Budget makes plastic products costlier

“Prices were 60 per cent less than the domestic manufacturers excluding duty. Manufacturers sourced 40 per cent of raw material from abroad to make up for the supply shortfall of 1.2 million tonnes (domestic installed capacity is 1.8 million tonnes).”

And thanks to the lowered south Asian and Chinese prices, domestic suppliers (IPCL and Reliance) also had to keep their prices more or less on par with imports. Over the past eight months, price of imported LDPE have averaged $650/tonne; HDPE $600/tonne and LLDPE $575/tonne. Raw materials constitute the single largest expense for plastic manufacturers, most of whom do notaverage value additions in excess of 10 per cent. Imports carried a duty of 68.5 per cent prior to the budget (which included a countervailing duty of 25 per cent). If the new proposals are ratified, duty would go up to 81.5 per cent. The 8 per cent additional duty would have a cascading effect of 13 per cent.

On margins which are squeezed in a market which is highly sensitive to pricing, the 8 per cent duty coupled with the rupee devaluation of more than 5 per cent is going to hit small manufacturers hard. The excise of 5 per cent on the turnover of Rs 85 lakh (for the first year) will sound the death knell for many, warns the association. So much so that from a compounded annual growth rate of 12 per cent in the industry, there would be a drop to 3 per cent, manufacturers feel.

The budget has spurred domestic manufacturers to hike prices. In two days, two new prices have been announced, said TAPMA. This without any rise in input costs. Reliance and IPCL have hiked prices of High density polyethylene byRs 2,500/tonne; Polypropylene by Rs 4,000/tonne and High Density Polyethylene by Rs 4,000/tonne and prices could go up further industry feels. This would also be the trend till new capacities come up, and manufacturers are eagerly awaiting GAIL’s new project to go on stream to break the cartelisation.

Plastic manufacturers are also openly skeptical about the government’s promise of doing away with Inspector raj. While no `inspector’ has been made redundant, the 5 per cent excise has placed one more burden relating to harassment, TAPMA officials maintain.

Consumption of plastic products has been growing at a tremendous rate in the rural sector compared to urban, and for smaller traders, the slightest hike in the end price makes them take up other lines of less expensive products. “Roadside hawkers sell plastic objects limited to a price of Rs 10 or Rs 15. But if we are forced to hike the price by 15 or 20 per cent, we will lose our business ,” manufacturers said.

Manufacturers are not averse toan excise hike on raw material rather than the finished product, though few players go for Modvat credit.