Will there be a negative impact due to hike in duty

There has been a mixed reaction to the increase in the import duty on natural rubber to 25% from 20% by the Union government. The rubber consuming sector has protested against the decision while producers have welcomed it.

Growers are of view that the increase in import duty will help shore up domestic rubber prices at least on medium term. In the last five days, the price of RSS-4 grade rubber has touched `.127 per kg. With the hike in duty, the landed price of TSR grade rubber will be higher against the domestic material. The current price differential between international and local price should hold good. Otherwise, the rubber consuming sector might be tempted to stock up through import.

The decision to increase import duty will cause a severe blow to the value addition within the country and Make-in-India initiative of the government. Indian rubber goods manufacturing industries fear they will be badly hit. Increase in the import duty on natural rubber will worsen the inverted duty structure. Finished rubber goods can be imported at 10% while the raw material can be brought in only at 25%. The industry has termed the decision as unfriendly and a dampener on future investments. Already many manufacturing units have closed down due to competition from cheaply imported rubber goods. Many of them are shunning manufacturing in favour of trading of rubber goods imported from China and other countries. If this trend continues then what will happen to consumption of natural rubber.

The benchmark RSS4 grade rubber closed at `.126.50 a kg at Kottayam, while RSS3 grade closed at `.117.98 a kg at Bangkok and Malaysian SMR20 closed at `.96.35 a kg. On National Multi Commodity Exchange May 2015 futures were trading at `.124 a kg, June at `.128.49 and July at `.130.63 a kg at 16.10 IST. On Tokyo Commodity Exchange, May 2015 futures series closed at ¥214 a kg, June at ¥215.8, July at ¥216.2, August at ¥217.3, September at ¥219.9 and the contract for delivery in October 2015 closed at ¥222.4 a kg.

To read Rubber4U – 15th May 2015 issue: http://rubber4u.com/Public/Abcd.pdf

Published on 7th May 2015