India’s rubber industry hangs by a thread due to high duties

India, the world’s 4th largest producer of natural rubber and second largest consumer, has all the positive growth statistics to stay competitive, yet the counter-productive measures are not helping, RJA found out recently in an interview with Niraj Thakkar, President of All India Rubber Industries Association (AIRIA), at the India Rubber Expo and Tyre Show in Mumbai.


Import duties for raw materials that are higher than what are imposed for imported finished goods; declining pool of skilled workers and skewed supply and demand are factors that could drag the domestic industry down.


According to Thakkar, the synthetic rubber (SR) sector is growing faster than the natural rubber (NR) one. “We have an average 15% (YOY) rate of growth of the SR sector, compared to only 3% for NR,” said Thakkar, adding that the increased use of SR is due to the cost and technical requirements, while familiarity with NR will allow users to stick to the material.


He also says that the demand for natural rubber (NR) is expected to be higher than the availability by about 200,000 tonnes in the 2012-13 fiscal year.


The latest figures from the Rubber Board indicate that India’s consumption of SR grew by 6% to 226,000 tonnes in the first half of the fiscal period while output grew rose marginally to 54,778 tonnes during the same period.


Meanwhile, pertaining to the import duties, which it deems to be affecting the local industry, AIRIA has lodged strong protests with the government.


“High import duties adversely affect the rubber industry. For micro, small and medium Enterprises (MSME), this increases production costs, thus creating an uncompetitive market environment,” adds Thakkar.


Currently, import duty on most raw materials ranges from 20-70%, which adds on the cost of the finished good from those materials. Whereas, finished goods imported from neighbouring countries are only imposed a 10% duty, to the detriment of local producers.


Since last year, AIRIA has appealed for the duty on NR to be marked down from the current 20% or Rs20/kg to 7.5% or Rs10/kg. But Thakkar would rather bat for zero import duty (for rubber materials), “Why should there be a duty when it is affecting the local industry? Is the material hazardous with effluents, requiring government interventions? In this case, no protection is required.”


The inverted tariff structure affects the local pricing structure, he added. “Price-wise, we are not competitive, notwithstanding that we are also dealing with higher interest costs and other hidden costs, like transportation to the nearest port, poor infrastructure that causes delays, hence the loss of income. All of these factors are affecting pricing.”


Meanwhile, the shortage of skilled labour is also one area that needs to be addressed. Thakkar specified that government support is needed. “It needs to make stringent and pro-industry labour laws.”


In terms of educating the workforce, Thakkar says that AIRIA is giving out  Research Scholarships and has also entered into an agreement with the Rubber Skill Development Centre (RSDC) and KPMG, a management consulting firm,  to identify skills that need to be included in training programmes.


The Delhi-based RSDC was set up by the National Skill Development Corp. in collaboration with AIRIA and the Automotive Tyre Manufacturers Association (ATMA).