Indian budget's additional agricultural funds to spur polymer demand

03 March 2011 08:04  [Source: ICIS news]

SINGAPORE (ICIS)--Additional funds allocated for agricultural development in India’s 2011-2012 budget announced earlier this week could spur demand for polymers, industry sources said on Thursday.

The Indian government, in its 2011-2012 budget announcement on 28 February, said that it would increase the allocation for agriculture development under the Rashtriya Krishi Vikas Yojana funding scheme from Indian rupee (Rs) 67.6bn ($1.51bn) to Rs78.6bn.

Credit flow for farmers have also been increased from Rs3,750bn in the previous budget to Rs4,750bn in 2011-2012.

“The increment in the allocation for agricultural production will be a boost to the polyethylene (PE), polypropylene (PP) and polyvinylchloride (PVC) demand,” a converter said.

Film grade linear low density PE (LLDPE) is used to manufacture agricultural film while PVC and pipe-grade high density PE (HDPE) are used in the production of irrigation pipes.

Raffia grade PP, meanwhile, is the key raw material in the manufacture of packaging of grains.

The agricultural sector accounts for about 15-20% or 400,000-500,000 tonnes/year of India’s overall PP demand, a key local producer said.

Another budget announcement of an increase in funds for infrastructure was expected to further boost demand for PP, which is used to manufacture geotextiles for the anti-landslide structures and road embankments.

PP demand in India is expected to see an approximate 15 percentage point growth this year, the local producer said.

“Although the funds for agriculture and infrastructure have been implemented before and in the new budget, there is only an increase in fund allocation, the polymer demand would at least marginally improve,” he added.

Meanwhile, the government announced that it would keep the excise duty at 10% and would not implement an expected increase of two percentage points.

“It is good news that the government did not put forth the increase in the excise duty,” a polymer trader based in Mumbai said.

Another local trader said: “Last year, we are disappointed by the 2% upward adjustment on the excise duty to 10%. It is pleasing to us that there is no further increment this year.”

However, market players were dismayed that an expected withdrawal of the 4% special additional duty (SAD) levied on imports did not materialise.

A polymer trader said that if SAD were removed, the demand for imports would immediately increase.

“But it seems nothing will come through now,” the trader said.

Nurluqman Suratman contributed to this story

($1 = Rs 44.83)

For more on PP, visit ICIS chemical intelligence

By: Ong Sheau Ling
+65 6780 4359

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