Date:18/02/2006 URL: http://www.thehindubusinessline.com/2006/02/18/stories/2006021802360300.htm

Back Polymer industry seeks lower excise duty on plastic goods — 'High tax incidence hurting growth'

Richa Mishra

New Delhi , Feb. 17

WITH less than a fortnight to go before the Finance Minister, Mr P. Chidambaram, unveils the Union Budget, the polymer industry has urged the Finance Ministry to lower excise duty on plastic goods to boost demand as well as excise revenues.

Excise revenue from plastic goods on a modest growth of 5.8 per cent during 2001-04 averaged at Rs 2,500 crore after allowing for SSI exemption. This realisation, according to the industry, could rise to Rs 3,036 crore in 2006-07 if the excise duty is halved from the present 16 per cent to 8 per cent.

Elaborating on the reason behind the faltering growth in polymer demand, industry insiders said this was primarily due to high tax incidence on polymers and plastic goods. Although the tax revenue showed an upswing last year, it was mainly on account of the high prices of petrochemicals driven by the cost push effect of spiralling crude oil prices, and not because of demand push, industry sources said.

The present growth of the domestic polymer industry is below the GDP growth rate. It is also contrary to the experience of the global polymer industry. China's polymer demand continues to grow at a double-digit rate, absorbing the world surpluses, they said.

India has a large unutilised capacity and the industry is exporting some of its products to other countries, including China. However, exports do not add to Government revenue, the industry sources added.

If the excise duty had been reduced to 8 per cent earlier, as demanded by the industry, plastic consumption in the country could have risen to 6,344 kT, against the current level of 4,180 kT, providing additional excise revenue. However, the incremental effect on the excise revenues is estimated to manifest itself more distinctly after three years of duty reduction.

It is also estimated that if the polymer demand is increased to 12.5 million tonnes as a result of excise reduction, it will generate additional employment for almost 10 million people, with 6.7 million being employed directly in the plastic industry and the rest being indirectly employed, they said.