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PRE BUDGET REPORTS
Chemicals: Remove Customs Duty on Liquefied Natural Gas and Naphtha
Current Status
While the size of the global chemical industry is in the region of USD 3 Trillion, the Indian chemical industry has an output of around USD 80 Billion and ranks 12th in the world. The chemical industry which includes basic chemicals and its products, petrochemicals fertilizers, paints and varnishes gases soaps, perfumes and toiletries and pharmaceuticals is one of the most diversified of all industrial sectors covering thousands of commercial products It forms the backbone of the industrial and agriculture development of India and provide building blocks for downstream industries. It contributes about 3% in the GDP of the country. The chemicals and petrochemicals sector in India presently constitutes 14% of the domestic industrial activity.
Industry Expectation
- Expects elimination of customs Duty on alcohol for production of chemicals. Duty on alcohol was brought down from 10% to 6% to support Government's fuel blending initiative. Since alcohol is derived from renewable sources, to promote green chemistry, it is desirable to eliminate customs duty on this important feedstock for the chemical industry
- Expects elimination of customs duty on Liquefied Natural Gas. Liquefied Natural Gas (LNG) is a major input both as energy source as well as feedstock for fertilizers and for petrochemicals. While duty on crude has been reduced to 0%, LNG continues to attract 5% duty. Due to its significant potential for value addition, duty on LNG needs to be brought down to zero level
- Expects elimination of customs duty on basic petrochemical feedstock like Naphtha. At present duty on Naphtha is at 5%. Duty on naphtha for production of fertilizer is already at zero level. Through a recent notification has also exempted import duty on naphtha for Haldia Petrochemicals. This needs to be made uniform for all users of naphtha for petrochemical production. Current duty on Naphtha has also resulted in duty inversion, particularly with respect to Singapore where due to FTA; duty on polymer is 2.8%.
- Elimination of Customs duty on basic petrochemical feedstock like Saturated cyclic Hydrocarbon Ethane, Propane and Butanes. These gases also attract basic custom duty of 5%. Since these are also basic feedstock for petrochemicals, duty on these also need to be brought down to zero
- Expects elimination of Customs duty on Aromatics Feedstock. Aromatic Feed Stock is used for production of Benzene, Ortho-xylene, Paraxylene and Toluene. Duty on this is 10% whereas duty on main product made out of Aromatic Feedstock, Paraxylene is at zero level resulting in a major case of inverted duty
- Expects elimination of Custom Duty on Crude C4's. Crude C4's is used for the manufacture of Butadiene and attracts 5% duty. The end product Butadiene also attracts 5% duty. There is no duty differential between CrudeC4's and Butadiene, which discourages value addition along the chain. In line with other products, it is necessary to eliminate duty on Crude C4s to have a duty differential to give boost to rubber industry and other products.
- Expects elimination of Custom Duty on EDC and VCM. EDC and VCM are required to produce PVC and attract 2% duty. PVC produced from EDC and VCM attract 5% tariff. This provides a small 3% differential and effective duty protection.
- Expects reduction in import duty on Titanium Dioxide. Custom Duty on Rutile Grade Titanium Dioxide is 10%. The product is widely used by paint industry and also for dyes and pigment sector. It is proposed that this may be brought down to 5% to support the end-use segments.
- Expects elimination of Customs Duty on polymer building blocks like Ethylene and Propylene. Current rate of Customs Duty on these important building blocks is 5%. Products made from these like Polyethylene and Polypropylene also attract an import duty of5%. This needs to be rationalized by eliminating Customs Duty on Ethylene and Propylene
- Expects elimination of Customs Duty on spares for Chlor-Alkali industry currently at 10%
- Expects elimination of Customs Duty and Clean Energy Cess on Coal for captive power generation and elimination of Custom duty on fuel oil. To help generate power at reasonable cost Customs Duty of 2.5% and Clean Energy Cess of Rs.50/MT on coal should be eliminated. Similarly 5% customs duty on fuel oil should be eliminated
- Expects tax-free imports of R&D equipments & consumables to the tune of 25% of export earnings to be permitted.
Analysts Expectation
It is likely that the import duty on input materials would be maintained at the current levels. However many finished products with lower import duty compared to duty on input materials may be increased.
Stock to watch
Castrol India; BOC India; Foseco India; BASF India; Clariant Chemicals; Finolex Industries
Outlook
Currently Indian Chemical Industry is facing constraints and stumbling blocks due to growing menace of dumping. Producers from Middle East (with feedstock cost advantage) and China aggressively are pursuing Indian markets due to very low tariff levels. Also the rising power cost, energy, finance cost and capital equipment is adding to the woes. Against this background the Indian Chemical Industry is seeking rationalization of duty structure to put brakes on low cost imports and facilitate better offtake from domestic markets.