The Government, except for a handful of products, has abolished special excise duty (SED) of 16%. Polyester Filament Yarn (PFY) continues to attract excise duty of 16% and SED of 16%.
The peak rate of excise duty has been reduced from 35% to 30%. Consequently, tariff on polymers stands reduced to the new rate of peak import duty.
Budget Impact
The downstream petrochemical industry -- polyesters & polymers -- have been witnessing lowering of tariff barriers. Last fiscal the Government reduced import duties on polyester intermediates from 25% to 20% and that on polyester chips to 25%. These measures did impact domestic prices. MEG and PTA prices declined by double digits within six months of the budget. In the current budget, import duty on polymers has been reduced by 5%. This measure was expected. The lower tariff is likely to put pressure on domestic realizations. Polymers contributed to 74% of IPCL's turnover in FY01. In case of RIL, polymers accounted for 29% of revenues. The net tariff protection on polymers stands reduced to 20%.
The polyester industry had asked for rationalization of import duties. Budget has not addressed this issue. Further, the industry had also requested for aligning of excise duties across the fibre spectrum for guiding demand on economic grounds. The Government has continued to impose SED of 16% on PFY. The consumption of polyester has been considerably affected in the current slowdown. This cancels out any reduction in prices to boost demand.
Industry wish list
Rationalize import tariffs across the petroleum chain. Fibre intermediates and end products attract similar rates of duty. Net tariff protection of 10% is needed. The anomaly has been created due to higher crude oil duties. Import duty on crude is higher than that on petrochemical basic building blocks.
Align excise duties across all fibres, including cotton. Differential duty structure should not create market preferences. Surcharge on excise for synthetic textiles should be removed.
Import duty on capital goods for end products should be reduced to levels prescribed for raw materials. The same goes for catalysts and chemicals in the manufacturing process.
Key Positives
Key players have initiated consolidation in the industry, which is highly fragmented affecting the industry structure.
The polymer industry has grown in double digits over the past decade. Further, share of imports in domestic consumption have also reduced. The petrochemical cycle is showing initial signs of a turnaround.
Per capita consumption of polyester and polymers is amongst the lowest in the Asian region. Outlook for the polymer industry is upbeat considering new application for the material and its use in high growth industries like telecom, packaging & consumer durables.
Key Negatives
The industry came under severe pressure in the current fiscal with a downturn in global and domestic economic growth. Besides, demand evapourating, petrochemical product prices declined considerably.
Last fiscal, the Government increased import duty on Naphtha from 5% to 10%. Naphtha is the key raw material of the sector. On the other hand, Government reduced import duty on polyester intermediates from 25% to 20%.
The country faces an unfavorable demand-supply scenario. Over the last three years significant petrochemical capacity has come onstream. E.g. Haldia Petrochemicals Ltd, Mitsubishi PTA plant.
