FTA with GCC to impact Indian petrochemical sector – Study
Fibre-2-Fashion (India) | 20 September 2014
FTA with GCC to impact Indian petrochemical sector – Study
“India’s trade imbalance with the six-nation Gulf Cooperation Council (GCC) will further deteriorate as well as impact the Indian petrochemicals sector due to tariff elimination on petrochemicals under the proposed FTA”, says a study by an apex Indian trade body.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) recently released a study titled ‘Import Dependency of Indian Manufacturing’, which studied the import duty structure on various petrochemicals imported into India and impact of FTA’s on the sector.
“There is an urgent need to fix import duty on feedstock for petrochemicals including naphtha, natural gas liquids (NGL), propane and butane to make investments in this sector financially viable and encourage domestic value addition, as currently the sector receives nil to negative protection”, the study warns.
“The import tariff for the next level of products can be at a slightly higher level with progressive increase in duty rates to encourage domestic value addition and thereby remove duty anomalies, so that domestic investment becomes financially viable,” the study suggests.
“Import duty rationalization across petrochemical value chain is imperative for increasing domestic capacities and reducing dependence on imports,” says DS Rawat, Secretary General at ASSOCHAM while releasing the study.
The ASSOCHAM study also warns that tariff elimination on key petrochemicals under the proposed FTA with six-nation GCC would result in massive surge in imports thereby further deteriorating India’s existing trade imbalance with GCC countries.
“India, owing to its limited production capacity, depends on imports for toluene to meet its demand and its geographical proximity to the GCC makes it vulnerable to threat from GCC imports, which has surplus exporting capacity of toluene and is increasing its capacities to touch about 20 MMT by 2015,” it adds.
In its study, ASSOCHAM has also emphasized upon the need to explore alternative feedstock produced from sources like coal, biomass and others as most of the petrochemicals like ethylene, propylene and aromatics are currently produced via conventional routes utilizing naphtha derived from crude oil and ethane produced from natural gas.
The study further suggests domestic producers to price their products in line with prices prevailing in the Southeast Asia market, as imports are relatively free.
It mentions, “As end-product prices are market driven, most producers irrespective of their cost of production have to maintain selling prices in line with market prices and this results in varying margins for producers having different feedstock, which in turn also affects investment prospects.”
“India’s import duty structure provides for nil incremental tariff protection between key petrochemical inputs like naphtha, liquefied natural gas and propane and their end products like ethylene, propylene, benzene, and butadiene as well as major petrochemical products like polymers,” the study notes.
“Besides, the tariff protection is even negative for many products such as polymers vis-à-vis preferential duty for countries that have signed free trade agreements (FTA) with India, it adds.
“India is a net exporter of naphtha, the basic feedstock, while it imports large quantities of downstream petrochemical products, which has been discouraging value addition within the country,” the ASSOCHAM study highlights.
“An accelerated reduction in import tariff on polymers from 40 percent in 2001-02 to five percent in 2007-08 has resulted in increased flow of imports,” the study mentions.
Besides, the five percent import duty on naphtha feedstock for production of polymers has reduced the differential between upstream and downstream polymers to zero in India, while in other countries in the region and even in developed economies, this differential is 6.5 percent.
“India’s five percent import duty is much lower than that of Malaysia which has 20-30 percent duty, Philippines has 15 percent, Indonesia 20 percent and China 6.5-8.4 percent. This disparity is affecting the competitive viability of the domestic investment in petrochemical sector”, it informs.
“Import tariff on other key petrochemical inputs like propane, catalysts, capital goods and others further reduces the competitiveness of domestic petrochemical industry”, the study concludes by saying. (AR)
