[TusharK]

The Government of India has increased the customs duty on imported radial car tyres from 10% to 15%. The move aims to curb imports of non-essential goods like tyres and narrow the current account deficit.



In recent times, the domestic tyre industry has been facing a slowdown due to rising imports. While this step is likely to promote investment in the tyre industry in India, the 25% import duty on raw materials is still higher than on finished tyres.

According to media reports, tyre dealers have opposed the decision and have called for a roll back. It is said that tyre imports have already taken a hit by the depreciation in the value of the Indian currency against the US Dollar.

Source: Economic Times

Link to Team-BHP News

[CaptainPrice]

Yeah right! Tyres have been labeled as non-essential. It's easy to overlook the significance of quality tyres when these folks don't have to travel much by car and even of they do, they are driven by another person, slowly and comfortably. What a shame!

Also as a consequence, the demand for Indian-made tyres will rise, also leading to a price increase.

On a related note, MRF has a good thing going on with their Perfinza lineup. This move could boost those sales.

[pixantz]

Originally Posted by TusharK

The Government of India has increased the customs duty on imported radial car tyres from 10% to 15%.

While this step is likely to promote investment in the tyre industry in India, the 25% import duty on raw materials is still higher than on finished tyres.

I don't know if anyone else sees it this way, but if you ask me, the wise guys up top making these "super-smart" decisions are always only thinking of filling up their coffers and increasing their inflow of money. Nobody there cares for anyone else. And to hell with such things like safety and stuff. More taxes rolling in please. That's all that matters.

[SmartCat]

Originally Posted by CaptainPrice

Yeah right! Tyres have been labeled as non-essential. It's easy to overlook the significance of quality tyres when these folks don't have to travel much by car and even of they do, they are driven by another person, slowly and comfortably. What a shame!

Originally Posted by pixantz

I don't know if anyone else sees it this way, but if you ask me, the wise guys up top making these "super-smart" decisions are always only thinking of filling up their coffers and increasing their inflow of money. Nobody there cares for anyone else. And to hell with such things like safety and stuff. More taxes rolling in please. That's all that matters.

This custom duty hike will negatively affect cheap tyre imports from China. Your typical high-end Pirelli or Continental customer does not care much if tyres cost Rs. 8,000 or Rs. 9,000. He will go for the brand he wants. However, lower down the pecking order, this (customs duty hike + rupee depreciation) will gently nudge the customers towards CEAT MILAZE rather than LINGLONG TYRES.

Also as a consequence, the demand for Indian-made tyres will rise, also leading to a price increase.On a related note, MRF has a good thing going on with their Perfinza lineup. This move could boost those sales.

Indian-made tyres yes, but not necessarily Indian brands. Almost all major foreign tyre companies "make in India" - but mostly 14/15 inch sizes.

[Hayek]

Stupid move by the government. Tariffs are not needed to reduce the current account deficit. All the government needs to do is let the INR depreciate, which will make imports less competitive than domestic manufacturing - which is what the RBI has been doing by not interfering excessively in forex markets. All this does is give a windfall gain to domestic manufacturers in select industries like tires, air conditioners etc, reduces the extent to which the INR depreciates thus helping companies that gambled by taking unhedged ECBs, and makes Indian exports less competitive than they would have been had the INR been allowed to find its correct level. It’s high time we move to low and flat tariffs across all sectors and let the INR fall to compensate.

[V.Narayan]

Two observations - First the folks in the Govt who take these decisions are not dinkumdoos as one post seems to express. They are well trained men and women caught in the midst of decision making so complex and Govt deficits so difficult that the problems we face in a private sector job are small in comparison. So give them the credit that they are not fools. Second, having made the first point I agree with Hayek that simply letting the INR float down will fetch more revenues. This was done ostensibly to slow down the rupee's fall. Well, the forces that come to bear on any currency are so vast and so beyond the control of all Govt's except China and USA that tinkering with tariffs will make little difference. There could be a political angle here of the need to raise revenues in an election year without fiddling with GST or Income Tax.

[SmartCat]

Originally Posted by Hayek

All this does is give a windfall gain to domestic manufacturers in select industries like tires

Right now, we have a weird system of tariffs where raw materials (natural and synthetic rubber) have an import duty of 25% while finished products (tyres) have an import duty of 10%. Quoting ET:

The increase in import duty on radial tyres will help in partially toning down the inverted duty structure that the industry has been suffering for a long time. This will also encourage more investment in tyre manufacturing in India. Still import duty on the raw material of tyre remains higher at 25 per cent over the finished tyres, informed Budhiraja

This is to "protect" the earnings & profitability of our Rubber farmers. Tyre companies in India have a slightly higher manufacturing cost than China because the cost of raw materials have been artificially propped up. Not because they are inefficient. If you don't want to increase tariffs on tyres, you have to reduce tariffs on rubber imports. Else, tyre industry will go into ICU like the sugar manufacturing industry.

[Hayek]

Originally Posted by smartcat

Right now, we have tariffs where raw materials (rubber) have an import duty of 25% while finished products (tyres) have an import duty of 10%.

Was not aware of that. That is even dumber. Which brings out the case for low and flat tariffs even more clearly

[Ragavsr]

Highly welcome move. This will spur job creation. The tariffs could further be increased to compensate for the 25% import duty for raw materials.

Originally Posted by Hayek

All this does is give a windfall gain to domestic manufacturers in select industries like tires, air conditioners etc, reduces the extent to which the INR depreciates thus helping companies that gambled by taking unhedged ECBs, and makes Indian exports less competitive than they would have been had the INR been allowed to find its correct level. It’s high time we move to low and flat tariffs across all sectors and let the INR fall to compensate.

Wouldn't allowing the rupee to depreciate cause massive inflation because of already high oil prices . Oil is the biggest import.

Originally Posted by V.Narayan

Well, the forces that come to bear on any currency are so vast and so beyond the control of all Govt's except China and USA that tinkering with tariffs will make little difference.

Sir, don't you think this is a great time to give a knockout punch to China and begin a trade war with them while the trade war with the US is still simmering.

Massive duties on essential imports like electronics, phones, computers etc would result in companies building factories here employing millions .

Anyways , we import 4 times of what we export to China and hence we don't have much to lose to China much like the US.

Trump might be portrayed as dumb but he sure is the street smart kid.

[Santoshbhat]

Originally Posted by Ragavsr

Highly welcome move. This will spur job creation. The tariffs could further be increased to compensate for the 25% import duty for raw materials.

Wouldn't allowing the rupee to depreciate cause massive inflation because of already high oil prices . Oil is the biggest import.

Sir, don't you think this is a great time to give a knockout punch to China and begin a trade war with them while the trade war with the US is still simmering.

Massive duties on essential imports like electronics, phones, computers etc would result in companies building factories here employing millions .

Anyways , we import 4 times of what we export to China and hence we don't have much to lose to China much like the US.

Trump might be portrayed as dumb but he sure is the street smart kid.

Increasing tariffs will make the product more expensive for consumers here. More expensive tyres will translate to higher cost for our transporters since tyres are an important cost centre for them. They will ultimately pass on the cost to consumers. Domestic tyre companies will be the chief benefciaries as they will increase prices since imported tyres will start losing their competive edge.

Imposing tariffs or protectionism is bad for the consumer. Best thing that brings down prices for the consumer is competition. Businesses will always try to maximise profits. Moment imported goods price goes up, your domestic producer will jack up his prices. Cheap goods/ inputs coming from China helps a lot of domestic industries stay competitive in the market. The current eco system will be destroyed if everybody starts slapping higher tariffs. And creating capacities overnight is not a joke. Scales that China has built is mind boggling.

I think Govt. is stuck between politics and prudent economic policies. It needs to play a balancing act, but the situation is becoming tougher and tougher day by day.

[condor]

Even if Duty on raw materials is 25%, the raw material - esp the imported part, would be a small % of the price of the tyre. Like Narayanan said, such aspects would be looked at. I doubt we have even a larger view (no, not the full view) to be commenting that point-blank.

Originally Posted by Hayek

All the government needs to do is let the INR depreciate, .

And booom ! First thing that people will see the effect on - is with price of Petrol. There is enough fire breathing on the other thread. And you want to let the Re depreicate !

Originally Posted by Santoshbhat

More expensive tyres will translate to higher cost for our transporters since tyres are an important cost centre for them. They will ultimately pass on the cost to consumers.

I dont think transporters use imported tyres. But if things get too tight for their liking, they will start going more towards re-treading for some time.

Originally Posted by Santoshbhat

I think Govt. is stuck between politics and prudent economic policies. It needs to play a balancing act, but the situation is becoming tougher and tougher day by day.

+1.

[GTO]

Contradictions with the raw material duty aside, I'm happy with the news. If you want to sell it here, build it here.

Originally Posted by smartcat

Right now, we have a weird system of tariffs where raw materials (natural and synthetic rubber) have an import duty of 25% while finished products (tyres) have an import duty of 10%.

An amazing discussion on the topic - link (Govt hikes import duty on natural rubber (tyres)).

Originally Posted by Santoshbhat

Increasing tariffs will make the product more expensive for consumers here.

Or encourage manufacturers to set up factories here? I say, increase the duties to such a level that it's impossible for an imported tyre to gain any volume (like CBU cars). India is a Top 4 car market and the No. 1 two-wheeler market in the world. We have enough demand for all the factories that tyre manufacturers can set up.

[SmartCat]

Originally Posted by Santoshbhat

Increasing tariffs will make the product more expensive for consumers here. Domestic tyre companies will be the chief benefciaries as they will increase prices since imported tyres will start losing their competive edge. Imposing tariffs or protectionism is bad for the consumer. Best thing that brings down prices for the consumer is competition.

Low prices for consumer should be secondary priority for the Government. Primary responsibility is job creation, and that can happen only if there is adequate protection to businesses that have invested in India. What would have rather have - low consumer prices or high unemployment rate?

Also, remember that "low" price for consumers is not a measurable or tangible gain. Those "low" prices will evaporate if Rupee depreciates or raw material prices go up (for Chinese manufacturers). However, employment for lakhs of Indians is a tangible and measurable gain. As long as there is demand, the jobs will remain.

Protectionism of 1980s was different. No foreign companies were allowed to setup shop here to protect businesses owned by Indians. That is terrible, I agree. But now, all foreign companies are welcome to invest here and sell consumers high quality products. Tariffs protect their investments and also our jobs.

[Santoshbhat]

Originally Posted by smartcat

Low prices for consumer should be secondary priority for the Government. Primary responsibility is job creation, and that can happen only if there is adequate protection to businesses that have invested in India. What would have rather have - low consumer prices or high unemployment rate?

Also, remember that "low" price for consumers is not a measurable or tangible gain. Those "low" prices will evaporate if Rupee depreciates or raw material prices go up (for Chinese manufacturers). However, employment for lakhs of Indians is a tangible and measurable gain. As long as there is demand, the jobs will remain.

Protectionism of 1980s was different. No foreign companies were allowed to setup shop here to protect businesses owned by Indians. That is terrible, I agree. But now, all foreign companies are welcome to invest here and sell consumers high quality products. Tariffs protect their investments and also our jobs.

Agreed. Tarrifs do help domestic companies. Maybe tyres is a wrong example, but many times cheaper inputs from abroad help domestic companies stay competitive in the export market. Sudden policy change by the govt. really disrupts a lot of calculations.

[itwasntme]

smartcat & santoshbhat: you are both right in your own ways but Michelin are conveniently not building production facilities in IN due to arbitrage from the economies of scale from their gargantuan Thailand (TH) factories coupled with the favourable DTAA agreement with TH.

I know; I work in a similar type of industry :-( Time Michelin moved some production to IN at least for the medium-fast moving sizes. The depreciating rupee helps a lot!