Chemical industry feels neglected by FM

The Association has pointedout that the inclusion of the special duty would necessiate revision of DEPB rates taking in to account this levy.

ICMA like most of the industry association is unhappy over the curtailment of availment of Modvat credit by five per cent and has urged the government to restore full Modvat credit. The chemical ndustry is unhappy over the proposal to withdraw R&D incentives allowing 125 per cent wieghted deduction under section 25 of the income tax act and has appealed to the government to restore 125 per cent dividend as earlier.

The Financial Express, looks at the impact of the budget on various sectors in the chemical industry.

Pharmaceuticals :

The across the board import duty hike will benefit the bulk drug producers, says Somani of Kopran. However, he has his reservations on the Modvat credit and points out that the move will be inflationary. Industry sources pointed out that hike in excise duty on generic allopathic drugs is is a good move as it will help utilise non-absorbed Modvatcredit.

As pharma products require 5-6 different stages the reduction in Modvat credit will result in additional cost to the extent of 3-4 per cent.

The industry is also not happy on the finance ministers proposal of withdrawing the incentive given to R&D under Section 35 of the income tax act of allowing 125 per cent weighted deduction.

Dyes and Intermediate :

Overall impact for the dye industry is negative, due to reduction of Modvat credit which will increase the price of the final commodity by around 8-10 per cent. Additional duty of 8 per cent on raw material and intermediates will also translate in a price hike of around 19-20 per cent.

Petrochemicals:

The introduction of the eight per cent additional duty is likely to affect the petrochemicals sector as far as importing feedstock is concerned. However, the sector which was badly affected by cheap imports will now recieve additional protection. As a fallout of the budget, most of the petrochemicals companies like Nocil,Reliance, Herdillia have all increased the prices of their products by around 10 to 20 per cent.

Fertilisers:

After introducing a Rs 1,000 per tonne hike in urea in the budget, the government developed cold feet and rolled back the price to Rs 500 per tonne. News reports say that the government is likely to cancel the hike in the price of urea. However, the sector is happy over the fact that the government has increased investments in the agriculture sector. By increasing the subsidy on decontrolled fertilisers from Rs 2,600 crore in 1997-98 to Rs 3,000 crore for 1998-99 the companies manufacturing these fertilisers like SSP, DAP are hoping that the prices will be revised to what the industry has been asking for. Refineries : Tax holiday for refineries being set up after October 1998 coupled with exemption of additional duty on capital goods will help increase investment in the sector.

Reduction in import duty on crude oil and its exemption from additional customs duty will reduce its cost tothe refineries. Further the imposition of 8 per cent additional duty will also benefit the refineries as the price of the feedstocks can be increased to that extent, thus improving their margins.

Caustic soda:

The caustic soda industry has welcomed the reduction in the basic customs duty on membrane and machinery for the modernisation of caustic soda units from 25 per cent to 10 per cent which would help in phasing out the mercury cell technology. Also the industry will be protected from cheap imports by the additional 8 per cent duty.

Chemical traders:

The chemical trading community is overjoyed by the budget proposal as the finance minister has exempted them from the additional customs duty of eight per cent. Kirit Gohil, President, The Chemical & Alkali Merchants Association while hailing the budget as a swadeshi one, says that this move will increase trading activty in the country. Along with the centre traders say that the move will also benefit the state governmens on account ofhigher collections from sales tax which will accrue from these trades. Further, the removal of service tax on transporters is also likely to benefit the trade, says Gohil. Silent killer: Reduction of Modvat credit

Chemical industry by nature requires at an average four stages before the final product comes out. The reduction of Modvat credit is like a silent killer which will take away the competition of the industry, say sources. The reduction in duty will increase the price of the final product by around five per cent. Industry says that the government is penalise the industry just because they are not able to control the acts of a few players. The whole exercise is very inflationary is the unanimous outcry of the industry, which will have to be rectified.

The other factor that is hard hitting to the chemical industry is the move to exempt traders from the eight per cent additional duty. Industry sources say that manufacturers may now set up trading outfits to source their raw materials, whichwill enjoy a lower duty. Further there are too many loopholes that can be exploited and make the Indian industry uncompetitive. Also there are some states like Punjab, Hryana, Delhi which do not have any sales tax, trading activity from these states is likely to pick-up considerably. Industry players say that they will be surprised if the government is able to collect any amount by imposition of the 8 per cent duty as loop holes were already in place even before announcement of the duty.