The Government-appointed panel to look into the problems of the rubber industry has recommended that the Customs duty on natural rubber imports be brought down to either Rs 20.46 for a kg or 20 per cent, whichever is lower. This comes as a major relief to the consuming industry which has seen a widening divide between the Indian and international price of natural rubber.
The duty of Rs 20.46 for a kg was arrived at by calculating the last three-year average price of natural rubber in Indian markets, which worked out to Rs 102.32 for a kg. As the price of natural rubber soared in the Indian and international markets, the industry was constrained to pay as much as Rs 30-32 for a kg. As the Customs duty continued to remain at 20 per cent, it had hampered imports which resulted in differentials between Indian and international prices widening to as much as Rs 30 for a kg.
The cap on non-ad valorem duty shall be subjected to annual revision based on the trends in natural rubber prices, production, consumption and external trade in rubber and in rubber products, the panel has recommended. The ultimate objective of fixing the cap would be to harmonise the domestic rubber prices withinternational prices and would be fixed only if the average price in the domestic market remained higher than that of comparable grade in the international market.
Prices
The panel was of the opinion that minimum and maximum price for natural rubber shall not be notified except in an emergency situation as they cannot be enforced without infringing upon the commitments of the Government of India under the WTO agreement. The demand for banning futures trade in rubber also did not find favour. But it was thought prudent that the Forwards Markets Commission be directed to re-examine the Daily Cap. On the question whetherthe rubber cess should come under Cenvat, the panel left the final decision to the Union Ministry of Finance.
The panel which was headed by the Rubber Board Chairman, Mr Sajen Peter, and had expert members as well as a nominee from the Forward Market Commission, was concerned aboutthe rubber consuming units in the country. However, the market for natural rubber had a handful of major tyre manufacturing units dominating the purchase side and numerous marginal/small farmers on the supply side.
Withheld stocks
While powerful sections of the consuming industry had been reportedly influencing rubber prices earlier, the current complaints have been that the producers and traders have been withholding stock to jack up prices. It was in this background that the panel felt that some sort of tariff concessions should be accorded tothe rubber consuming industry at least on an ad hoc basis. This, it was believed, would lead to greater harmonisation and integration of domestic andinternational prices of natural rubber.
The integration of rubber market with the world market which culminated in the lifting of quantitative restrictions in April 2001, led to the harmonisation ofthe Indian and international prices of rubber.
During the 1980s, domestic prices on an average were about 50 per cent higher than international rubber prices. However, the higher domestic rubber prices could be absorbed by the Indian industry by virtue of the domestic market orientation and protection from external competition.
This changed dramatically by 1990s when domestic prices ruled just 6.5 per cent above global prices. Even that trend was reversed during the current decade when domestic prices were lower by 2.8 per cent from global prices. The panel felt that the time had come bring non-advalorem duty as the protection extended to the domestic rubber manufacturing industry has been substantially eroded and the sector has to face intense competition especially from Chinese manufacturers.
