Import restrictions on Natural rubber could be a bad news for tyre manufacturers in India.
Tyre manufacturers are set to lose competitiveness in the global market amid fears of a spurt in prices locally due to the import restrictions on raw material imposed by the government.
The Directorate General of Foreign Trade (DGFT), in a recent notification, said the facility for import of natural rubber (NR) under advance authorizations issued or revalidated on or after January 21, will not be available until March 31. A similar notification a day earlier allowed import of NR of all varieties only through the ports of Chennai and Nhava Sheva (Jawaharlal Nehru Port).
Restrictions on NR imports the crucial raw material that accounts for up to 52 per cent of the country’s overall consumption is likely to raise its prices resulting in a proportionate increase in the cost of production of tyre companies. Since Indian exporters have been facing huge competition from countries such as China and Vietnam, further escalation in the production cost would push India out of the export market.
“The decision to restrict NR imports through the ports of only Nhava Sheva and Chennai, and put a ban on duty-free import till the end of this fiscal will be a double blow for the tyre industry,” said Gaurav Kumar, chief financial officer, Apollo Tyres Ltd.
Kumar said the ban on duty-free import would have a higher impact (negative) on the company as Apollo Tyres sells its products across the world. “We would not like to stop our exports to countries where we have a ready customer base,” he said.
The decision assumes significance, especially in the wake of a sharp decline in tyre exports in the first half of the current financial year due to cheaper raw material in overseas markets compared with India.
“NR prices will rise by Rs 5 a kg at least as transportation cost would rise from ports to distant factories. This will see India losing its competitiveness in global markets,” said Rajiv Budhraja, secretary general, Automotive Tyre Manufacturers Association (ATMA).
According to ATMA, India’s total medium and heavy commercial vehicle tyre exports declined nine per cent to 9,68,061 units in the April-September 2015 period as compared with 10,63,938 units in the corresponding period a year earlier. Passenger car tyres too nosedived 22 per cent to 10,81,841 units in the first half of the current financial year as against 13,95,921 units in the same period last year.
Further, faced with high cost of production, around 40 per cent units engaged in making rubber products have shut shops. Import restrictions would escalate the situation further.