Natural rubber prices fall in anticipation of lower duty

Natural rubber prices plummeted in the local market today, following the commerce ministry decision to reduce import duty on NR to 7.5 per cent from 20 per cent.

The price of the benchmark grade, RSS 4, fell to Rs 180 a kg from Rs 184 on Wednesday. The ministry had proposed to reduce the duty as the country was facing serious shortage resulting in the price rise.

The rubber-based industry, especially tyre manufacturers had been asking the ministry to reduce duty. Even after the dip in prices, the Indian market is higher by Rs 25 a kg to global market rates. The Bangkok market today quoted Rs 155.

The decision, however, still awaits a formal announcement from the ministry of Finance and Cabinet approval. The rubber-based industry has been pressing this demand for some time now, with the surging prices during the last 5-6 months. Though the Rubber Board data ensures a stock of more than 200,000 tonnes, the local market is experiencing serious shortage.

From June onwards, local prices were higher than the global market and import might have been a temporary solution. But the exorbitantly high duty was the main hurdle to import rubber.

Refuting the board’s data, Automotive Tyre Manufacturers Association (Atma) said the local stock would not be more than 100,000 tonnes. A recent direction of the Delhi High court to ensure supply of rubber in the country, had also prompted the government to ensure supply through the import route.

The various organisations of the industry, including Atma, had demanded that the duty be reduced to 7.5 per cent as import duty on rubber-based finished products, including tyre, was 10 per cent.

However, the 11-lakh rubber growers in Kerala – 92 per cent of rubber is produced in the state – are waiting to see whether the Cabinet approves the reduction in duty as local prices could drop as a consequence.

MPs from the state, cutting across party lines, have protested the decision as the local body elections are approaching. But, this time, they feel that there will be a reduction in duty.

George John, a farmer from Ernakulam district said the decision of the commerce ministry is unfair as farmers are getting the ‘high’ prices only for the last three-four months. The average price in 2009 was Rs 97. “After long periods of suffering and hardship we are getting a good price and the government is damaging the prospects even of this temporary advantage by favouring the industry.”

P V Ajith, a Thiruvananthapuram farmer told Business Standard that the government should also consider the concerns of the farmers. He said that the price hike is only a ‘temporary bonus’ to the growers.

In India, consumption is increasing at a much faster pace – with growing demands for rubber based goods, especially tyres – than production, hence the demand-supply gap is widening in recent years. Industry associations are of the view that import is the effective way to meet the increasing demand.

The government’s decision will also pave the way for a political battle, as the state is now gearing up for local body elections. A section of the media, with affinity to the Left had already kicked off a debate on the issue. Athough the decision is economic, the political repercussions would be deeper and wider.