Union Budget 2017 presented by Finance Minister Arun Jaitley in the Lok Sabha on February 1, 2017, has brought little cheer for the Indian rubber industry.
While the rubber industry leaders hail the increased allocation for infrastructure development in the Union Budget and reduction in corporate tax for MSMEs, they have taken strong exception to the Budget not considering their long-standing demand for removal of inverted duty structure on tyre and rubber, anti-dumping duty on cheap Chinese tyres coming to India etc.
“A significant push to the infrastructure spending is a big positive for the automotive tyre sector as the growth in tyre is closely linked to the growth in economy. Infrastructure investment means more movement of goods and that translates in increased demand for tyres especially Commercial Vehicle tyres. Increased allocation for the National Highways to Rs 640 billion will also aid the tyre sector,” says K M Mammen, Chairman, Automotive Tyre Manufacturers’ Association (ATMA).
“However tyre industry was pinning high hopes on long-pending correction of inverted duty on natural rubber. Regrettably, Tyres or Rubber have not been included in the list of items where duty inversion has been addressed. Correcting inverted duty on rubber is important to increase competitiveness of the tyre sector. Currently the import duty on natural rubber is 25% while the duty on import of tyres is just one-third at around 7%,” he adds.
Tax relief for MSMEs
Kamal K Chowdhury, President, All India Rubber Industries Association (AIRIA), welcomed the Budget proposal to reduce corporate tax for MSMEs from 30% to 25% saying it would help the largely cash-dependent MSMEs that have been reeling under stress after demonetisation. He however felt that corporate tax for companies with a turnover of above Rs500 million too should have been cut to some extent at least to help them compete with Asian neighbours.
He also welcomed the proposal to launch a scheme for the labour intensive leather and footwear sector — similar to the existing one for textiles — to boost its growth and creation of jobs. This is definitely a feel-good factor for the sector.
“It is sad that the Government is yet to release the National Rubber Policy. Inordinate delay on the part of the Government still persists despite caustic remarks in the report of the Department Related Parliamentary Standing Committee on Commerce in this regard. Likewise, the MSME Development (Amendment) Bill introduced in the Lok Sabha on April 20, 2015 is still pending,” he says.
“Apart from allotting Rs 1,426 million to the Rubber Board, the woes of the beleaguered rubber farmers have not been addressed in the Budget. The long-pending demands of growers including agriculture status for rubber farming, issuance of subsidy amount to the farmers, which has been pending for four years now, and steps to boost rubber exports found no mention in the Budget,” says Tomy Abraham, president, Indian Rubber Dealers Federation(IRDF).
Blow to tyre sector
According to Karan Chechi, Research Director with TechSci Research, reduction of taxes on the MSMEs would prove beneficial for the domestic rubber industry since there are around 6,000 rubber units in India at present, out of which 5,500 are MSMEs.
“The Budget is a major disappointment for the tyre industry which was expecting an inversion on duty structure, as the taxation on raw materials (25%) is more than the taxation on finished products (7%), which makes the process of manufacturing rubber products more
expensive in the country, thereby allowing cheap rubber products and tyres flood the Indian market. The overall imports of rubber products to India have gone up by 120% during 2011-2015,” he says.
An amount of Rs 1,426 million allocated to the Rubber Board may enable the Board to run its operation successfully, but it is inadequate to invest in the Research & Development activities, he adds.
According to credit rating agency ICRA, though there are a few indirect benefits to the tyre industry, via. demand stimulants for the automotive sector, particularly those driven by rural disposable incomes, the Union Budget of 2017-18 is a let-down for the Indian tyre industry.
Absence of measures to address the inverted duty structure prevailing in the tyre industry is a disappointment. Presently, natural rubber (35-45 % of the input for a tyre) is imported into India at a duty of 25 % or Rs. 30 per kg, whichever is lower, while the finished tyre can be imported at duties of 0-10 %, ICRA points out.