Indian chemicals industry bats for increasing duties on imports

Author: Priya Jestin

2021/01/21

MUMBAI (ICIS)--The Indian chemicals and petrochemicals industry, which is now seeing a slow recovery in demand, expects the government to support its growth trend by introducing measures to reduce unnecessary imports.

“The industry looks for support from the government by way of an increase in customs duties which may discourage unnecessary imports,” said K Srinivasan, secretary general of Alkali Manufacturers Association of India (AMAI).

“The Indian alkali industry is atma nirbhar or self-sufficient, having adequate capacities to meet the entire domestic demand. More capacities are coming up through brownfield expansions and greenfield projects that will sufficiently cover future demand,” Srinivasan said.

However, capacity utilisation of domestic manufacturers has been impacted by imports in huge quantities because of global surpluses, he said.

“With a steep drop in prices and curtailed demand, it is challenging for the industry to survive,” he added.

It could take at least a year for demand in the chloralkali industry in India to reach pre-Covid-19 levels, Srinivasan said.

“The present duty levels of 7.5% for caustic soda is inadequate to deter imports. Anti-dumping duty (ADD) on imports have all expired and presently there is no protection to the industry that will help it tide over the current crises. Even a 5% increase in basic customs duty will have negligible impact on downstream users but will provide good protection to the domestic caustic soda industry,” he added.

The government may, however, have to balance increasing protection for domestically produced chemicals and petrochemicals with pressure from downstream industries, which have been asking for access to cheaper imports.

The textiles and apparel industry, which accounts for nearly 2.3% of India’s GDP, has been asking the government to reduce duty protection afforded to domestic raw material producers of man-made fibres (MMF) and MMF yarn.

In 2020, following representations from the textile industry the government had removed the ADDs on purified terephthalic acid (PTA) and acrylic fibre.

It also decided not to impose ADD on polyester staple fibre (PSF) and mono ethylene glycol (MEG) to enable global competitiveness for India’s MMF sector.

The National Committee on Textiles & Clothing (NCTC), an umbrella body of Indian textile associations has asked for further removal of ADDs and custom duty protection on raw materials.

The protection given to the domestic raw material manufacturers and high tax rates on MMF goods has curtailed the growth of the sector, the NCTC said in a press release on 18 January.

“When a downstream producer has to pay a higher cost for raw materials, the overall cost of the finished good increases which makes the product less competitive. The government has to balance the needs of both producers and downstream users,” a government source in the Ministry of Commerce said.

“The government is taking steps to boost domestic manufacturing and exports. We are in the process of formulating a new foreign trade policy which should increase India’s exports over the next five years,” he added.

Industry body Confederation of Indian Industry (CII) has asked the government to consider competitive import tariffs which will enable Indian products to compete on a global scale.

In a statement on its website, CII has recommended import tariffs ranging from 0-2.5% slab on raw materials, 2.5-5% on intermediates and the highest of 5-7.5% on finished goods.

“The government will need to progressively rationalise duties on various products which will help give a push to domestic manufacturers,” Mahinder Singh, secretary general of Chemicals and Petrochemical Manufacturers Association of India (CPMAI).

“There has been a revival in demand since the third quarter of 2020-21. The industry has begun to increase production in anticipation of further increase in demand which will happen progressively over the next few quarters,” Singh added.

The Indian economy suffered a severe recession in 2020 with the GDP contracting nearly 24% in the first quarter of the current fiscal following a national lockdown to prevent the spread of the coronavirus. The contraction came down to 7.5% in the second quarter.

India’s National Statistical Organisation (NSO) expects the economy to contract 7.7% in 2020-21.

As per government data released on 15 January, both merchandise exports and imports have shown an increase in December which point to the slow recovery in the economy.

Merchandise exports rose marginally in December, for the second time since February 2020, while imports have grown for the first time since March.

Exports in December rose 0.14% to $27.15bn year on year while imports during the period increased 7.6% to $42.59bn.

Merchandise exports declined 15.73% to $200.80bn during the first nine months of the current financial year against $238.27bn in 2019-20 while imports during the period dropped 29.08% to $258.27bn.

Overall trade for the period was down 12.65% to $348.49bn while imports fell 25.86% to $343.27bn

Indian Finance Minister Nirmala Sitharaman is expected to present the Budget for 2021-22 on 1 February.

Focus article by Priya Jestin

Click here to view the ICIS Coronavirus, oil price crash - impact on chemicals topic page.