Budget 2004: Petrochem
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Reduction in basic customs duty to 25% |
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Reduction in excise duty on select petrochemical products. Basic excise duty on PFY and other yarns reduced to 20% from 25%. |
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The downstream petrochemical industry -- polyesters & polymers -- have been witnessing lowering of tariff barriers. In the last fiscal, the Government abolished special excise duties (SED) on polyester intermediates, which stood at 16%. These measures improved the prospects of petrochemical companies and brought down prices. In the current budget, excise duty on PFY has been brought down to 20%. This is expected to further benefit down stream petrochemical manufactures, as result of lower cost and the benefit is likely to be passed on to the final consumers as a result of reduced prices of PFY and other synthetic yarns. Major beneficiaries of this are expected to be IPCL and Reliance.
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The industry had asked to maintain customs duties on petrochemical products, which are currently at 30% and well below the WTO bound rate of 40%. However, as the peak level of duties has reduced to 25%, the landed cost of these products is also expected to come down. As a result of these two measures, petrochemical products prices are expected to reduce in the year
2003-04.
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The Indian chemical manufactures association (ICMA) has in their pre-budget memorandum to the finance minister listed the following major suggestions: |
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There is no further reduction in customs duties on petrochemical products, which are currently at 30% and well below the WTO bound rate of 40%. Similarly excise duties on most petrochemical products, which are currently at 16% to be maintained at current levels. |
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Import duty on feedstock and petrochemical building blocks should be lowered to 0% and 5% respectively in line with the WTO ruling, as feedstock is amongst the most important elements in the cost of production of petrochemicals. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| Basic excise duty on all polymers (Poly vinyl chloride, Polypropylene and polyethylene) reduced to 16%
Basic excise duty on Linear Alkyl Benzene (LAB) reduced to 16%
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Import duty on fibre intermediates rationalised.
Import duty on DMT, PTA MEG and caprolactum reduced to 20%
Import duty on polyester chips reduced to 25%
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Special Excise duty (SED) of 16% abolished on most products except PFY, which continues to attract SED.
Peak rate of excise duty reduced to 30% from 35%.
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| [Read more on Budget 2000-01] |
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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With the merger of RIL and IPCL the industry has higher level of consolidation and this will aid in higher control on product prices. |
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The polymers industry demand growth in the past has been at double digits. Though demand during the current year has not been very encouraging, medium term prospects of the sector is positive, considering the low per capita consumption of polymers and other petrochem products. |
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| Key Negatives |
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Declining tariffs has resulted in lower prices adversely impacting margins. With the demand for products still being below expectations, growth prospects remain weak in the short term. |
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The recent increase in cost of crude to USD 27 per barrel levels resulted in increased prices of feedstock. This has impacted margins of players such as IPCL and NOCIL during the 3QFY03. |
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Any further reduction in the customs will result in further pressure on prices and consequently margins. |
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