MUMBAI India's tyre industry wants a steep cut in the customs duty on natural rubber, however analysts say, though chances are bright this time around for a reduction, it will fall short of industry demands.
Currently, the customs duty on natural rubber is twice that on tyres, making imports more attractive to locally made tyres.
"The customs duty on natural rubber should be reduced from 20 percent to 7.5 percent, lower than the duty on tyres," Automotive Tyre Manufacturers Association (ATMA) said in a pre-budget memorandum to the finance ministry.
"Or alternatively, the customs on tyres should be increased to 20 percent from the current 10," the note said.
Natural rubber makes up 42 percent of the total cost of a tyre.
Lower customs duty on tyre makes imports cheaper, and India has seen a flood of cheap foreign-made tyres. Eighty percent of India's tyre imports are sourced from China and South Korea.
"The industry has been at a receiving end due to the ever increasing price of natural rubber in the domestic markets and a high duty, which makes imports unviable," said A.S. Mehta director, marketing at J.K Tyres & Industries Ltd.
However, analysts say there is a fair chance of a duty cut, though not as steep as the industry wants.
"This time the domestic production of rubber has come down and that has pushed (rubber) prices really high so the decision on the duty cut is likely in this year's budget," said an analyst with a Mumbai-based brokerage.
"However, the duty reduction in rubber may not be more than 4-5 percent, and that may happen in a phased manner."
"The duty cut, if it happens, may not be as much as the tyre manufacturers demand but it may be brought down to 10 percent, in line with the duty that the finished product attracts," said Vaishali Jajoo, an analyst with Angel Broking.
Tyre manufacturers have also sought an extension of the excise duty cut introduced in 2009, a 2-phased reduction to 8 percent from 10 percent as part of the fiscal stimulus.
"The reduction in excise duty should be continued, if not for a year atleast six more months," said JK Tyre's Mehta.
The industry has also sought a duty waiver on imported raw materials such as butyl rubber, polyester tyre cord and styrene butadiene rubber. But that too seems unlikely.
"The contribution of these materials to the total tyre cost is lower, so on this the government wouldn't really be paying much attention," said the analyst with the Mumbai-based brokerage.
Source : REUTERS