The plastic indutry seeks exemption from levy of GST on export of finished products, reduction in import duty on plastic processing machineries and removal of anti dumping duty on basic polymers.
Current Status
Indian plastic products sector is witnessing relatively strong growth in demand in the current fiscal. Reliance Industries indicated that India's polymer demand grew by healthy 24% in the nine months ended December 2009, powered by 34% spike in demand for Poly Vinyl Chloride (PVC) resins, 28% rise in demand for Polylpropylene (PP) and 14% increase in demand for Poly ethylene (PE).
This coupled with recovery in the global economy should help the plastic product manufacturers focused on domestic and global markets. In the last five years, the Indian plastics processing industry has created additional processing capacity of 14% in tonnage on annualized basis year after year.
The annual processing capacity as on March 2009 has become around 14 million tonnes. During the same period, the growth in consumption of plastics goods was 12% per annum by volume, year after year.
The sector grew by mere 7% in FY 2008-09, due to wild fluctuations in the polymer prices and the demand destruction in the second half of that fiscal due to global economic and financial crisis. The industry has consumed around 6.5 million tonnes of prime plastics and converted 1.5 million tonnes of recycled plastics into products in FY09.
Reliance Industries indicated that the investment in downstream (read Plastic products) has surged from Rs 773 crore in FY 2004-05 to about Rs 1957 crore in 2008-09. As a result, the conversion capacity has surged by 148% from 7.62 lakh tonne in FY 2004-05 to 18.88 lakh tonne by FY 2008-09. The strong demand across key user industries is powering the Indian plastic product sector.
Industry expectations
Reduction of import duties on plastic processing machineries by 5%.
Disparity in import duty in ASEAN Countries should be removed.
Antidumping duty on Injection Moulding Machines and Polymers like PVC and PP (Poly Propelene) should be removed to make Indian exports more competitive. In future, antidumping duties should not be imposed on important raw materials like LDP, Polystyrene etc.
Duty Drawback norms should be fixed for more products and refund procedures should be simplified and made faster
VAT at par with raw material should be charged on finished goods produced out of scrap. Where as input VAT is 4% on scraps, but VAT on finished goods produced out of scraps are also taxed at 12.5%.
Inverted duty structure under various FTAs should be removed.
Cross Utilization of Central GST with State GST should be allowed. Although separate department may exist for GST Administration for CGST and SGST, single window system should be followed for return filling and assessment. Plastic products should be taxed at lowest rate of GST.
Exemption Limit of Rs 10 lakh for businesses from State GST should be increased to Rs 25 lakh (the exemption limit for Central GST is already kept at Rs 1.5 crore).
Import of basic raw material should be exempted from levy of Central / State GST.
Export of finished products should be exempted from any levy of GST. Expects an effective scheme of refund of CGST / SGST paid on inputs for production of such goods.
Legalization of documents incase of GCC Countries also acting as non-tariff barriers. The delay in process of legalization is resulting in heavy demurrage charges.
Consignments are reaching port with in 4 days and legalization process takes 3 days from the receipt of BL, then banks have their own process of sending the documents through their channel, which totally takes more than a week. The Government should ensure talks with GCC Countries for early relief measures.
Education Cess and Secondary & Higher Education Cess shall be completely removed.
Taxation rate for Corporate and Firms/LLPs should be reduced to 25% from the present level of 30%.
MAT for Corporate should be abolished and MAT Credit Carried Forward should be refunded in the earliest possible assessment year.
Analysts/market expectations
The government is expected to gradually withdraw economic stimulus, and this may culminate into about 2% rise in excise duty in the ensuing Union Budget itself, which should affect plastic product manufacturers. On the positive side, with food security and agri-inflation being the priority, there is expectation of increase in allocation towards agriculture, irrigation and agri infrastructure, which will be the positive news for the companies like Jain Irrigation.
Stock to watch
Sintex Industries, Jain Irrigation, Supreme Industries, Nilkamal, VIP industries and Astral Poly Technik.
Outlook
Indian plastic product sector is witnessing strong double-digit growth, with strong offtake from key user industries like packaging, automotive and infrastructure sector. The plastic industry is expected to grow in the range of 10% to 15% for the FY10 on the back of key user industries like plastic piping system, consumer products, industrial products, packaging products and auto applications recording smart recovery in demand. However, the margin may get affected as once again the polymer prices have started rising in sympathy with crude oil prices.
Overall, the Union Budget will be neutral for the plastic product sector with likely hike in excise duty becoming an adverse impact and the greater thrust on agriculture, infrastructure development etc turning out to be a favorable demand driver.
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