This will be in line with reduction in peak duty rate

Petrochemical industry in India employs around 40,000 people directly and around 4 lakh indirectly. This sector caters to a whole host of industries like oil, gas, plastics, agro chemicals, pharmaceuticals, clothing, housing, transportation, communication, healthcare etc.

The Indian petrochemical industry with an investment of Rs 50,000 crore and a turnover of Rs 21,000 crore is an important sector of the economy. The contribution of the polymers sector to the exchequer itself is quite substantial and is to the tune of Rs 3,200 crore.

Present Industry status:

This sector has been going through a major transformation in recent years. In fact, the polymer industry is undergoing structural shift from being deficit to major surplus production due to surplus capacity of about 32%. The increase in consumption is expected to lead to significant value addition and would generate more employment within the country.

Rise in crude oil price in the international market has pushed the Naptha price to very high level. As a result, the key building blocks like ethylene, propylene, VCM, EDC, Styrene has witnessed high cost push effect.

The rise in polymer prices has not been commensurate with rising input costs and as a result it has affected value addition in this segment.

Even though the customs tariffs on polymers is at peak rate of 30%, the combined effect of the above has affected the performance of this sector.

This sector has taken significant initiatives to attain global competitiveness through building global sized plants- cracker from 130 ktA in early 1990s to 400-750 ktA, adopting world class technologies and by making efforts to make gestation periods in line with world trends but the lack of internal reforms have affected this sector.

Prevailing Tax rates and provisions:

In the budget 2002 the customs duty on paraxylene was raised from 5% to 10% and duty on polymers was reduced from 35% to 30% due to general reduction in peak rate of duty.

Existing Excise Duty:
 

Item
Feedstocks	2000-02	2002-03
Naphtha	16	16
Codensates	Nil	Nil
LNG	16	16
Propane	16	16
Building Blocks
Ethylene, Propylene, Butadiene	16	16
Benzene,Toluene , Styrene	16	16
EDC , VCM	16	16
Paraxylene	16	16
Fibre Intermediates
MEG	16	16
PTA	16	16
DMT	16	16
ACN	16	16
Polymers
Polymers of ethylene - LDPE, LLDPE, HDPE	16	16
Polymers of Propylene	16	16
Polymers of Styrene	16	16
Polymers of Vinyl Chloride (PVC)	16	16
Surfactants
LAB	16	16
Ethylene Oxide	16	16
Catalysts & Chemicals
Catalyst	16	16
Chemicals	16	16

1. The customs duty rates on proprietary catalysts and chemicals need to be reduced by at least 5%, if customs duty is cut from 30% to 25% on polymers.
2. No change in duty on polyesters (PSF & POY), currently at 20%.
3. Customs duty on building blocks viz. Styrene, EDC, and VCM need to be reduced from 15% to 10% as their domestic availability is inadequate.

Kelkar recommendations:

Customs duty on the following to be: 

Regarding Excise:

Uniform duties of 12-16% for textile items by 2004-2005, and lifting of most exemptions. Higher uniform duty of 16% on fibre and yarn by 2004-05, by raising duty on cotton yarn from 8% to14%, and bringing down the rates for PFY from the current 36% to 14% in 2004-05.

Analysts' Expectations: 1. Partial implementation of Kelkar panel's recommendations: Customs duty on the following to be:

2. Raising excise duties on cotton is a politically sensitive issue, and hence unlikely to be implemented.

Scrips to Watch: IPCL, Reliance Industries

Run-up to the Budget 2003

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