Let’s talk about demand

The Indian government is reportedly planning a stimulus package for chemicals. But I don’t think this can be called a stimulus package as the proposals seem to be mainly about tariff reduction.

The department of chemicals and petrochemicals is once again seeking a reduction on the 5% duty on naphtha that was introduced in last year’s budget. It has also asked for duty reduction on captive power plants and spares from 7.5% to 5%.

Tariff reduction on inputs will surely be welcome. But the industry also needs government support to boost local demand. This is something that China is working on.

I think the Chinese government’s subsidy programme for purchase of home appliances in rural areas is a smart idea. The program offers a subsidy equal to 13% of the price of home appliances ranging from colour TV sets to washing machines.

And China needs to urgently stimulate rural demand as export demand is fading. Figures for 2008 show that appliance production growth slowed to 13.9% in 2008, compared with 26.1% in 2007. Export rose by only 13.7%, down from the 25% growth registered in 2007.

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