Detergent makers in a bind over safeguard duty on inputs

The Directorate General of Safeguards has recommended a 20 per cent safeguard duty on imports of linear alkyl benzene, a key input in manufacturing detergents, from China. The recommendation was made by the DGS to the standing board earlier this month.

The final findings are due by the third week of November.

Detergents manufacturers said the move, if accepted, will have a severe impact on the bar and powder detergents industry, which caters to over 200 million households.

It’s not only multinational companies such as Hindustan Unilever that will be impacted by the move. There are many large local players and many smaller detergent manufacturers, in all employing over 500,000 people. In the previous year, the industry faced intense cost pressure owing to volatility of commodities directly affecting prices of its key ingredient — LAB and soda ash. Detergent manufacturers say the move will benefit only four large LAB manufacturers in India which had asked for imposition of the 20 per cent safeguard duty.

There is similar activity on soda ash, yet another key ingredient in the detergent industry, manufactured by only four players — Tata Chemicals, GHCL, Nirma, and DCW. The government had imposed 20 per cent preliminary safeguard duty in April. In its preliminary findings in February, the standing board had observed that there has been an insignificant decline in the capacity utilisation of the domestic soda ash industry, the decline in profitability was marginal and that the causal link needed to be examined in detail.

However, based on the DGS’s subsequent recommendation, the government imposed a provisional safeguard duty of 20 per cent ad valorem on import of soda ash from China. The soda ash importers are unhappy with the DGS recommendations, as they feel they were not given a chance to represent their case.

A recent public hearing for the same was held on August 7, where the domestic manufacturers as well as associations from the glass and detergents industries presented their respective cases. The detergents industry is comprised of a large number of players, big and small and is therefore extremely competitive. Hence, any increase or decrease in the prices of key ingredients or other costs, are passed on to consumers in the form of the prices of the detergent products.

Manufacturers say if the safeguard duty is finally imposed, it will affect the prices of soaps and detergents, which are used by the low-income people for their daily needs, and contributes to 9 per cent of their total FMCG spends. They feel the imposition of duty on the key raw materials will increase the cost of production for detergents, making it uncompetitive against the imports of finished powders, which only attract 10 per cent duty. This will lead to closure of several factories, leading to wide scale unemployment.