Indian Budget: Good News For Tyre Business

The new year, or at least the new financial year, will give the Indian Tyre industry something to cheer about. That is since the government published its Central Budget for 2005/2006 financial year and the and excise and customs relief that came with it, Rubber Asia reports.

The net result will be cheaper imports of tyres and a drop in tyre prices, and the first signs of the latter are already showing. Truck and bus tyre manufacturers will be particularly relieved at the duty cut as this segment accounts for almost 70 per cent of the Indian tyre industry turnover. But the Budget is not much more than a mixed bag for the domestic industry. For one, some of the duty cuts could see more imports of finished products — a prospect no domestic industry would relish.

Tyres will become “more affordable” as a result of the excise duty cut, according to an official at MRF, one of the premier Indian tyre firms. In fact, tyre prices in the aftermarket have begun to drop as the manufacturers pass the excise relief on to the consumer. Tyre makers, especially majors like Apollo (the largest commercial vehicle tyre maker) are also expecting a windfall from the significantly higher spending on infrastructure.

Here are some of the highlights of the Budget as it applies to the tyre industry. Excise duty on tyres, tubes and flaps supplied to the replacement market has been cut from 24 to 16 per cent. And secondly, the budget cut reduced the peak rate of customs duty from 20 to 15 per cent. This will benefit the raw material import intensive industry because India does not produce any SBR (synthetic rubber grade), polyester tyre cord or butyl rubber (used for inner tubes) domestically.

At the same time, because the pricing of some domestically produced raw materials is done by benchmarking it on the landed cost of imported material with customs duty, there would be some easing of raw material cost. However, this is subject to oil price movements. By retaining the same level (20 per cent) of customs duty on natural rubber (NR) has led to a serious anomaly, according to tyre industry spokesmen. NR is an industrial raw-material and yet it has been bracketed with agricultural goods on which there is no duty reduction. Hence the customs duty on NR continues at 20 per cent. The plantation industry has, however, welcomed the retention of the duty.