Price protection: Minimum import price for PVC will increase costs

The MIP on PVC resin may support domestic producers but risks raising costs for MSMEs, infrastructure projects and exporters while failing to address supply shortages

The Directorate General of Foreign Trade recently imposed a minimum import price (MIP) of $0.766 per kg on suspension-grade polyvinyl chloride (S-PVC) resin for six months. The move is intended to curb alleged dumping and encourage domestic manufacturing. The objective of reducing India’s import dependence is legitimate. But in an industry where domestic production meets barely one-third of demand, restricting cheaper imports is unlikely to reduce import dependence. Instead, it risks raising costs across the PVC value chain. PVC is a critical raw material used to manufacture irrigation and water-supply pipes, electrical conduits, cables, fittings, films and a range of medical and construction products. It is, therefore, an input in sectors such as housing, agriculture and infrastructure. India consumes around 4.7 million tonnes (MT) of PVC annually but produces only about 1.7 MT, leaving nearly two-thirds of domestic demand to be met through imports. In such a situation, imports are not a matter of choice but of necessity. 

The immediate consequence of the MIP will be to strengthen the pricing power of domestic resin manufacturers. Industry associations report that domestic PVC prices rose almost immediately after the notification. This should not come as a surprise. Once cheaper imports are restricted, domestic producers face less competitive pressure and gain room to raise prices. The burden of this increase will be borne not by resin producers but by thousands of downstream manufacturers, the overwhelming majority of whom are micro, small and medium enterprises. These firms convert PVC resin into higher-value products and supply to sectors that are central to India’s development. Higher prices will inevitably feed into the cost of irrigation equipment, drinking-water projects, housing materials, and electrical infrastructure. PVC pipes are integral to flagship schemes such as the Jal Jeevan Mission and Pradhan Mantri Krishi Sinchayee Yojana. Raising the price of their principal raw material means the government, effectively taxpayers, may end up paying more for the infrastructure it seeks to build. Equally important, many of these downstream firms are exporters. Higher input costs will erode their price competitiveness in global markets. Although the new rule is not applicable to export-orientated units, it is bound to create friction and complication. 

The real reasons behind India’s persistent PVC deficit need to be examined instead. Domestic capacity has lagged demand for years not only because imports have been cheap but also because India’s PVC manufacturing ecosystem remains underdeveloped. PVC production depends on the availability of ethylene, the basic petrochemical feedstock from which ethylene dichloride (EDC) and vinyl chloride monomer (VCM) are produced. India has limited merchant ethylene availability while the domestic production of EDC and VCM is also inadequate, forcing manufacturers to rely heavily on imported intermediates. Delays in developing integrated petroleum, chemicals and petrochemical investment regions have further constrained access to feedstock and raised logistics costs. Clearly, the answer lies in expanding domestic production rather than restricting imports. That requires improving feedstock availability, building integrated petrochemical infrastructure, ensuring competitive access to EDC and VCM, and accelerating capacity creation. Thus, while gains from protection will be limited to a handful of large producers, it will increase costs and affect economic activity in a variety of sectors.