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KEY ISSUES CONCERNS

OF INDIAN TYRE INDUSTRY


1
Submission by :
Automotive Tyre Manufacturers Association (ATMA)
Phone : 91-11-26851187, 26564291, 91-11-2686 4799
rajiv@atmaindia.org; atma@atmaindia.org; www.atmaindia.org
Pre Budget Meeting with Finance Ministry / CBEC
on Tues. 11
th
Dec. 2012, at 3:30pm, New Delhi
2
Agenda Points
(Explained in following section)
Indian Tyre Industry - A Profile

Industry Environment & Outlook
Economy
Auto Sector
Tyre Industry (Including Capacity & Investment by Tyre Industry)

Natural Rubber : Inverted Duty Structure / ATMA Submission

Major Raw Materials of Tyre Industry,
Demand Supply Gap
ATMA Submission on Proposed Duty

Customs Duty on Tyres
3
Indian Tyre Industry A Profile
NO. OF TYRE COMPANIES - 39

NO. OF TYRE PLANTS - 60

TURNOVER (Est.) - Rs. 43,000 Crores /US$ 7.7 billion

EXPORTS - Rs. 4800 Crores / US$ 770 million

INDUSTRY CONCENTRATION - 10 Large tyre companies account
for 95% of Industry Turnover
(in Tonnage / Value terms)


Industry, Environment & Outlook
Current Economic & Sectoral Environment

Economy
The Reserve Bank of India (RBI) has sharply lowered this fiscal's Indias economic
growth projection to 5.8 per cent, from 6.5 per cent earlier, in view of global and
domestic factors like poor investments and subdued demand. The growth rate in the
first quarter (Apr.-Jun. 2012), has slipped to 5.5 percent from 6.9 percent in the same
period last fiscal. Likewise GDP growth projection for Q II (current fiscal) has been
pegged at 5.5%.
Auto Sector
The ongoing economic downturn has adversely affected Indias Automotive industry. As
per the Society of Indian Automobile Manufacturers (SIAM), Medium & Heavy
Commercial vehicles witnessed a (-)16% YoY drop in production for the period Apr-
Oct.12 as against same period last fiscal. Tractor Production witnessed a (-)8% YoY drop
for the period Apr-Oct.12 vs. the same period last fiscal.
Tyre Sector
Indian Tyre industrys performance is directly linked to that of the Automotive Sector.
The % share of tyre supplies to OEMs (Original Equipment Manufacturers), has been
increasing consistently for all major tyre categories i.e. CV, Passenger Car, 2/3 Wheeler,
Tractor etc. With the ongoing slowdown of the Automotive sector, the Tyre Industry too
faces a slow growth in the current fiscal and uncertanity prevails for the future.
5
Auto &Tyre Industry Performance of Key Categories
Continuing economic uncertainty and lower growth impacts domestic OEM
demand, replacement sales global slowdown affects Tyre Exports from
India the current fiscal so far has been slow.
Vehicles 2010-11 2011-12 Apr-Oct : 2012-13 /2011-12
Medium / Heavy CV Production 38% 11% (-)16%
Car Production 27% 2% 10%
Tractor Production 26% 27% (-)8%
Tyres Apr: 2012-13 / 2011-12
(latest available)
Truck/Bus Tyre Production 3% 3% 0.4%
Car Tyre Production 29% 4% 4%
2/3 W Tyre Production 29% 6% (-)11%
Truck/Bus Tyre Export (-)2% 12% (-) 8%
(% Growth YoY)
Outlook for rest of the year appears weak and dismal for Auto Sector
especially the Medium and Heavy Commercial Vehicle Segment & Tyre
Industry unless major steps/initiatives are announced by the Government to
revive demand & spur growth.
(per month figures)
Project(s) TBR (in units) PCR+LT (in units) OTR (in MT) 2W (in units) Others (in units)
Recently completed 26,200 1,28,000 7,00,000 4,167
Greenfield 4,73,000 20,14,500 17,700 25,000
Brownfield 1,25,000 7,30,000 6,448 2,50,000
Total 6,24,200 28,72,500 24,148 9,75,000 4,167
Project(s) Total Investment (Rs crore)
Recently completed 1,064
Greenfield 13,845
Brownfield 4,593
Total 19,502
Summary Statement of Capacity Creation & Investments
in Tyre Industry in India
As of Sep12
Source: Smithers / ERJ
Inline with the capacity creation in the auto sector, the tyre sector has also
added/expanded capacity pan India.

This kind of investment by the tyre industry in India is unprecedented in
history.

Cumulative
Investment
(approx.)
Rs. 20, 000 Crore

Natural Rubber :
Inverted Duty Structure

7
Customs Duty on Tyres vis-a-vis its Principal Raw
Material (i.e. Natural Rubber)
Tyre Industry is Raw Material (RM) intensive. RMs account for 72% of Industry
Turnover.
Natural Rubber is the key raw material of the tyre industry with a cost of 45% of
all raw materials.

Customs duty on tyres has been reduced over the last few years with no
corresponding reduction in basic rate of customs duty on Natural Rubber (as
shown in Table - 1 below) :
Table - 1
1996-97 2012-13
Tyre 50% 10%
Natural Rubber (NR) 20% 20%*
(*) In Apr11, following a decision by the Hon'ble Delhi High Court in a Petition filed by NR
consuming interests, the Government had restructured the NR customs duty from 20% (Basic
Rate) to 20% or Rs. 20 per kg. whichever is lower.
It is worthwhile mentioning that NR is a non agricultural product (RM for
industrial application) whereas the duty on the same is not in line with
industrial raw-materials like cotton, etc.
8
Incidence of Duty on NR (after restructuring)
As stated above, in Apr11,NR duty was restructured from 20%, to 20% or Rs. 20
per kg, whichever is lower.

However, the actual incidence of 'restructured' duty has, in fact, increased after
the restructuring was done, as is evident from Table - II below:
It would be seen that with the drop in price of NR (and keeping the duty level the
same @ Rs. 20/kg) the incidence of duty increases from 7.7% to 12.1%.

In view of the above, there is a need to re-examine the customs duty on NR or
increase the existing customs duty on Tyres to correct duty inversion.
Table-II
9
Month / Year

Intl NR Price (RSS-3) /
(Rs. per Kg)
Customs Duty @
Rs. 20/Kg
Customs Duty on (%) basis @
Rs. 20 per kg / applied on
prevailing NR Price
Apr11

260 20 7.7 %
(Lower than tyres i.e. 10%)
Nov.12

165 20 12.1%
(Higher than tyres i.e. 10%)
Basic & Preferential / Concessional Customs Duty
on Natural Rubber in India
*Under SAFTA, 6% concessional duty for NR applies for imports from Pakistan & Sri Lanka. However, the tariff is Nil for imports
from other SAFTA nations.
N
e
g
a
t
i
v
e

L
i
s
t

1
6
%

N
e
g
a
t
i
v
e

L
i
s
t

6
%

(
o
r

N
i
l
*
)

N
e
g
a
t
i
v
e

L
i
s
t

N
e
g
a
t
i
v
e

L
i
s
t

0%
4%
8%
12%
16%
20%
Basic Customs
Duty
ASEAN FTA Asia Pacific Trade
Agreement
Indo Sri Lanka SAFTA* India Singapore India - Malaysia
No Duty
Concession
No Duty
Concession
No Duty
Concession
No Duty
Concession
In India
2
0
%

o
r

R
s
.

2
0
/
k
g
,

w
h
i
c
h
e
v
e
r

i
s

l
o
w
e
r

Although tyres (finished product) can be imported into India at preferential /
concessional duties under various RTAs, the corresponding concessional duties for NR is
not beneficial.

NR falls in the negative list across most FTA except for Asia Pacific and SAFTA. However,
in both Asia Pacific and SAFTA, the concessional duties apply mainly for NR imports
from Sri Lanka (which are insignificant and hence of no practical significance).
(To Allow) Limited Quantity of Natural Rubber (NR)
Import on a Tariff Rate Quota (TRQ) Basis
During FY 2011-12, the gap between domestic NR Production and
Consumption was 60,715 MT and for FY 2012-13, the gap is expected
to exceed 76,000 MT. As per Industry estimates, during the next fiscal
(FY 2013-14) the gap is likely to be over 100,000 MT. This quantity (to
bridge the demand-supply gap) of NR has to be imported into India.

Submission

Department to consider allowing import of limited quantity of NR (say
100,000 MT) under a Tariff Rate Quota (TRQ) basis for FY 2013-14 at a
concessional rate of duty of 7.5% OR Rs. 10 per kg, whichever is
lower. In Dec.`10, Finance Ministry has allowed 40,000 MT of NR at
7.5% concessional duty on TRQ basis .

11
Major Raw Materials (RM) of Tyre Industry
Demand Supply Gap
ATMA Submission on Proposed Duty
12
Customs Duty on Raw Materials India vs. China
13
1
0
%

1
0
%

1
0
%

1
0
%

1
0
%

7
.
5
%
1
0
%

1
0
%

7
.
5
%

7
.
5
%

7
.
5
%

6
%

4
%

0%
5%
10%
15%
20%
Compound
Ruuber
Nylon Tyre Cord
Fabric
EPDM* Styrene Butadiene
Rubber (SBR)
Polybutadine
Rubber (PBR)
Rubber Chemicals Steel Tyre Core
(STC)
India China
N
I
L

Steel Tyre Cord
*EPDM Ethylene- Propylene-non-conjugated Diene Rubber
China and India, both emerging economies and highly competitive, have different duty
structures for various Raw Materials (China has a lower duty structure for most raw materials, in
comparison to India, giving the Chinese manufacturers competitive edge over Indian tyre
manufactures, especially in common overseas markers).

For example, Compound Rubber, which accounts for 90% of the rubber imports in China, is @
NIL Customs Duty vs. 20% customs duty on Natural Rubber in India (such duty benefits give a
competitive edge to China over India).
Major Raw Materials Scenario of Tyre Industry
RMs with Domestic Demand : Supply Gap - Reduction in Customs Duty
HS Code

Raw Material(s)


Domestic
Production
(est.)

Domestic
Consumption
(est.)
Shortfall / Deficit
(i.e. Quantity to be
eligible for exemption
from ADD)
MT / Year
590210 Nylon Tyre Cord 65000 131000 66000
381210 Rubber Chemicals 30000 43000 13000
731290 Steel Tyre Cord 12000 32000 20000
590220 Polyester Tyre Cord 3000 8000 5000
400220 Polybutadine Rubber (PBR) 80000 158000 78000
(Gap between Domestic Demand and Supply / Capacity OR NIL Domestic
Production - ATMA Submission for Duty Reduction / Waiver )
RMs of Tyre Industry having no Domestic Production Exemption from Customs Duty
400219 Styrene Butadiene Rubber (SBR)
Tyre Grades
NIL 144000 100%
400231 Butyl Rubber NIL 58000 100%
4002700 EPDM Nil 3000 100%
14
Key RMs of Tyre Industry
Inadequate Domestic Capacity / Production
It would be seen from the above graph that a significant percentage of
import of key Raw Materials (RMs) of Tyre Industry is imperative. Hence,
the need to consider lowering / waiver of Custom Duty to make operations
of Domestic Tyre Industry more competitive.

15
5
0
%

7
0
%

3
8
%

3
8
%

5
1
%

5
0
%

3
0
%

6
3
%

6
3
%

4
9
%

0%
30%
60%
90%
120%
Nylon Tyre Cord Rubber Chemicals Steel Tyre Cord Polyester Tyre Cord Polybutadiene
Rubber
Import as a % of Domestic Consumption Domestic Production (est.) as % of Domestic Consumption

Proposal for Reduction of Customs Duty on Raw-Materials
having gap (shortfall) in domestic Capacity : Consumption
& Waiver of Customs Duty on Raw - Materials of Tyre
Industry NOT manufactured domestically
16
Raw Material Existing Duty Suggested /
Proposed Duty
Nylon Tyre Cord Fabric (NTCF) 10% 5%
Poly Butadiene Rubber (PBR) 10% 5%
Rubber Chemicals 7.5% 2.5%
Polyester Tyre Cord 5% 2.5%
Steel Tyre Cord 10% 5%
Butyl Rubber* 5% Waive off
EPDM* 10% Waive off
Styrene Butadiene Rubber (SBR)* (Tyre Grades) 10% Waive off
* No Domestic Production

Customs Duty on Tyres
17
Bound Rate on Tyres
There is no WTO Bound Rate for Automotive Tyres

Hence, based on compelling need and
circumstances, the Government of India can increase
the customs duty on tyres from existing rate of 10%
(to a higher rate of duty) without any corresponding
action / explanation to the world body (WTO).
18
Customs Duty on Tyres under Trade Agreements
Although the current basic customs duty on tyres is 10%, it is worthwhile
mentioning that the same under various Trade Agreements is actually even
lower than the basic rate of customs duty (as is evident from Table below):
Item
Normal
/Basic Rate of Duty
in India ASEAN FTA
Asia Pacific
Trade
Agreement
(Bangkok
Agreement)
Indo Sri
Lanka SAFTA
India
Singapore
India
Malaysia
Tyre 10% 7% 8.60% Nil 6% / Nil*
Nil
(Bias Tyre)
7%
(Radial Tyre)
NR

20% OR Rs.20/kg
whichever is lower
Negative List
(No Duty
Concession) 16% **
Negative List
(No Duty
Concession) 6% / Nil*
Negative List
(No Duty
Concession)
Negative List
(No Duty
Concession)
* Under SAFTA 6% concessional duty for Tyre & NR when imports from Pakistan & Sri Lanka ,imports from other SAFTA countries
Nil Duty.

** Under APTA although NR is at a concessional duty of 16% ,there is no NR production in APTA countries, except Sri Lanka.
Negligible imports of NR from Sri Lanka to India. NR production in Sri Lanka is small quantity and primarily for self consumption
19
Customs Duty on Tyres under Trade
Agreementscontd
A significant percentage of Tyre Imports into India is from countries
which are signatories to RTAs / FTAs allowing Tyre imports at a lower
rate of duty.
In other words, the effective rate of customs duty on tyres is even
lower than 10%.(ranging between nil to 8.6%).
Hence, there is an urgent need and justification to increase the rate
of customs duty on Tyres. Since most of the concessional duty rates
are on an ad-valorem basis, the corresponding reduction in customs
duty for imports against the RTAS will still be applicable.

Submission
Customs duty on Tyres be enhanced from existing 10% to a
suggested rate of 20%.
20
Summing Up
To allow import of limited quantity of NR (say 100,000 MT)
under a Tariff Rate Quota (TRQ) basis for FY 2013-14 at a
concessional rate of duty of 7.5% OR Rs. 10 per kg, whichever
is lower.

Need to re-examine the customs duty on Natural Rubber (NR)
or increase the existing customs duty on Tyres to correct duty
inversion.
Reduction of Customs Duty on Raw-Materials having gap
(shortfall) in domestic Capacity : Consumption

Waiver of Customs Duty on Raw - Materials of Tyre Industry
NOT manufactured domestically


Customs duty on Tyres be enhanced from existing 10% to a
suggested rate of 20%.
21
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