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Saturday, Jan 10, 2004

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Bumpy road ahead for domestic tyre makers

K.R. Srivats

New Delhi , Jan. 9

THE `mini-budget' unveiled by the Finance Minister, Mr Jaswant Singh, on Thursday has come as a "mixed bag" for the Rs 12,000-crore domestic tyre industry. Industry insiders, however, held that the decisions could make the going tough for tyre makers, who will face more competition from imported Chinese and South Korean tyres.

"The real concern for the domestic industry is the possibility of large-scale imports of new tyres from China and South Korea. The customs duty for imports of tyres from these two countries would now be only 15 per cent on account of the Bangkok Agreement. Moreover, there would be no special additional duty of customs (SAD) on these imports," Mr D. Ravindran, Director-General of the Automotive Tyre Manufacturers' Association (ATMA), told Business Line here.

With the peak duty coming down to 20 per cent, the Finance Ministry has simultaneously lowered to 15 per cent the concessional duty applicable on imports of new tyres from China, South Korea, Sri Lanka and Bangladesh under the Bangkok Agreement.

On the quantum of gains that would be made on the raw material front by domestic tyre companies, Mr Ravindran said the benefit of reduction in peak duty of customs from 25 per cent to 20 per cent would be largely minimal, given that nearly two-third of the imports are undertaken on a duty-free basis for export production (through DEPB and the advance licence scheme).

"The tyre companies would stand to gain in respect of the one-third part, where duty is paid for import of raw materials. We feel that the gains from this would be more than offset by the negative impact of reduced customs duties on tyre imports from China and South Korea," he said.

Mr Ravindran also pointed out that any reduction in customs duty would be followed by the reduction in DEPB rates. "The gain from cut in raw material import duties will also be offset by the reduction in DEPB rates, which is imminent," he said.

Tyre industry officials, however, ruled out the possibility of importing natural rubber into India from countries such as China, South Korea, Sri Lanka and Bangladesh. The Finance Ministry has now lowered the import duty on natural rubber under the Bangkok Agreement to 10 per cent. China is a net-importer of natural rubber. Further, natural rubber is under a negative list in the bilateral agreement between India and Sri Lanka.

Our Bangalore Bureau adds: With the duty rate cut, a pair of conventional cross-ply truck and bus tyres would be cheaper by Rs 900, a pair of light commercial vehicle tyres will cost Rs 450 less than the prevailing prices, and the cost of radial tyres for multi-utility vehicles will go down by Rs 200, according to the All India Tyre Dealers Federation (AITDF).

The price of passenger car tyres (radial) will become cheaper by Rs 150 per tyre, while the high-cost off the road (OTR) vehicle tyres would be cheaper by Rs 5,000 to Rs 12,000 on different sizes in relation to their basic import price.

China, South Korea, Japan, Thailand, Indonesia and a few other countries are the major sources for the imported tyres, which come in different varieties such as cross-ply and radial under 20 different brand names for commercial vehicles, passenger cars and OTR equipments.

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