[S2!!!]

When the Budget 2015 was announced, the Automotive Tyre Manufacturers Association (ATMA) kept their fingers crossed, hoping for a reduction in duty on import of natural rubber from 20%. However, that never happened. Instead, two months later, the government has decided to increase the duty from 20% to 25% on the import of natural rubber.

Industry experts believe that this hike in duty will have an adverse effect on the Indian tyre manufacturers (who might struggle to keep their prices competitive) as well as future investments in the country. This move is believed have provided an opportunity for neighboring nations to dump imported finished goods in India. As of today, basic customs duty on finished goods of tyres is 10%. However, under various trade agreements with some Asian countries, this duty ranges from 0-8.6%.

India's natural rubber production is at a 12-year low in 2014-15, with production reducing by 15% in comparison to 2013-14. However, demand has risen by 4% in comparison to the previous year, which resulted in higher rubber imports of 4.15 lakh tonnes in 2014-15 i.e. 15% more than the previous fiscal year.



Source: TyreTimes and The Economic Times

[GTO]

Originally Posted by S2!!!

India's natural rubber production is at a 12-year low in 2014-15, with production reducing by 15% in comparison to 2013-14. However, demand has risen by 4% in comparison to the previous year

Actually, production reduced because of the earlier low import duty on rubber. Planters were going through a rough time. With import duty hiked, this might change the situation.

Here's a great post from the Budget 2015 thread:

Originally Posted by avira_tk

I have to disagree with the OP regarding tyres, coming from a family that depends on rubber for income, the drop in prices has benefitted manufacturers tremendously. The tyre stocks reflect this reality, while planters who sell the rubber get paid about 20% lower than market rates, rubber purchasing industries have been given a VAT waiver. The tyre industry doesn't need any sops, if you can't operate at a profit after rubber prices drop by 60% and oil prices are at decades' lows and prices have been hiked by 15% maybe they should get out of the business.

I will never buy an Indian brand tyre for my car, I knew an employee at one the leading tyre companies(Indian one) who used only high price Michelins on his car, goes to show the faith he had in the product.

[S2!!!]

^Correct.

So basically, even though the tyre manufacturers are screaming that this is against the 'Make in India' policy, this move will actually discourage foreign imports and force the tyre manufacturers to purchase the natural rubber from Indian farmers, who will now have an upper hand due to the sudden price difference and hopefully, will get the appropriate market rates for the natural rubber.

[maddy42]

Good job! Good due for the farmers.

I hope we start doing the same in the iron ore industry too as at one point we exported ore and imported steel!

Maddy

[chinkara]

Originally Posted by GTO

Actually, production reduced because of the earlier low import duty on rubber. Planters were going through a rough time. With import duty hiked, this might change the situation.

Here's a great post from the Budget 2015 thread:

Actually I beg to differ here GTO. Import duty was 20% earlier - if domestic industry cannot compete with 20% duty, then there is something fundamentally wrong.

And import duty on tyres is 6% from Thailand. Natural Rubber accounts for ~30% of tyre price. 30% * 25% > 6%. - so Bridgestone, Michelin are all going to delay / shelve their India expansion plans as it makes no sense to invest here now.

Structurally Indian rubber industry is in very bad shape. Traditionally the industry has been labour intensive, with small sheet making units at farm level. With the increase in agri labour, that is no longer viable. Additionally this is highly impure, requiring additional processing. Hence, even at higher prices, some tyre OEMs would prefer imported block rubber to domestic sheet.

As of yesterday, block rubber ISNR 20 was 113.50 a kg, equivalent Malaysian grade SMR 20 was 96.5 a kg. And all tyre manufacturers would prefer using SMR to ISNR at the same price because of the quality.

As usual, the government raises duties rather than addressing the structural issues. This will harm farmers, processors and users of rubber in the long run.

Look at it from the auto component (and even tyre) guys' perspective.
They are apprehensive about losing export business (I know some companies here exporting rubber products - they are already jittery about losing business to Chinese competitors - rubber import duty in China is 0% BTW)

This duty will give domestic industry more leeway to add flab rather than tighten their belts. As a result all downstream industries (tyres, rubber components, conveyor belts) would become uncompetitive.

An OEM will import tyres and components if they are cheaper. So what is the solution? ATMA is proposing increasing duty on tyres. What would OEMs do in that case? They are not going to pay 25-30% duty on tyres (which account for a good 5-7% of vehicle cost) for export vehicles. They will start exporting CKDs without tyres. India will lose out on value add.

Exports of tyres and rubber components will reduce. So industry consumption itself will reduce. Rubber also cannot be exported as it is not competitive. The entire industry (upstream and downstream) will die.

So what is the solution? More organized processing is required with better quality control. As agri labour becomes more expensive, use humans only for the most skilled job - tapping. Mechanize processing to the extent possible.

But, that will reduce jobs. So like Luddites, we will continue the way we are, as the world overtakes us in yet another industry where India was a leader once.