Tyre industry seeks duty-free import of natural rubber

Our Bureau

Chennai, March 24

The tyre industry, the largest consumer of natural rubber, has urged the Centre to allow duty-free import of at least two lakh tonnes of natural rubber on a priority basis, preferably through a Government agency.

It has also asked for a differential customs duty structure allowing imports at a lower duty – about 7.5 per cent – to facilitate imports during the lean months of natural rubber production.

According to Mr K.M. Mammen, Chairman and Managing Director, MRF Ltd, in case rubber prices increase above a certain level – say, Rs 90 a kg – the customs duty on natural rubber should be on a fixed basis, instead of an ad valorem structure. For, when natural rubber prices go up, consumers not only have to pay the increased price but also shell out more due to the ad valorem duty. When natural rubber costs Rs 75 a kg, the import duty at 20 per cent ad valorem works out to Rs 15 a kg, but when the price increases to Rs 150 a kg, the incidence of customs duty doubles to Rs 30 a kg.

Such a change in tariff has been introduced in China, according to Mr Mammen, to make its domestic tyre and rubber producing interests more competitive and viable.

Widening gap

The tyre industry's demand for easing imports on natural rubber stems from the widening gap between domestic production of natural rubber and its consumption, and also to take care of consumption during the lean rubber production months of March-August.

According to Mr Mammen, the tyre industry is raw material-intensive. Natural rubber is the single largest raw material for tyre production and accounts for 42 per cent of raw material cost. The tyre sector accounts for 62 per cent of total domestic natural rubber production and others – footwear, rubber parts for auto components and gloves – the balance.

Rising consumption

Mr Mammen said that domestic rubber production had failed to keep pace with the rising trend in consumption, especially in the recent years. For instance, he said, rubber production was 825,345 tonnes in 2007-08 when consumption was 861,455 tonnes.

In 2009-10, production was estimated at 840,000 tonnes and consumption 931,000 tonnes; and for 2010-11, the production was projected to grow to 901,680 tonnes while consumption would increase to 986,860 tonnes.

In view of the widening gap between production and consumption and to take care of consumption during the lean production months, rubber consumers have no option but to import. However, Mr Mammen said the inverted duty structure was a restrictive factor and an anomaly that had remained unaddressed for some time. In 1996-97, the peak rate on non-agricultural goods was 50 per cent, on tyres 50 per cent and on natural rubber 20 per cent. In 2010-11, this had become 10 per cent each on non-agricultural goods and tyres, while it remained 20 per cent on natural rubber.

The inadequate production of rubber and prohibitive imports resulted in high cost of key raw material for tyre production, had an adverse impact on tyre production with resultant uncertainties on tyre supplies to vehicle manufacturers, and encouraged import of finished products such as tyres despite there being adequate domestic capacity, he said.

(thehindubusinessline.com)