Chemicals: Import duty reduction on feedstock sought

The Indian chemical industry currently stands at $134 billion and is expected to grow at a CAGR of 8% for the next five years. The share of this sector in the manufacturing GDP was 15% during 2012-13 and it accounted for around 9% of the total India's exports. Together, Gujarat, Maharashtra and Uttar Pradesh account for more than 50% of Gross Value Add (GVA) and Gross Output of the chemical industry.

Industry Expectation

• Expect reduction of import duty on feedstock for Chemical Industry

• Expect VAT exemption on pesticides or a uniform VAT @2% should be applicable to pesticides nationwide

• Expect excise duty on pesticides (Excise duty on technical grade pesticide and formulations is 12.36%) to be brought on par with the duty on fertilizers (8%)

• Expect inverted duty structure to be removed completely for local Toilet soap and Oleo chemicals. ASEAN FTA / Economic Treaty with Malaysia signed by Government has resulted in to serious duty inversion in Toilet Soap and Oleo chemicals manufacturing industry in India. Duties on most of the finished products have become Zero while duties on its raw materials remain at peak rate

• Expect for measures to build chemical clusters in line with plastic sector where related industries are set up in close proximity in an industrial estate so that they could be vertically integrated resulting in a saving on the transfer cost of feedstock and finished goods coupled with lower investment on infrastructure as a result of sharing

• The government may establish a “Technology Up-gradation & Innovation Fund” (TUIF) that can address specific technology issues, faced by the chemical industry

Analysts Expectation

It is unlikely that any of the demands of the Chemical industry would be met.

Stocks to watch

BOC India; Foseco India; BASF India; Clariant Chemicals; Finolex Industries

Outlook

Key growth drivers for chemical industry is low per capita consumption across industries and segments and strong growth outlook for the key end use products. Net imports have grown at around 20% between FY09 and FY13 where in the same period the domestic output has grown by 4%.The government has set an ambitious plan of increasing the share of manufacturing in GDP from 16% to 25% by 2022. To meet this increasing demand either the local production will have to ramp up or the imports will have to go up.

A sustained growth in chemical industry is more likely to stem from the rise of domestic manufacturing, rather than relying on imports. Adoption of integrated cluster in cluster approach can enhance the competitiveness of domestic manufacturing for both domestic and multinationals.

Budget 2015: Complete Coverage