Raise import duty on petchem to protect domestic industry: Ficci asks govt

Fearing that countries like China may take advantage of low import duty to dump petrochemical products in India, a top trade body has sent an SOS to the government seeking hike in customs duty to protect the domestic industry and jobs.

The Petrochemicals and Plastic Committee of the Federation of Indian Chambers of Commerce and Industry (Ficci) has written to Ministry of Chemicals and Fertilizers seeking hike in customs or import duty on polypropylene and polyethylene - vastly used in automobiles, packaging, agriculture, electronics and medical devices as well as in construction - from 7.5 per cent to 12.5 per cent.

India is short on petrochemicals. Taking into account the capacity additions announced so far, the projected deficit of polypropylene and polyethylene is likely to reach 12 million tonne per annum or $ 12 billion at current price levels by 2030.

While the domestic Indian producers are caught in the cyclical nature of the business, China is scaling up petrochemicals production capacity and fast becoming a leading exporter. India's current major import locations in the Middle East and the US enjoy better profit margins given availability of cheaper feedstock.

"The current imports of $101 billion of chemicals and petrochemicals present a huge opportunity for India to decrease our import bills and aim for self-sufficiency," the association wrote.

Chemicals and petrochemicals constitute the second largest category of imports into India. Low rate of duty on import of polyethylene and polypropylene makes it relatively easy for these materials to flood the Indian market.

"This influx of imports poses a serious threat to the margins of our domestic producers, hindering their competitiveness in the local market," the body wrote.

Unnecessary imports cause needless outflow of foreign exchange, contribute to widening of the current account deficit (CAD) and under-utilisation of domestic capacity.

"These polymers are characterised by their capital-intensive nature and are poised to witness rapid demand growth in the foreseeable future. As the Indian industry gears up to augment its capacities to meet the burgeoning domestic demand, it continues to grapple with the high factor costs (including high cost of capital, high power tariffs, inadequate infrastructure, logistical bottlenecks, etc) which inhibit the competitiveness of Indian industry including petrochemical industry."  Given the circumstances, import tariffs stand as a partial mitigation measure in the immediate term to counterbalance these daunting factor costs, the association said.

"While the MFN duty on polymers is 7.5 per cent, the effective duty on imports is significantly less than that on account of concessions granted under FTAs. While the duty is 7.5 per cent only on paper, the domestic producers have duty protection much below 7.5 per cent due to preferential imports," it said.

Increasing customs duty will help in mitigating some of the risks facing new investment in the industry such as long payback periods and low internal rate of return.

"At the same time, this increase in basic custom duty on polypropylene and polyethylene will not result in a significant increase in price of end-products," it said.

At a unit level, the increase might be marginal and the economy will be able to absorb this marginal increase.

"Increasing the basic custom duty on polypropylene and polyethylene is a strategic move that aligns with India's economic aspirations and the vision of Atmanirbhar Bharat. This measure will incentivise domestic production, narrow the demand-supply gap, strengthen the petrochemical industry, and ultimately contribute to India's long-term economic development," it added.