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 |
| Item | ||
| Feedstocks | 2001-02 | 2002-03 |
| Naphtha | 10* | 10* |
| Codensates | 10* | 10* |
| LNG | 5* | 5* |
| Propane, LPG | 10 | 10 |
| Building Blocks | ||
| Ethylene, Propylene, Butadiene | 15 | 15 |
| Benzene, Toluene, Styrene | 15 | 15 |
| EDC , VCM | 15 | 15 |
| Paraxylene | 5 | 10 |
| Fibre Intermediates | ||
| MEG | 24.8 | 24.8 |
| PTA | 24.8 | 24.8 |
| DMT | 20* | 20* |
| ACN | 15 | 15 |
| Polymers | ||
| Polymers of ethylene - LDPE, LLDPE, HDPE | 35 | 30 |
| Polymers of Propylene (PP) | 35 | |
| Polymers of Styrene | 35 | 30 |
| Polymers of Vinyl Chloride | 35 | 30 |
| Surfactants | ||
| LAB | 25 * | 25* |
| Ethylene Oxide | 35 | 30 |
| Catalysts & Chemicals | ||
| Catalyst | 25 | 25 |
| Chemicals | 35 | 30 |
| * by notification |
Industry Expectations: As per policy guidelines, customs duty on inputs and end-products to be brought down to 10% and 20% respectively.
Kelkar recommendations:
Customs duty on the following to be:
| Polymers | 25% |
| Polyester | 25% |
| PTA | 15% |
| MEG | 15% |
| Crude oil | 8% |
| Naphtha | 8% |
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:
| Polymers | 25.0% |
| Polyester | 24.8% |
| PTA | 24.8% |
| MEG | 24.8% |
| Crude oil | 10.0% |
| Naphtha | 10.0% |
2. Raising excise duties on cotton is a politically sensitive issue, and hence unlikely to be implemented.
Scrips to Watch: IPCL, Reliance Industries
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