End-use based differential import duty on naphtha in Budget 2007

10-Jan-07

To boost investments in the capital-intensive naphtha crackers and provide an impetus to the employment-intensive polymers-to-plastic industry, the end-use based differential import duty on naphtha should be done away with in Budget 2007. The basic customs duty on naphtha was slashed from 10% to 5% in September 2004 with an end use condition - the imported feedstock will be converted into specified polymers (olefinic derivatives), using certain intermediates. This was done to control inflation. The duty was, however, kept unchanged at 10% on naphtha for production of xylene, ethylene, polypropylene, butadiene etc, which are the building blocks to the diversified polymer industry. Last Budget slashed the duties to 5% and 0% respectively. The differential has, therefore, remained. As an industrial feedstock, the price of which lends a decisive weight on inflation indices, the basic customs duty (BCD) on naphtha could be pegged at zero, irrespective of the end uses. This will make sense, given the fact the existing naphtha crackers produce just 2.5 million tpa of ethylene and 1.9 M tpa of xylene while the demand for ethylene alone is projected to rise to 12.5 MT by the end of the 11th Plan. There is clearly a need to attract more investments in the capital-intensive activity of busting naphtha. Lower import duty would be an incentive for investors. Currently, India has seven naphtha crackers - IPCL's (Reliance) three plants at Gandhar, Nagothane and Vadodara; RIL's Hazira and Thane (formerly Nocil's) units, Gail's Pata unit and one unit of the Haldia petrochem complex. Indian Oil Corporation is building a 1-MT cracker unit at Panipat.