By P Venugoapl

The widening demand-supply gap in natural rubber in India, coupled with restrictions on import of the commodity, threatens to hit the tyre and non-tyre manufacturing sector badly. The drastic fall in production is particularly worrisome to rubber MSMEs who can hardly afford the high import duty and many have gone out of existence for want of raw material

While the current world supply of natural rubber almost matches that of demand, the top two rubber consumers – China and India – are confronting the problem of demand far outstripping supply, particularly in view of the exponential growth of the automobile and tyre industries.

The liberal import policy of China, which accounts for one-third of the world demand for rubber, allows it to meet almost 90% of its natural rubber requirements through imports. But the demand-supply gap has created a host of problems for the manufacturers, growers and other rubber industry stakeholders in India.The worsening supply crunch in India, coupled with restrictions on import of the commodity, threatens to hit the manufacturing sector badly.

Demand-supply gap

Going by the estimates made by the Rubber Board, the production–consumption gap for the 2018-19 fiscal stands at about 559,000 tonnes, as against 417,000 tonnes for the previous fiscal. With the expected big leap in demand for tyres and non-tyre rubber goods, NR consumption in India is likely to surpass the projection of 1.2 million tonnes made by the Rubber Board for the year 2018-19.

According to the estimates made by the Association of Natural Rubber Producing Countries (ANRPC), India’s NR demand for 2019 stands at 1.25 million tonnes. According to industry sources, the domestic NR production was impacted due to the devastating floods in Kerala, which accounts for 92% of NR production in the country, during the first half of the last financial year. The peak season from October to January also did not deliver the expected production, aggravating the NR supply crunch.
Apart from India, Malaysia is the only major NR producing country that recorded a drop in NR production in 2018, as per ANRPC data. All the top NR producers also recorded substantial rise in NR consumption as a result of increase in exports and steps to boost domestic consumption of rubber.

Falling production

According to Rubber Board, India sources, around 20% of the rubber production area in Kerala remains untapped for reasons such as lack of remunerative prices for rubber, rise in cost of production and low yield as a result of adverse heat conditions prevailing in the rubber belts. Apart from India, other top rubber producing countries too see the fall in NR prices as a major threat to the survival and development of rubber plantations.

There has been a steep decline in international and Indian rubber prices since 2011 (see Figure). The yearly average price of RSS 3 in the international market, which stood at $ 300.20 per 100 kg in 2011 nosedived to $ 151.95 in 2018. The yearly average price of RSS 4 in the Indian market had a similar crash from Rs. 21,669 per 100 kg in 2011 to Rs. 12,587 in 2018.The concern over the adverse fallouts of falling NR prices is reflected in the recent decision of the International Tripartite Rubber Council (ITRC), comprising Thailand, Indonesia, and Malaysia, to reduce rubber exports by 240,000 tonnes for a period of four months beginning April 1, 2019 to boost the price of the commodity.

Dependence on imports

As stated by K M Mammen, Chairman, Automotive Tyre Manufacturers Association (ATMA), in an accompanying interview, the domestic NR production satisfies only about 53% of the total NR consumption in the country. The consuming industry is therefore forced to depend more on imports which have gone up by 30% during
the April 2018 to January 2019 period as compared to the previous year.

According to ANRPC, India posted 48.6% increase in NR imports to 592,000 tonnes in the year 2018 as against 399,000 tonnes in 2017.But here again, there is great anomaly in the import duty on rubber and tyres (finished products). Import of NR attracts 25% Customs duty, while the basic duty on tyres is only 10%. Moreover, there are port restrictions on import of natural rubber. Only two ports – Chennai and JNPT — are allowed to import natural rubber, which adds to costs and delays. Further, the export obligation period (for tyres) has been reduced from 18 months to only 6 months, which is another blow to the industry.
The only solace for the industry is that the international price of rubber is ruling lower than domestic price at present, which makes imports cheaper than domestic procurement.

Industry’s concern

The supply crunch in the NR market has badly hit the tyre and non-tyre manufacturers. Alarmed by the shortage of domestic supply, tyre manufacturers have asked the government to take steps to increase domestic production of natural rubber and reduce the import duty on rubber to less than 10 %.

Rubber products manufacturers too have expressed deep concern over the widening demand-supply gap in natural rubber in India and the restrictions imposed by the government on NR imports.

“If imports are made unviable and demand is not met by domestic production, the Indian rubber products manufacturing industry hardly has any option but to either reduce the capacity or shut down,” warns Vikram Makar, President, All India Rubber Industries Association (AIRIA), in an accompanying article.

The drastic fall in production is particularly worrisome to rubber MSMEs who can hardly affort to import rubber at 25% duty and many have gone out of existence for want of raw material. Rubber industry in India is dominated by small & medium sector as out of the 5,500 odd rubber products manufacturing units, 90% are MSMEs.

Rubber units spread across the country manufacture around 35,000 different rubber products which find usage in auto, defence, healthcare, agriculture and in various other critical sectors. The Central Government had made an announcement to include rubber products manufacturing in the Make-in-India scheme. However, this is possible only if the raw material is available in adequate quantities and at reasonable and stable prices, feel industry sources.

Conflicting interests

Though the Central and State governments claim that they are taking several measures to increase rubber production, nothing much is happening on the ground.

For instance, the Kerala government launched the much-publicised Rubber Production Incentive Scheme for providing financial support to rubber growers under which the difference between the scheme reference price of Rs 150 per kg and the daily market price is credited to the bank account of the farmer directly on the basis of purchase bills. However, the disbursement of price subsidy has run into trouble due to inadequate allocation of funds. The fact that the Indian Rubber Board had to remain headless  for a long time ever since Sheela Thomas IAS completed her term in 2014 is another instance of the government’s lackadaisical attitude towards the rubber sector. It’s after a long gap that the Centre has now appointed Dr. K N Raghavan as the full-time Executive Director of the Rubber Board.

Rubber is a political hot potato for the Indian Government as any measure to help the manufacturing industry by easing import restrictions would antagonise the growers who see imports through legal and illegal channels as the reason for low rubber prices.

So the government has to do a tightrope walking to balance the interests of both producers and consumers.