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Union Budget 2015-16: Correct inverted duty structure for tyre industry

Raghupati Singhania     February 26, 2015

{mosimage}Despite the heightened confidence from the new government and upbeat foreign investors flooding the stock markets, thereby making investors richer by over Rs 28 lakh crore in 2014, the economic recovery is yet to take off.

No doubt investments are key, particularly given the country's creaking infrastructure, but private investments will not be forthcoming unless there is demand revival. Most sectors are reeling under overcapacity and would be in no rush to invest in fresh capacities.

Given that this will be the first full-year Budget of the new government, we expect to see a blueprint that would strengthen the demand scenario and would be focused on pushing the Indian economy to the next growth frontier of 8 per cent and above. Further, it is important to reduce the cost of consumer financing in order to boost demand.

While reforms are not necessarily in the Budget domain, yet a clear message on GST (goods and services tax) will be a major headway. We also expect the government to meet the fiscal deficit target as it will at least maintain India's sovereign rating status and keep foreign inflows buoyant. But I hope this is done through expenditure rationalisation, like limiting subsidies only to the bottom of the pyramid, and not by expenditure curbs, which would only delay the growth recovery.

The excise duty relief that was extended in the interim Budget has benefitted automobile sales but overall sales remain tepid. After a prolonged slump, commercial vehicles have started to recover only now. Given that the automobile and ancillary industries like tyres had undertaken big investments in the recent past, over Rs 23,000 crore cumulatively, the duty inversion has led to proliferation of imports, which is undermining domestic businesses. This has been further compounded by the India-ASEAN FTA (free trade agreement) where natural rubber, accounting for almost half of tyre raw material cost, is in the negative list so does not benefit our natural rubber imports while tyre imports arrive in India at preferential or concessional duties. Unless this issue is resolved, capacities will remain underutilised, and our competitiveness will continuously be eroded.


Ultimately, the prime minister's Make in India project, seen as a vehicle to transform India's economic future, will remain a pipedream.  

Duty inversion has been plaguing the tyre industry for quite some time. Given that domestic production of natural rubber is insufficient to meet the growing demand, import dependence will remain for quite some time. But it should not be at the cost of hurting domestic business, especially when we are going through a manufacturing slump. We expect this issue to be addressed in the Budget.

The fortune of the Indian tyre industry is entwined with the performance of the automotive sector. With economic activity gathering pace and the RBI ushering in monetary easing, it could boost consumer sentiment. Demand for tyres is expected to accelerate in 2015/16. However, we expect the Budget to help boost demand, and reduce the cost of consumer financing to keep the momentum going.

As told to Manu Kaushik

Raghupati Singhania is Chairman and Managing Director, JK Tyre

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