"Until introduction of futures trading in natural rubber, there had never been violent upsurge or down movement of price of natural rubber. We believe, futures trading in rubber has not helped those who have been directly related to natural rubber one way or other," he said.
Forward Markets Commission (FMC) on May 7 suspended trading in rubber, chana, soyoil, and potato futures until September 6, citing the need to tame inflationary price expectations as the reason behind the move.
Budhraja said instead of providing a good hedging opportunity to companies, futures trading led to volatility in natural rubber prices.
He, however, refused to give a clear indication on whether the association supported the suspension on rubber futures trade.
The association urged the government to let FMC and the Rubber Board conduct a study on how futures market can be better regulated so as to minimise price fluctuations and supply shortages in spot markets.
More From This Section
Key Issues
Budhraja said the key issues that the government needs to address includes reduction in customs duty on rubber or increase in customs duty on finished products, and need for exclusion of natural rubber from the negative list in various trade agreements.
Natural rubber has been retained in India's Free Trade Agreement negative list-not eligible for any preferential tariff treatment when imported from any of the countries which are signatories to regional trade agreements with India.
"There is an urgent need to bring down import duty on natural rubber (from 20 per cent) since the import of tyre as finished products attracts only 10 per cent duty.
This inverted duty structure is adversely impacting the competitiveness of Indian tyre industry," he said.
The import of tyres is on the rise, particularly from China that enjoy a further reduced duty of 8.6 per cent under Asia-Pacific Trade Agreement, he said.
Export Conundrum
Export of natural rubber must be discouraged till the requirements for finished products within India are fully met, he said.
The data provided by the Rubber Board shows that the production of rubber decreased by 3 per cent while its consumption increased by 5 per cent in 2007-08 compared with a year earlier.
"With encouragement from the Rubber Board, the export of rubber went up by 7 per cent while its production was just enough to meet the domestic requirements," he said.
During 2008-09, the production of natural rubber is estimated at 875,000 tonnes, while its consumption is estimated to be higher at 899,000 tonnes. Out of total rubber consumption of 860,000 tonnes in 2007-08, tyre sector accounted for 57 per cent.
Budhraja called for import of 100,000 tonnes of natural rubber to be made on an ad hoc basis without any customs duty in order to meet the shortfall and stabilise its prices.
"The export of rubber is being encouraged while it is not enough to satisfy the domestic requirements of rubber consuming industries. Understandably, growers and dealers are holding on to stock in anticipation of further increase in prices," he said.
Cess Waiver
"We have asked for complete waiver or substantial reduction in quantum of the cess charged from the natural rubber consuming interests in view of unprecedented rise in the prices of rubber," he said.
Alternatively, the rubber consuming interests should be allowed to take full CENVAT on the total cess amount paid against research and development expenses since under the Rubber Act, the cess is charged as a duty of excise.
The tyre association has written to Union Minister for Commerce and Industry Kamal Nath calling for relief from cess.
A cess amount of Rs 1.50 a kg of natural rubber is charged from the natural rubber consuming interests (tyre and non-tyre).
The cess collection is estimated to be over Rs 1.15 billion during the year 2007-08 in comparison to Rs 820 million in 2002-03.
From a level of Rs 103 a kg on April 1 to Rs 135 currently, natural rubber prices have gone up by more than 30 per cent in a short span of less than two months.
Every rupee increase in the price of natural rubber means an incremental financial burden of Rs 490 million on the tyre industry taking into account the natural rubber consumption of 491,500 tonnes by the sector.
Due to price rise, the tyre industry would take a hit of more than Rs 15 billion in 2008-09 (Apr-Mar) if these prices continue to remain at the current levels.
"In an industry with an annual raw material profile of approximately Rs 110 billion such a steep increase on account of a single raw material is too significant to be absorbed," Budhraja said.