BUDGET 2008 HAS MADE IT MORE DIFFICULT for export-oriented units (EOUs) to sell in the domestic market. EOUs, generally eligible to sell up to 50% of their annual sales domestically, will now have to pay customs duty at 50% of applicable rates for such sales, compared to 25% till now. India’s largest petrochemicals company, Reliance Industries (RIL), whose Jamnagar refinery enjoys EOU status, is likely to be affected by the change. Others like South Asian Petrochemicals and IG Petrochemicals, which enjoy EOU status, will also witness an erosion in their competitive advantage when selling in India.
Also, costs are likely to go up for polymer manufacturers as the finance minister has reimposed 5% import duty on naphtha, from nil last year. “Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and is imported by manufacturers of polymers, leading to price distortions and revenue losses,” he said.
This will adversely impact companies like RIL and Haldia Petrochemicals, which use naphtha for polymer production. Till now, RIL used to export naphtha from its refinery availing of the benefits of being an EOU, while its erstwhile subsidiary IPCL used to import it duty-free.
Petrochemicals manufacturers are not happy with the development. “We are disappointed by the re-imposition of 5% import duty on naphtha used in production of polymers. This is not in line with the basic rule that customs duty on raw materials should be less than that on the finished product,” said Chemicals and Petrochemicals Manufacturers Association of India president KG Ramanathan.
The general reduction in excise rates from 16% to 14% and the cut in central sales tax to 2% will help the petrochemicals industry. “The waiver of loans and interests to farmers will help increase plastic consumption in the agriculture sector,” said Supreme Industries MD MP Taparia.
The fertiliser industry will benefit from the reduction in duty on sulphur, which has been cut from 5% to 2%.