Thousands of plastic processing units facing risk of closure

Today the Indian economy is passing through very difficult times. Problems of falling GDP, increase in fiscal deficit, increase in current account deficit, negative growth in manufacturing sector, increase in prices of items of common man’s use and growing unemployment are before us. During the last few years, the plastics sector was growing at an average rate of 12% per annum and was contributing substantially to the growth of GDP and employment generation, but unfortunately in the last one year growth has taken a ‘U’ turn and at present there is a negative growth in the plastics sector. In this context it may be mentioned that there are approximately 55,000 plastic processing units in the country employing more than 40 lakh workers. Most of these units are in the MSME sector. Due to various problems outlined below many units have closed down and many more are on the verge of closure. Most of these units are working at less than 70% of their installed capacity. This situation has risen due to multiple factor, some of which are highlighted below: · Abnormal increase in the price of raw materials i.e. plastics granules viz. PP, PE, PVC, Polystyrene etc. : In the last two years the prices of plastics granules have almost doubled causing hardship to plastics processing units which are unable to pass on the increase to their ultimate consumer. Further working capital requirement has suddenly increased substantially which they are unable to manage. · There has been an increase in customs duty on plastic granules from 5% to 7.5% in the month of May 2013, whereas various plastics finished products are imported from neighbouring countries at zero or concessional duty. The customs duty on plastics raw materials i.e. plastics granules, should always be lower than the customs duty on finished products. The normal rate of customs duty on finished plastics products is also only 10%. This apart from ensuring growth of manufacturing sector will also help in reducing current account deficit, reducing fiscal deficit as well as help in generating employment. · Import of cheap plastics finished products from neighbouring SAARC countries arising out of various Free / Preferential Trade Agreements with them is causing serious injury to the plastics processing sector. Unfortunately, export of similar products from India to those countries such as Bangladesh attracts customs duty of 70% to 90%. Export of finished products from China is also harming Indian plastics finished products manufacturing sector. The Chinese manufacturers are enjoying various advantages such as availability of land and infrastructure at cheaper rates, domestic availability of machinery and capital goods at very low price, cheaper electricity, lower interest rates, lower cost of raw materials and benefits of mega scale of operation. · Higher VAT rates of 12.5% to 14.5% on various plastics finished products of common man’s use such as household goods, furniture, industrial inputs, etc. is resulting in making these plastics products very costly for the common man. · Levy of entry tax by State governments, local body tax, octroi etc. other than VAT on plastics granules, plant and machinery, moulds for use by plastic industry is unduly making the local plastics processing industry unviable and uncompetitive. If the plastics processing sector is to be brought back to the growth path it will contribute substantially to increase the GDP, create employment opportunities, help in controlling current account deficit & fiscal deficit, inflation and provide plastic items to the masses at affordable price. We recommend the following measures to be taken immediately to achieve this objective:- Ø Roll back of customs duty from 7.5% to 5% on plastic raw materials viz. PP, PE, PVC, Polystyrene etc. Ø The minimum gap of customs duty between plastics granules and finished products should always be maintained at 7.5%. Ø Abolition of anti-dumping duty on imported PVC materials & other plastics granules from other companies / countries. Ø Customs duty of 15% should be applicable on imports of finished products from all countries including neighbouring countries esp. products of common man’s use e.g. household goods, furniture, and plastic packaging materials. Ø Availability and price of raw materials to be same through out the country to ensure balanced growth of plastics processing industry through out the country. At present the price of raw materials is much higher in North East and Eastern India compared to many other parts of India. This has resulted in dis-balanced growth of plastic processing industry in this part of the country. Ø Abolition of entry tax or any other levy, apart from VAT, on plastic granules and capital goods used for manufacture of plastic finished products. Ø VAT on all plastics finished products of common man’s use e.g. household goods, utensils, tanks, profiles, containers, packaging materials as well as plastic industrial inputs or semi finished parts and components should attract VAT @ 4% to 5% instead of a higher rate of 12.5% to 14%. Ø To safeguard growth of plastics processing sector, anti dumping duty or safeguarding duty should be imposed on import of cheap plastic finished products from China and other neighbouring countries. Ø Special incentive should be provided for export of plastics finished products from India to various countries which will help in growth of this sector as well as help in curtailing current account deficit. We earnestly request central government , state government and primary producers to do justice to the plastics processing industry in the interest of lakhs of workers employed therein as well as to utilise this sector’s capability for the growth of the Indian economy and nation. (Author: K. K. Seksaria , Past President , Indian Plastics Federation)