HC seeks FinMin response on tyre firms' price plea

In a respite to domestic tyre manufacturers, the High Court in Delhi has asked the Union ministry of finance to explain why the court’s September 24 order on the grievances of tyre makers on the price of their key input, rubber, hadn’t moved forward.

The HC had, on a petition from the Automotive Tyre Manufacturers Association (Atma), recommended to the department of revenue to set up a panel of experts in this regard.

The panel gave its report in early November and suggested the import duty be reduced from the existing 20 per cent to 7.5 per cent for a limited import of 100,000 tonnes of rubber. And, that the rate be otherwise pegged at 20 per cent or a flat Rs 20 a kg, whichever was lower.
 

LOSING GRIP NATURAL RUBBER SCENARIO IN INDIA: (TONNES)
Year	Production	Consumption	Shortfall
2006-07	852,895	820,305	32,590
2007-08	825,345	861,455	36,110
2008-09	865,125	883,680	18,555
2009-10	631,750	695,065	63,315
2010-11 (Apr - Oct)	455,250	546,050	90,800
Import duty structure (%)

On a second complaint from Atma about lack of action, the HC had on November 30 asked the government to explain what it was doing within four weeks, with the industry to respond in the fortnight after.

Meanwhile, the industry says even these recommendations for relief aren’t enouhg, as rubber prices have kept rising. “We want the government to import 170,000 tonnes of natural rubber at zero duty and distribute among users, which will cool overheating prices. But despite the court order in September, the government remained non-responsive,” said Neeraj Kanwar, chairman of Atma and managing director of Noida-based Apollo Tyres.

On the effective price of natural rubber in Kerala, the key producing state, Kanwar said, “The cost of production works out to Rs 55-60 per kg, which, even with a substantial profit margin of 20 per cent, should be Rs 75 per kg at the maximum. Prices of natural rubber should not move beyond this level under any circumstances.”

Against this, natural rubber prices are currently Rs 208 per kg. The commodity was quoted in the benchmark Tokyo Commodity Exchange near a 30-year-peak on Thursday.

In the second quarter of the current financial year, tyre makers’ net profit declined by 75 per cent, due to inability to pass on high rubber prices to consumers. Both upstream (automobile companies) and downstream players (farmers) have made enormous profit at the cost of tyre companies, complains Atma.

“The government will have to bring import duty on natural rubber to nil to provide a level playing field. Otherwise, we will shut down our plants gradually,” Kanwar said.

Atma’s other worry is the likelihood of more foreign competition. “Import of tyres at a reduced effective duty of 7.5 per cent under the Bangkok (free trade) agreement will kill the domestic industry,” said Rajiv Budhraja, director general of Atma. About 40 per cent of natural rubber produced in India is also consumed by non-tyre manufacturers, such as those making belts, pistons, footwear, etc.