, formaldehyde, and melamine. In the case of laminates, the cost of chemicals makes up about 40 per cent of the cost of production. The size of India’s plywood
Industry is estimated at Rs 26,000 crore, and it’s largely based in Haryana’s Yamuna Nagar, which supplies 60-65 per cent of total plywood
in India. The laminates
industry's size is estimated at Rs 7,000 crore. Plywood
requires lamination when used for furniture.
Rajesh Trehan, partner, Shreeram Wood
of Yamuna Nagar, said, “Due to a high GST
of 28 per cent, the demand for plywood
of all categories has fallen 10-15 per cent since the new tax regime’s roll-out. There are 400-450 units here, and many of them are working at lower capacities, impacting business and employment.”
He proposed a sharp cut in the GST
and said the UAE bought plywood
from China while India’s cost was quite competitive and, hence, the government should incentivise exports of plywood.
This, he said, would help generate employment and increase farmers’ income.
is made from the wood
of the Poplar and Eucalyptus trees grown in 500-600-km belt spread in Punjab, Haryana, Uttarakhand, and UP. This kind of farming is out of forest reservations and falls under agri plantations. Farmers plant these trees only to supply wood
makers, mostly in the northern belt.
Since these tree plantations fall under agriculture, lakhs of farmers are said to have been doing such farming to earn their livelihood. Tree takes four years to mature, and wood
is sold. New plantations continue in rotation, improving the ecology of the region, apart from generating income for farmers and creation of employment.
Another Rajasthan-based plywood
maker said several units were under small scale, claiming excise exemption in the earlier regime while VAT was between 5 and 14.5 per cent in different states. A sudden rise in tax incidence to 28 per cent had hurt business and some units were even opting to deal in cash to stay out of the tax net and continue doing business, he added.
Even organised sector demand (furniture makers, contractors) for plywood
has fallen 25 per cent as there is overall slump in the furniture business.
Jitendra Patel, managing director of Ahmedabad-based Royal Touch Laminates, said, “The rising cost of chemicals has pushed prices of products higher. Demand for laminates
due to a lower plywood
demand and overall slump in real estate has also been impacted.”
attract an 18 per cent GST.
In the pre-GST
era, total tax was 28 per cent. About 30 per cent of the country’s laminates
are supplied by Gujarat and units are based in Ahmedabad and Morbi.