Natural rubber imports to get costlier

Government agrees to steep increase in tariff after concerted pressure from Kerala growers and politicians; tyre industry upset

The Union government has decided to increase the import duty on natural rubber (NR) from Rs 20 a kg to a maximum of Rs 34.20 a kg.

Growers would welcome the move, but the tyre industry is angry. The rise in tariff was decided at a meeting in Delhi convened by Commerce Minister Anand Sharma. Rubber Board Chairperson Sheela Thomas and MPs from Kerala attended. The ministry of commerce will soon issue a notification.

The meeting decided to revise the duty structure based on the average price of the last three years or on current prices. Accordingly, the average price of 2010, 2011 and 2012, of Rs 171 a kg, will be considered for the revision. Earlier, this was Rs 102 a kg, based on the average prices of 2008, 2009 and 2010. So, while the rate of duty remains 20 per cent, the effective duty will rise.

This comes after a sharp fall in domestic prices, compared to international levels. The local price of the RSS-4 grade today dropped to Rs 156 a kg, while the Bangkok market quoted Rs 163 a kg. Local prices have been falling for weeks, leading to panic among growers in Kerala, which produces 92 per cent of the country's output. The fall has created political pressure on the state government, with political parties pressing the demand to enhance the tariff. As mentioned earlier, the revised duty will be 20 per cent of either the average price for the last three years or the current price, whichever is lower. At the current price of Rs 156, the duty will be Rs 31.20 a kg. The maximum will be Rs 34.20, based on the three-year average price of Rs 171 a kg.

A sharp rise in import during the past couple of years is a major reason for the fall in prices, as most rubber-based factories have enough stocks. This enabled companies to withdraw from the local market from time to time when prices rose. Total import during April�"January rose to 197,113 tonnes as against 165,936 tonnes in the same period of 2011-12. This ensured sluggish demand for home products.

Tyre industry criticism
Anant Goenka, chairman, Automotive Tyre Manufacturers Association (Atma), has said the decision to restrict imports would have many adverse consequences for his industry. The long-term impact would be felt, he said, on the entire value chain in the rubber sector. He regretted that the decision was taken without giving an opportunity to other stakeholders, especially NR consumers, to present their views.

"The increase in duty will severely impact the industry at a time when the automobile sector is witnessing a sharp negative growth in major vehicle categories, including commercial vehicles, leading to a demand slowdown in the tyre industry," he said.

Atma says NR import is inevitable with the widening gap between domestic production and consumption. Quoting Rubber Board data, Atma says in 2011-12, the gap was a little over 60,000 tonnes. During the current financial year, production was likely to lag domestic consumption by 50,000 tonnes, despite a slowing of the economy.

In January, production dropped to 97,000 tonnes, a fall of 5.4 per cent as against 102,500 tonnes in the same month last year. Atma says at the current price of Rs 156 a kg of NR, the import duty of Rs 31.20 a kg is 20 per cent, far higher than the basic duty on tyres of 10 per cent. The effective rate of duty is 8.6 per cent in China. The tariff rise on NR has, therefore, accentuated the already inverted duty structure in the industry.