Duty hike on plastic granules results in cheaper imports from China, Nepal

Hits demand for local goods, processors operating with 50-60% capacity utilisation

The recent customs duty hike on plastic granules has hit the indigenous processing industry is two ways; one the capacity utilisation has come down owing to slow demand and the market is getting flooded with imported finished material.

The Centre had increased the customs duty on plastic granules from five per cent to 7.5 per cent in May. In contrast, the duty on import of finished goods remained unchanged at 10 per cent, thereby narrowing down the gap between duty on raw material and finished goods.

K K Seksaria, former president of the Indian Plastics Federation (IPF) and a West Bengal-based plastic processor claimed that this has led to flooding of the market with cheap imported goods. This, in turn, has muted the demand for locally manufactured products, forcing processing units to operate at 50-60 per cent capacity utilisation.

"As much as 30-40 per cent of the market is now captured by cheaper imports from countries like China, Bangladesh and Nepal. In states like Bihar, Uttar Pradesh and West Bengal the market is primarily flooded with imports from Nepal and Bangladesh, while in Delhi region is it primarily from Nepal and China," Seksaria explained. He added, however, that in comparison, imports are lesser in Gujarat which is a manufacturing hub. "The reason behind less imports in Gujarat is that there is significant demand from the industrial segment, while in states like West Bengal and Bihar the main demand is from the consumer segment," he explained.

Jigish Doshi, a Gujarat-based processor and senior official of the Gujarat State Plastic Manufacturing Association (GSPMA) confirmed the trend but added that even in the Gujarat market, the demand growth has slowed down considerably.

"The industry which was growing at 10-12 per cent for the last few years has slowed down significantly this year, with almost no growth in demand. Processors here are operating at 70 per cent capacity utilisation," he said.

Gujarat has an installed polymer processing capacity of over one million tonnes per annum, while the overall installed capacity in the country is around seven million tonnes, industry insiders informed.

Another cause of concern for the processing industry has been the recent rise in polymer prices, which have gone up by around 10 per cent in the last six months to touch Rs 100-110 per kg for Polypropylene (PP) and Polyethylenes (PE). "Margins have come under real pressure in the last few months, and now there is hardly any profit margin with prices of raw material going up as well together with the duty hike," Doshi said.

Around 30 per cent of the net consumption, or roughly around 2.5 to three million tonnes of polymer is imported annually, informed Bipin Shah, president, PlastIndia, the apex body of plastic industry associations.

There are around 40,000-50,000 small and big polymer processing units in the country, spread across states like Gujarat, Maharashtra, Daman, Dadra & Nagar Haveli, Tamil Nadu, Andhra Pradesh, West Bengal and Madhya Pradesh.

Several industry associations including the GSPMA and IPF have planned to pursue the issue of duty hike with the ministry of finance. "Representations have already been made, we will continue to follow up. Either the excess duty should be rolled back or the government could also consider raising the duty on finished goods to at least 15 per cent," Seksaria said.