Will new duty structure on naphtha imports reduce exports from India?

As naphtha refineries expanded quicker than a stagnant petrochemicals industry, naphtha exports from India rose about 60% in the financial year 2006/07 to 8.3 mln tons. As compared to last year, exports from India have risen 20%, upto January this fiscal, weighing heavily on Asia's spot market for naphtha. In his budget proposals Finance Minister Palaniappan Chidambaram said: "Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and naphtha is imported by manufacturers of polymers, leading to price distortions and revenue losses. "I propose to correct the situation by withdrawing the duty exemption on naphtha for use in the manufacture of polymers and subject it to the normal rate of 5%. The new tariff, increasing duty on naphtha imports to 5%, applies only to companies importing naphtha for use in polymer units, and will come into immediate effect.This is viewed as a potentially unexpected opportunity for domestic oil firms to sell locally, reduce both - naphtha exports and imports. Currently only two petrochemical producers, Reliance Industries Ltd. and Haldia Petrochemicals Ltd., are the big naphtha importers. They prefer imports rather than buying expensive domestic supplies. In 2007, Reliance imported around 3.5 to 4 mln tons of naphtha for its petrochemical plants, while Haldia Petrochemicals shipped in around 1.3 mln tons.
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