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Rediff.com  » Business » Plastics sector urgently needs technology up-gradation fund scheme

Plastics sector urgently needs technology up-gradation fund scheme

February 26, 2016 10:42 IST

PlasticsBudget Expectations

  • Technology Up-gradation Fund Scheme for Plastics sector

    • Existing units need up-gradation/installation of new plant and machinery in place of old plant and machinery.

      Technology up-gradation fund scheme for Plastics industry is needed badly.

      This will provide loan to units at subsidized rates to Plastics Processors for the purchase of new machinery for up-gradation.

      The Indian plastics processing and converting industry has large population of older technology machinery and thus does not have the same technological edge to remain competitive in costs and quality compared to our global competitors.

      The proposed Scheme aims at making available funds to the domestic plastics processing and converting industry for technology up-gradation of existing units as well as to set up new units with state-of-the-art technology so that its viability and competitiveness in the domestic as well as international markets may enhance. There is increasing competition from China and other countries not only in the international market, but also in the domestic market.

      To meet the challenges the industry is required to become competitive, cost effective and quality oriented. This will make the industry competitive.

  • Raise customs duty on poly vinyl chloride (PVC)

    • Indian import duty on PVC, at 7.5%, is still far lower than that prevailing in comparable economies.

      This is resulting in very poor margins for domestic manufacturers, leading to a complete disinterest in capacity additions.

      For instance, the last Greenfield PVC plant was set up in 2009 and in the last 6 years, there has been no other significant investment in creating capacities.

    • Thus, India is even today excessively reliant on imports to meet its PVC demand, with demand expected to exceed 2.7 mn mt in the current financial year, while capacity is virtually stagnant at 1.4 mn mt.

      The gap is likely to widen more and more in future years as demand is growing at a CAGR of 10% while no capacity additions are on the anvil.

      At this rate, domestic downstream processors will find it difficult to secure PVC resin supplies even from international sources in about another 5 years.

      It is thus imperative for India to add to domestic PVC manufacturing capacity to nurture growth in the downstream sector.

    • Articles of plastics also attract only 10% as Basic Customs Duty – but it may be pointed out here that several countries do not have any differential between the basic polymer and articles made out of these – for the later have an inherent protection in terms of logistical issues in imports.

      This move will result in a positive revenue impact of around Rs 190 crores.

  • Reduce import Duty on Naphtha to 2.5% to bring it at par with other petrochemical feedstock.

  • Custom duty on LNG/Natural Gas to be brought down to from 5% to 2.5%

  • Reduce central Excise Duty on Plastic Polymers and Articles of Plastics be reduced from 12.5% to 8%

Current Status

Polymer is an important segment of Indian industry with usage in packaging,agriculture as also auto, medical and other segments as they replace items such as wood, metal etc.

The sector has huge unrealized potential, going by the present very low levels of consumption in the country. Per capita usage is only about 10 kg in India as compared toabout 100 kg in USA and 40 kg in China. Central Excise Duty on Plastic Polymers and Articles of Plastics Plastic products have replaced wooden products substantially:-

  • 6000 MT of plastic furniture saves 140,000 cubic meter of wood or 32000 hectares of forest.

  • Plastic crates have substituted almost 95% of wooden crates used in the soft drink industry.

  • The only viable alternative to the wooden furniture is plastic moulded furniture. Plastics have been coming up as replacement of wood in furniture in a major way.

  • Only PVC doors and windows, plastics crates, plastics furniture can save at least 17.5 million trees from cutting. Plastic based wood substitutes are amenable to recycling. To conserve wood, the Government of India in 1988 had issued a directive to promote wood substitutes, including plastics in all Government and institutional purchases for furniture, door and window frame and shutters.

The organised Plastic Industry is today hamstrung by the grey market –- estimated to be as high as 40% -- on the one hand and under-invoiced,smuggled imports from China on the other.

Reducing the central excise duty to 8% will bring down the cost spreads between organised segment and the grey market and correspondingly boost Government revenues both through better compliance and increased turnover.

It is requested that Central Excise duty on plastic polymers and articles of plastics be reduced from 12.5% to 8%.

Imports of articles of plastic are taking place at low and unjustified prices. Articles of plastics are also imported under Chapters 42, 56, 63, 67, 90, 94, 95and 96, the volumes whereof are also growing.

It has been recommended by the subgroup on the Plastic Processing Industry constituted by the Department of Chemicals and Petrochemicals that Customs Duty on differential between Plastic Polymers and Processed Plastics Goods should be 10%.

Keeping these factors in view, it is essential that import duty structure on imports of articles of plastics is re-calibrated to increase import duty on plastic goods from current10 % to 15%. It may be noted that import duties in many of countries in the region are in the range of 15-20%.

Polymer constitutes a very important segment of world chemicals market, with a share of nearly 40 percent.

The industry is important as it has several linkages with other sectors of the economy. Polymer has backward linkages with other industries in petroleum refining,natural gas processing and forward linkages with industries that deal in a variety of downstream products.

Also, the industry offers alternatives, which serve as substitutes for natural products and hence, has the capacity to meet the constantly growing demand that would otherwise strain the natural resources.

The Polymer industry is facing financial difficulty with pressure on prices and margins, this has discouraged capacity expansion, investment in the sector is severely lagging demand growth.

This is making the “Make in India” campaign infructuous. There are already large imports and huge outflow of foreign exchange. The situation would get aggravated with burgeoning trade gap.

Analysts Expectation

Domestic Polymer industry needs Govt support, however the industry may not get any of its demand fulfilled due to fiscal constraints.

Stock to watch

Supreme Industries, Jain irrigation, Astral Poly, Sintex Industries, Time Technoplast, DCW

Outlook

Polymer consumption in the country has witnessed a growth of 8% between July2014 to June 2015.

The per capita consumption of plastics in India is10 kgs, compared to 50 kg in China.

This shows that there is a huge potential to grow business not only for catering to domestic demand but also for catering to global demand of plastics products.

As polymers rapidly replace the traditional materials for packaging,other key long-term factors fuelling the growth of the sector include the recent surge in the annual car production that is predicted to grow to 9.3 million vehicles by 2020 will further aid its growth,given that the automobile sector is one of the biggest users of polymer.

Given the rising demand, the Indian government is also planning to increase its spend to about $1 trillion on the infrastructure requirements of the industry.

This will inevitably cause the manufacturing sector to grow manifold, further boosting the domestic polymer industry.

The image is used for representational purpose only. Photograph: Reuters

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