Customs duty cut fails to lift plastic sector as input costs remain high

Industry says duty exemption on petrochemical imports has had limited impact as raw material prices stay elevated, demand weakens, and MSMEs face mounting stress

The Centre’s move to grant full Customs duty exemption on key petrochemical imports is yet to translate into tangible relief for India’s plastic manufacturers, who are badly hit by both global disruptions and weak domestic demand due to the West Asia crisis.

 

The prices of raw materials have risen by up to 75 per cent in the last one month following the disruption in import of crude oil. The 100 per cent exemption of Customs duty on around 40 critical petrochemical products, which will bring down the price by at least 7.5 per cent, has not been percolated to plastic product manufacturers, who say the impact on raw material prices remains limited and uneven.

 

Industry players across the plastic processing segment indicate that while the policy intent was to ease input costs and improve competitiveness, the ground reality reflects only marginal price corrections in select resins.

 

Manufacturers pointed out that prices of polyvinyl chloride (PVC) and polyethylene terephthalate (PET) resins have declined by about ₹10,000 and ₹5,000 per tonne, respectively, on Monday, but the prices of other key feedstocks such as high-density polyethylene (HDPE), low-density polyethylene (LDPE), medium-density polyethylene (MDPE), polypropylene (PP), and high impact polystyrene (HIPS) remain un-changed. The prices now range between ₹1.12 lakh per tonne to ₹1.8 lakh per tonne compared to ₹76,000 to ₹92,000 per tonne – from PVC to HIPS — a month ago.

 

This has dampened enthusiasm among downstream units, particularly small and medium enterprises (SMEs), which form a significant part of India’s plastic manufacturing ecosystem. “The duty exemption was expected to bring across-the-board relief, but the market response has been selective. With prices of most of the raw materials remaining firm, our overall cost structure has not eased significantly,” said Sunil Shah, president of All India Plastics Manufacturers Association (AIPMA).

 

AIPMA had recently urged the Centre to step in with immediate relief measures, warning that the sector is on the brink of large-scale shutdowns. Polymer prices have been revised several times and MSMEs are neither in a position to absorb the costs nor transfer them downstream. The hike is unreasonable and the closure of units could trigger widespread unemployment, it had warned.

 

Shah argued that while the government’s move is directionally positive, it needs to be complemented with immediate policy support to help the industry tide over the current stress. “The Centre should tweak some of its existing policies to provide interim relief, as the sector is grappling with both supply-side constraints and demand-side weakness,” he told Business Standard.

 

On the ground, the situation remains grim. Several manufacturers have expressed reluctance to procure raw materials — either imported or domestically sourced — due to persistently high prices. With market demand subdued, producers said they are unable to pass on the increased input costs to consumers.

 

The impact is particularly visible in the food packaging segment. Manufacturers report that the production cost of food containers, which are prepared from PP, has more than doubled — from around ₹5 per unit to ₹10-12 per piece, leading to a sharp drop in demand from hotels, caterers, and small food businesses. Production cuts have been reported across a wide range of plastic products, including household items, camera boxes, medical supplies, M-clips, U-clips, and electrical adaptors.

 

“Many units have either curtailed or completely halted production in this segment. We had produced around 40 tonnes of materials last month. Production has completely stopped for more than a week now. The combined effect of high raw material costs and weak demand has forced us to scale back operations to avoid losses,” said A B Patnaik, proprietor of JS Industries, Bhubaneswar.

 

Moreover, manufacturers pointed out that domestic producers and importers may be taking time to adjust pricing strategies, especially if existing inventories were procured at higher costs. This lag effect often delays the pass-through of duty cuts to end-users.

 

The muted response has implications for sectors reliant on plastic inputs, including packaging, construction, automotive components, and consumer goods. “Higher input costs continue to squeeze margins, particularly for export-oriented units competing with cheaper imports from countries with lower production costs,” said C P Bhartia, managing director of Jagdamba Polymers Ltd.

 

Meanwhile, industry associations have called for complementary measures such as rationalisation of goods and services tax (GST) rates and support for domestic capacity expansion to stabilise prices in the long term. “The government should monitor price transmission more closely and engage with stakeholders to ensure that the intended benefits of the duty exemption reach downstream industries,” said Sangram Das, president of Odisha Plastic Pipes Manufacturers Association.