Customs duty cut on select petro products

Budget 2005-06: Petrochem
The Indian petrochemical industry is in a nascent stage with nearly 70 per cent of the production capacity being controlled by Reliance Industries and its subsidiary IPCL. Although in a surplus situation, demand is likely to pick up since the per capita consumption stands at a paltry 4Kgs as compared to the global average of 24 Kgs. With this background, there is immense potential for capacity addition in the country.

Budget Measures

	Customs duty on ethylene, propylene, butadiene and other petrochemical products reduced from 10 per cent to 5 per cent.
	Customs duties on LDPE, HDPE, LLDPE and certain other polymers reduced from 15 per cent to 10 per cent.
	Reduction in excise duties on PFY from 24 per cent to 16 per cent.
	Customs duties on petroleum products, excluding petrol, diesel, LPG and kerosene, reduced from 20 per cent to 10 per cent.
	Telephone connectivity to be given to 66,822 villages.

Budget Impact

	Reduction in duties on polymers is likely to reduce the protection enjoyed by domestic players.
	Reduction of excise duties on PFY is likely to help integrated players as it shall help reduce costs for the textiles business, which use the product as an intermediate.
	Although yet to be confirmed, in case other petroleum products include naphtha, production costs are likely to go down for the petrochemicals industry as most of the petrochemicals players in the country use naphtha as a feedstock.
	Telephony expansion is likely to help increase sales of polymers such as HDPE, which is utilized for cables and wires

Sector Outlook

The current emphasis given on infrastructure by the government is likely to help the petrochemicals sector remain buoyant. High product prices in

the international markets have helped the petrochemicals companies during the current fiscal and we believe that this trend is likely to continue in the medium term on the back of lack of significant capacity addition.

Industry Wish List

	Customs duties on PTA, MEG (Intermediates for polyester), fibre and yarn to be reduced by 10 per cent and 5 per cent respectively.

	Import duty on chemicals and catalysts to be reduced from 20 per cent to 10 per cent.

	Excise duty for all synthetic fibres and yarns should be brought down to 8 per cent.

Budget over the years

Budget 2002-03

Budget 2003-04

Budget 2004-05

Special Excise duty of 16 per cent abolished on most products except PFY, which continues to attract SED.

Peak rate of excise duty reduced to 30 per cent from 35 per cent.

Reduction in basic customs duty to 25 per cent.

Reduction in excise duty on select petrochemical products. Basic excise duty on PFY and other yarns reduced to 20 per cent from 25 per cent.

Excise duty on LNG (liquefied natural gas) exempted. Countervailing duty exemption to continue.

Excise duty on Polyester Fibre yarn to continue at 16 per cent.

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