Indian boom will speed up tariff cuts

08 April 1997 00:00  [Source: ACN]

THE boom in the Indian economy could prove to be a double-edged sword for petrochemical producers, with the prospect of better performances being balanced against the likelihood of speedier tariff cuts.

Industrial growth in April surged to 9.5% from 2.5% in March, buoyed by a 7% rise in petrochemical output as new capacity came onstream.

'Reductions in corporate tax and income tax are also behind a surge in growth, which we expect to continue for at least the rest of this year,' said a source at an Indian major.

'The Indian economy is in excellent shape - we have reserves of US$30bn - and we are faring much better than surrounding countries.'

While the fall in corporate tax from 40% to 35% and a surge in demand brought about by income-tax reductions could help petrochemical players, they are acutely aware that the better shape the industry and the overall economy are in, the quicker the pace of tariff cuts will be.

'The government has always insisted that conditions had to be right before significant cuts could be made,' said another source.

The Bureau of Industrial Costs and Prices (BICP) recently decided that the polyester industry is capable of facing international competition through further cuts in tariffs.

BICP, which is independent of the government, has therefore recommended a reduction from 30% to 20% of tariffs on polyester filament yarn, polyester staple fibre and their intermediates - monoethylene glycol, purified terephthalic acid and dimethyl terephthalate.

These recommendations were ignored by the government when the 1997-98 budget was drawn up.

An analyst said: 'The next budget will be different if economic conditions stay the same. I expect cuts to be made on many imported chemicals, intermediates and chemical products but the cuts will not be as severe as those recommended by the BICP.'

In the long-term, petrochemical producers warn that India has to address the problem of its poor infrastructure if annual industrial growth is to ever breach the 6-7% level.

'We have to improve our roads and ports if we are to help the petrochemical and other industries,' said a source.

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