After series of initiatives to lower the prices of petro products, steel and edible oils, the finance ministry may now find it difficult to defend the higher import duties on polyester raw materials whose domestic prices are shooting up. Downstream polyester and blended textiles industries, that consume polyester staple fibre (PSF), have approached the MoF for a cut in import duty on PSF to 10% from 20%.
Upstream polyester producers, including Reliance and IndoRama Synthetics, have increased the price of PSF since July '03 by 26% to the current price of Rs 71.5/kg. Against this, PSF is now available through imports at around $1.2 (CIF) or Rs 56/kg. However, with 20% import duty on import price and 16% countervailing duty, the effective import duty on PSF is around 39%.
Thus, the cost of imported PSF for the domestic user is higher at Rs 77.8/kg. Currently, imports of PSF into the country are minimal. In a letter to the finance minister, P Chidambaram, Indian Cotton Mills' Federation (ICMF) chairman BK Krishnaraj Vanavarayar said: "Manmade fibres are now being used by poor and common people and, therefore, need immediate reduction in prices, which can only be done if the import duties are immediately reduced."
Domestic PSF producers are pegging their prices to landed cost of imports, taking advantage of the tariff protection. In fact, the hike in crude oil prices has resulted in surge in price of PSF and raw materials for making PSF namely PTA, DMT & MEG. The import duties on all these products are at par at 20%, while the duty on crude oil and naphtha is 5%.
"We request you to reduce the import duty on raw materials to produce PSF - PTA, DMT & MEG - to 5% and that on PSF to 10%," Mr Vanavarayar said in his letter to Mr Chidambaram. Reliance is the largest producer of PTA and PSF in the country.
Higher input prices have already taken the toll in exports of synthetic textiles from the country, with a decline of over 12% in the first quarter of the financial year '04-05. "Value addition has come down due to higher price of PSF. This has hit exports badly," said Rakesh Mehra, chairman, Synthetic and Rayon Textiles Export Promotion Council (SRTEPC).
Similarly, rayon textiles industry demanded that customs duty on viscose staple fibre (VSF) be slashed to 10% from 20%. Currently, there exists an inverted duty structure in the viscose sector with the duty on wood pulp, the raw material for VSF at 5%. Grasim Industries is the sole producer of VSF.
In fact, Mr Chidambaram had indicated that the duty on manmade textile industry would also reduced in the coming budgets, to bring them at par with the cotton textile industry which has been given the option of zero excise duty in Budget '04. However, there wasn't any such commitment on reduction of customs duties on raw materials such as PSF and VSF.
"The next step to contain inflation should be a reduction in import duties on polyester raw materials, whose global prices have risen sharply in the last one year, allowing the domestic producers to rake in higher profits and hitting downstream industries and the consumers," said Mr Mehra.
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