PREBUDGET MEMORANDUM ON UNION BUDGET FOR THE FINANCIAL YEAR 2013 - 14

Issues, Concerns & Submissions of Indian Rubber Industry

Submitted to:

Ministry of Finance, Government of India

By

All India Rubber Industries Association

601,Pramukh Plaza, 485,Cardinal Gracious Road, Chakala, Andheri (East),Mumbai 400 099. Tel No.022 2839 2095/2107,Fax No. 022 6710 3211 info@allindiarubber.net

PREAMBLE : This Memorandum consists of and covers the following : PART A: INTRODUCTION & INDUSTRY PROFILE An Overview of Rubber Industry. Salient Features of Indian Rubber Industry. Trends in Production, Export, Import of Natural & Synthetic Rubber. Action required from the Government for Indian rubber industry.

PART B : ISSUES RELATED TO CUSTOMS DUTY Allow Duty Free Import of One Lac MT of Natural Rubber to meet demand supply gap. Waiver of Customs Duty on raw materials NOT manufactured domestically. Reduction in Customs Duty on raw materials of Rubber Industry not meeting domestic demand.

PART C : ISSUES RELATED TO EXCISE DUTY General Small Scale Exemption Exemption of SSI should be raised to 10 Crores and also value of exempted goods should be excluded from the turnover because of unusual price rise in Natural & Synthetic Rubber from Rs.125 per kg to Rs.250 and $ 1.50 to $ 4.2 per kg respectively.

PART A (I) INTRODUCTION & INDUSTRY PROFILE An Overview of Rubber Industry (F.Y. 2012-13) (Estimated)

Total No. of Units Large & Medium scale units Small & Tiny Units Industry Turnover Tyre Sector Non Tyre Sector Value Exports Taxes & Duties Raw-Material intensity

: 6000 approx : 500 : 5500 : Rs. 60,000 Crores : Rs.35,000 Crores : Rs.25,000 Crores : Rs.9,600 Crores : Rs. 13500 Crores : Raw Material cost accounts for 65% - 70% of Industry Turnover (approx)

Principal Raw-Materials

: Natural Rubber, Synthetic Rubbers, Carbon Black, Rubber Chemicals etc.

PART A (II)

INDIAN RUBBER INDUSTRY - SOME PERTINENT FACTS

The Rubber Industry is highly labour and energy intensive. The Indian Rubber Industry comprises about 450 / 500 large / medium scale units and nearly 5500 Small and Tiny units. The high cost of power, finance, inadequate & expensive infrastructure and relatively low volumes, deprives the Indian Rubber Industry particularly small and tiny units, the cost- competitiveness as compared to their counterparts in other Asian countries which are posing threats to the very survival of Industry. Allow duty free import of 1 lac metric tonne of Natural Rubber to meet demand supply gap. Rubber Product as well as Synthetic Rubber are imported at same rate of duty, whereas import from Asian Countries have 5% concession in duty. Hence it is very difficult for India Rubber Industry to survive. In India, the consumption ratio between natural rubber and synthetic rubber is nearly 73:27 against the world ratio of 44:56, which shows over dependence on natural rubber in India. Natural rubber being non-modvatable, the modvat component in rubber goods is almost negligible. As such, the excise duty on general rubber products at 10% is on higher side. The import of the major raw materials of rubber industry which are not indigenously produced is subjected to high rate of Custom Duty, making it very difficult for the Rubber Industry to survive and to compete against import of finished products. Basic raw material and rubber finished products are charged at same rate of duty This is against normally accepted practice of imposing lower rate of duty on raw material and higher rate on finished products. The government should fix the import duties on raw material lower than the import duties on the finished products. Levy of anti-dumping duties on High Styrene Butadiene Rubber (all 1900 series) has made the Indian footwear products more expensive. With high interest cost and energy rates many of SSI footwear units had to close their shutter, leading to import of Footwear products from Nepal, Sri-Lanka & China. Levy of anti-dumping duties on Carbon Black & Rubber Chemicals has made the Indian rubber products more expensive. With high interest cost and energy rates many of SME units had to close their shutters. Inspite of constraints faces by the Indian rubber industry, it is achieving growth in export of rubber products at 15% to 20% annually.

PART- A(III)

Trends in Production, Consumption, Import & Export of Natural Rubber in India.

Natural Rubber (Production,Consumption,Import & Export)

1200000 1000000 800000 600000 400000 200000 0 Production Consumption Import Export

M.Tonnes

2007-08 825345 861455 89295 60280

2008-09 864500 871720 81545 46926

2009-10 831400 930565 170679 25090

2010-11 861950 947715 177637 29851

2011-12 903700 964415 213785 27145

(Source:Rubber Board)

Trends in Production, Consumption, Import & Export of Synthetic Rubber in India.

Synthetic Rubber (Production,Consumption,Import & Exports)

450000 400000 350000 300000 250000 200000 150000 100000 50000 0 Production Consumption Import Export

Metric Tonnes

2007-08 101265 297155 195705 0

2008-09 96739 292950 190630 0

2009-10 106743 347710 250210 0

2010-11 110340 411830 302030 0

2011-12 110599 423350 327625 0

(Source:Rubber Board) Summary Consumption of Natural & Synthetic Rubber is constantly increasing at moderate rate whereas production of the same is not matching the growth in consumption. It is not available even at high prices. Therefore, it is urgent need to import one lac MT of Natural Rubber to bridge the demand supply gap and to stabilize the demand supply situation.

ACTION REQUIRED FROM THE GOVERNMENT FOR INDIAN RUBBER INDUSTRY IN THE BUDGET 2013-14 INDIRECT TAXES: IMPORT DUTIES Allow duty free import of 1 lac metric tonne of Natural Rubber to meet demand supply gap. Existing custom duty on NR latex be reduced from 70% to 5%. Existing custom duty on Latex Rubber Tread be reduced from 5% to Nil. Waiver of custom duty on raw materials not manufactured domestically such as Butyl Rubber, SBR grade 1500/1700 and other hi-tech Synthetic Rubbers, EPDM & Polyester Tyre Cord. Reduce custom duty on raw materials as domestic production is meeting the increase in demands of raw materials such as PBR, Nylon Tyre Cord Fabric, Steel Tyre cord etc. Keep custom duty on raw material lower than the duty on finished Products by 10%. Withdraw unjustified antidumping duties on Rubber Chemical & Carbon Black etc. INDIRECT TAXES: EXCISE DUTY Exemption of SSI should be raised to 10 Crores and also value of exempted goods should be excluded from the turnover because of unusual price rise in Natural & Synthetic Rubber from Rs.125 per kg to Rs.250 and $ 1.50 to $ 4.0 per kg respectively.

VAT There is variation in VAT in certain material/goods from state to state therefore urgent need to move toward GST.

*****

PART-B INDIRECT TAXES:

B-1: B-2: B-3:

IMPORT DUTIES

Allow Duty Free Import of 1 Lac MT of Natural Rubber to meet demand supply gap. Waiver of Customs Duty on raw materials not manufactured domestically. Reduction in Custom Duty on raw materials of rubber industry not meeting domestic demand.

Natural Rubber HS Code No.4001

Major Raw material for Indian rubber industries accounts for 35% to 45% of raw material cost. Demand supply gap over 1.5 lacs MT in 2012-13. Allow Duty Free Import of One (1) Lac MT of Natural Rubber Allow NR import under ASEAN FTA on reduced Customs Duty in line with Concessional Tariff on Finished product (Tyre)

Natural Rubber Latex No.40011010 & 40011020

HS

code

Existing Customs Duty of 70% be reduced to 5%. Since the latex rubber is used for hygienic and pharmaceutical product ie condoms, examination / surgical gloves etc. meant for common man which attract highest rate of custom duty at 70% Latex Rubber Thread,HS Code No.40070010 Chief raw material, latex rubber thread, is having NIL Existing Central Excise rate of Duty. Our buyers, i.e. elastic manufacturers, are Duty of 5% be reduced to Nil. having NIL rate of Duty. We are paying excise duty not only for value addition, but also for the raw material purchased and it cannot be passed on to buyers, since they do not avail cenvat credit. This results in double disadvantage. B-2

Waiver of Customs Duty on raw materials not manufactured Domestically

Butyl Rubber HS Code No.4002 No domestic production. 100% need to be met Existing custom duty through import. Mainly used for manufacturer of be waived inner tubes of tyres. of 5%

Styrene Butadiene Rubber Grades S 1500 / S1700 (HSN 40021900)

No domestic production. One of the key synthetic rubbers Existing custom duty used for manufacture of tyres. Tyre Industry presently be waived consumes over 1,10,000 MT per year. EPDM (HSN 40027000) No domestic production. Primarily used in automobile Existing custom duty profiles, on the side walls of tyres and inner tubes of tyres. 10% be waived

of 5%

of

Hi tech Synthetic Rubber HS Code No.4002 Epichlorohydrin, Fluoro Elastomers, Silicone, Hypalon, Potyacrylic, Hydrogenated NBR (HNBR) and Chlorinated Polyethylene (CPE) are hi-tech specialty rubbers which find application in vital fields such as computer industry, auto components for euro 2 norm vehicles, power transmission, telecom and aeronautics etc. These are advanced elastomers required for critical end-use conditions. These are very costly rubbers with CIF price ranging from US$ 5 to US$ 30 per kg. These rubbers are not produced indigenously and yet, are subjected to peak import duty rate of 10%. The high import duty discourages their use in sophisticated hi-tech products and encourage import of finished products. Polyester Tyre Cord: HS Code No. (59022000) At present no commercial production of this item. Only one single producer (on trial production). Commercial production yet to start. One of the key raw materials used for manufacture of Radial tyres.

Existing customs duty of 10% be waived

Existing customs duty of 5% be waived

B-3:Reduction in Customs Duty on raw materials of Tyre Industry not domestic demand. Polybutadiene Rubber (PBR): (HSN 4022000)

meeting

Domestic production is insufficient to meet domestic Existing Customs Duty of demand. Only one PBR producer in India. Production 10% be reduced to 5% . approx 76000 MT as against a total demand (Tyre + Non Tyre) of 125300 MT per annum. Gap needs to be met by import.

Rubber Chemicals: ( HSN 3812/3010/2934)

Existing Customs Duty of 7.5% be reduced to 2.5%

Nylon Tyre Cord Fabric (NTCF): (HSN 59021010) Domestic production is insufficient to meet domestic Existing Customs Duty of demand. Production approx 60,000 MT as against demand 10% be reduced to 5%. of over 1,20,000 MT, leaving a gap over 60,000 MT per year. Gap needs to be met by import for uninterrupted tyre production. Steel Tyre Cord: (HSN 73129000) Single producer in India. Tyre Industry invested over Rs.20,000 Crores for Radialisation of Truck Tyre. This raw material being the key raw material for radial tyres, non availability of this material is going to affect the Greenfield projects/expansion plans of Tyre Industry. Current gap is over 35,000 MT per annum. Testing Equipment / R & D Equipments With increasing awareness of quality standards and implementation of ISO standards, quality has become the keyword for successful marketing. The Indian manufacturers should not be allowed to lag behind for want of necessary high-tech equipment at affordable prices. They should not be deprived of easy access to such equipment to modernize their technology. In order to promote their R&D efforts and enable Indian industries achieve better quality standards; this infrastructure i.e. testing equipment should be made available at affordable prices.

Existing Customs Duty of 10% be reduced to 5%.

Existing Customs Duty of 10% be reduced to 5% .

Rationalise Import Duty Structure on Raw Materials and Finished Goods Due to high rate of import duty on most of the raw materials ranging from 26.849%, the cost of finished goods made from such imported raw materials is higher than the landed cost of such imported finished goods. This leads to unwarranted imports of finished goods, from neighboring countries causing injury to domestic producers, which surely could not be the intention of the government.

Keep Import duty on raw material least 7.5% lower than the duty on finished products made out of these raw materials.

*****

Summing up

The import of the major raw materials of rubber industry, NOT INDIGENOUSLY PRODUCED, is subjected to high rate of Custom Duty. The import of major raw materials of Rubber Industry INDIGENOUSLY PRODUCED, is subjected not only to peak rate of Custom Duty but also to the Anti-Dumping Duties. On the other hand, all the Rubber Products are coming into the Country with normal rate of duty without facing Anti-Dumping. With over 15,000/Rubber Products, it is difficult to prove the Dumping Charges and most of the manufacturers are small manufacturers who do not have the resources to initiate the anti-dumping proceedings as per the law.

We therefore, request you to :

i) ii)

Bring down the import duty on raw materials like synthetic rubber not indigenously produced from peak rate of 10% to 5% ad-valorem. Keep custom duty difference of 7.5% between raw material & finished products.ie. Duty on raw material should be lower than the finished products. Duty on Natural Rubber and Latex be reduced from 20% to 5% and 70% to 5% respectively. Nominal duty of 5% be levied on imports of testing equipment to strengthen be R&D efforts of the Indian industries, particularly the SSI.

iii) iv)

*****

INDIRECT TAXES:
3. Small Scale Industry

EXCISE DUTIES

A) General Small Scale Exemption Scheme

The Govt. has duly recognized that the Small Scale Industry plays no smaller role in our nations economy. Its contribution to Government exchequer, production share, exports and employment generation are quite significant and growing year after year. With necessary encouragement, the SSI Sector can grow by leaps and bounds on all economic fronts, which would be in the countrys interest and the nation would reap the rich returns of economic reforms. As the basic prices of raw materials of rubber industry has increased to 200% to 300% over a period of last four year. Therefore this is time that basic exemption limit be revised to give relief to SSI sector. Measure Requested To encourage SSI Sector to achieve higher production and better productivity, the concessional duty slabs should be further rationalised and the eligibility limit should be enhanced as below: Upto first clearance of Rs.300 lakhs : NIL 50% of the slab 75% of the slab Normal Duty Rs.10Crores total clearance.

Above Rs. 300 lakhs & upto Rs. 400 Lakhs : Above Rs. 400 lakhs & upto Rs. 500 lakhs : Above Rs. 500 lakhs Eligibility Limit : :

B) SSI Exempted goods turnover not to be included. Till 2004-2005, turnover of exempted goods was excluded for calculating the eligible turnover of 3 crores. From 2005-2006 exempted goods turnover has been considered for the purpose of computing aggregate value of the clearance for determining the limit. This has cause great hardship to SSI without benefiting to the Government. The exempted goods turnover is exempted for various reasons and modvat not claimed. Hence including this is not of any help to generate more revenue but caused hardship to SSI entrepreneurs.

Measure Requested SSI Exempted goods turnover not to be included for calculating eligible turnover.

Summing up
EXCISE DUTY i) Exemption of SSI should be raised to 10 Crores and exempted goods turnover should be excluded from computing the aggregate value of turnover.

CLARIFICATIONS 1. Cess on Imported Natural Rubber The cess on Natural Rubber of Rs.2 should made cenvatable.

*****