The Hindu Business Line : Slowdown woes hit plastics industry

“The industry employs a total of four million people in the micro, small and medium sectors. There have been some lay-offs, although it is difficult to give the exact number at this stage.” – Mr Kailash Murarka

Amit Mitra

Mumbai, Nov. 19 The economic slowdown has tamed domestic demand of plastic products, which has severely bruised the Rs 25,000-crore plastics industry.

Having already trimmed production by about 40 per cent and laid off corresponding number of workers, the industry, which consists of some 50,000 processing units across India, fears that if the situation does not improve many units would have to be closed down. This has also cast a shadow of doubt on the viability of the proposed investments of Rs 80,000 crore, part of which may not take off now.

Seek sops

The industry is seeking some fiscal relief from the Government to enable it to tide over the crisis.

Says Mr Kailash Murarka, President of the All India Plastics Manufacturers Association: “The situation has affected not only the processors but also the raw material manufacturers (such as Reliance and Haldia Petrochemicals).”

The demand for plastic products, ranging from household goods to packaging products, has fallen by between 40 and 60 per cent in the last two months. Demand for major polymers was 10 per cent lower in the second quarter of the fiscal compared to the corresponding quarter of last fiscal.

“We are currently operating at a level of 60 to 65 per cent of our production capacity, which is normally at five million tonnes annually,” Mr Yogesh Shah, the association’s Secretary, said.

In tune with production cuts, the processing units had to lay off a corresponding number of their employees. “The industry employs a total of four million people in the micro, small and medium sectors. There have been some lay-offs, although it is difficult to give the exact number at this stage,” according to Mr Murarka.

Demand drops

Consumption of plastics has fallen as the economic slowdown began to impact different sectors. “For example, with cement manufacturers cropping production, the demand for plastic packaging material for cement also tapered down. Last year, the industry recorded a CAGR of 15 per cent and this year it is minus 15 per cent,” Mr Murarka pointed out.

To add to the woes of the industry, the cost of raw material also plunged sharply in the last few months. Normally, it would have been good news for the plastic manufacturers, but this time around consumers prefer to wait for raw material prices to fall further, thus limiting their offtake and resulting in rising inventory levels of the processing units.

From a peak of Rs 96,000 a tonne in July, the prices of raw material plummeted to Rs 44,000 this month. “The downtrend in raw material prices is good in the long term, but the present erratic fall has increased our problems. We feel that raw material producers should have a schematic pricing formula, making revisions, say, once a month. This way we can plan our production and inventory levels,” Mr Shah said.

Another worrying factor has been the total tax incidence on plastics in India, which is over 28 per cent. The 14 per cent excise duty levied on polymers and articles of plastic makes plastic products costlier.

The industry is, thus, seeking reduction of excise duty to 8 per cent which can make plastic products affordable to the common user.

The other factors threatening the viability of the domestic petrochemical industry include high cost structure, low duty protection and emerging avalanche of capacity in the West Asian region based on highly subsidised feedstock.