India producers hopeful about tax cuts for petchems

25 February 2009 17:24  [Source: ICIS news]

NEW DELHI (ICIS news)--Indian producers have begun to reduce prices and remain hopeful about increased demand for domestically produced chemicals after the government carried out tax cuts, sources said on Wednesday.

India’s government reduced the excise duty from 10% to 8% on such products as polymer resins, plastic products, elastomers and several other chemicals, without disclosing specific products, a government source said.

The reduction was also applicable to naphtha when used as a petrochemical feedstock, which would benefit naphtha-based olefins and aromatics producers, he said.

A plastics industry source said the excise duty cut was in line with expectations of producers.

The All India Plastic Manufacturers’ Association (AIPMA) had demanded an excise reduction of 8% to improve growth prospects for small- and medium-scale polymer processors. 

However, a textiles industry source expressed disappointment at the move, as demands submitted jointly by four textiles industry associations had been overlooked, according to the source.

The associations had last month requested that the import duty on all man-made fibres be scrapped and that both the customs and excise duties on naphtha and other fuels used for captive power generation be withdrawn.

The 2% excise duty cut would also result in a matching reduction in customs duty, or countervailing duty (CVD). This would make imported products cheaper, according to an industry source.

The source said that it would be difficult to estimate the impact of the excise duty cut and CVD reduction on the price of the petrochemical and chemical products, as domestic prices are linked to import prices, which vary frequently.

Producers benefitting from the excise duty cut, such as tyre and automobile companies, have already started reducing prices, sources said.

As a result, sources said, India’s petrochemicals and chemicals sectors are expected to see an increase in demand from the automotive and durable consumer goods industries.

The Confederation of Indian Industry (CII) said: “The further reduction in excise and service tax by…will go a long way in stimulating consumption demand.”

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By: Naresh Minocha
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