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Customs duty hike on granules hits polymer processors
May, 16th 2013

The recent decision to raise customs duty on plastic granules from five per cent to 7.5 per cent is likely to hit the polymer processing industry hard, which is already reeling under slowdown in demand.

Moreover, in the wake of cheap Chinese imports, processors are finding it difficult to pass on the hike to the consumer, and what is more, taking advantage of the rise in landed cost of polymer, domestic producers have also spiked prices by Rs 2-3 a kg.

"The decision has come in as a dampener for the processing industry, which cannot pass on the hike to the consumer in the face of stiff competition from cheaper Chinese goods. This also creates pressure on working capital of processors, no matter how small or big they are. As domestic producers like Reliance and others have followed suit by raising their polymer prices in the range of Rs 2-3 a kg, this translates into an additional expenditure of Rs 20-30 lakh for a unit, which is processing around 1,000 tonnes per year," explained Bipin Shah, president, PlastIndia, the apex body of plastic industry associations.

Around 30 per cent of the net consumption, or roughly around 2.5 to three million tonnes of polymer is imported annually, he informed, adding the growth in consumption in the plastic industry has already slowed down. "Last year, the consumption grew by around eight to nine per cent, down from 13 per cent in the previous year," Shah claimed.

A second cause of concern is that with this steep hike of 50 per cent, the gap between duty on raw material and finished goods has come down considerably. Currently, the duty on finished goods is around 10 per cent, and industry players feel if the duty structures remain unchanged, then there will be consequent rise in imports. "We fear that apart from a drop in capacity utilisation of domestic processors and an erosion of margins, the industry will also face the challenge of cheap Chinese imports," said K K Seksaria, former president of the Indian Plastics Federation (IPF) and a West Bengal-based plastic processor.

He further added, "The industry feels that the move is unlikely to benefit the government in terms of higher revenue from plastic granule imports, as imports will definitely drop. The government, however, might gain from import of finished products."

Jigish Doshi, a Gujarat-based processor and senior official of the Gujarat State Plastic Manufacturing Association (GSPMA), pointed out that processors are already operating on very thin margins, around five per cent. "Thanks to this 50 per cent hike, the margins would take a further hit of around two to three per cent," he claimed.

There are around 40,000-50,000 small and big polymer processing units in the country, spread across states like Gujarat, Maharashtra, Daman, Dadra & Nagar Haveli, Tamil Nadu, Andhra Pradesh, West Bengal and Madhya Pradesh.

Both GSPMA and IPF are planning to make a representation to the Ministry of Finance to explain the case and demand roll-back of the duty. "Either the duty should be rolled back, or the government should consider raising the duty on finished goods to at least 15 per cent," Shah said.

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