ICCs PRE-BUDGET MEMORANDUM for the year 2012
Posted On : 2nd December 2011

The Indian Chemical Council (ICC) represents one of the major sectors of Indian economy i.e. Chemical Industry. The Council has over 370 members representing all segments of Chemical Industry such as Inorganic and Organic Chemicals, Petroleum Refining & Petrochemicals, Fertilizers, Agrochemicals Pesticides, Dyes, Pharmaceuticals, Paints, Specialty Chemicals etc

While the size of the global chemical industry is in the region of USD 3 Trillion, the Indian chemical industry has an output of around USD 80 Billion and ranks 12th in the world.

While the overall industrialization and economic growth in India provides major opportunities for growth of chemical industry in India, there are some severe constraints and stumbling blocks like,

  • Surge of imports from Asian and Middle East countries.
  • Producers from Middle East (with feedstock cost advantage) and China aggressively pursuing Indian markets due to very low tariff levels.
  • Growing menace of dumping
  • High cost of Power, Energy, Finance and Capital Equipment
  • Internal transaction costs being one of the highest in India -
    • Internal taxes - VAT rates substantially higher than other Asian countries.
    • High logistics cost due to poor infrastructure
    • State levies, entry taxes add to the local transaction cost

Against this background, ICC would like to propose following:

Sr.No. Submission Justification
1. Elimination of Customs Dutyon Alcohol (2207 20 00) forproduction of chemicals. Alcohol is a basic raw-material for host ofvalue added chemicals. Duty on alcoholwas brought down from 10% to 6% tosupport Government's fuel blendinginitiative. Since alcohol is derived fromrenewable sources, to promote greenchemistry, it is desirable to eliminatecustoms duty on this important feedstockfor the chemical industry
2. Elimination of Customs Dutyon Liquefied Natural Gas(2711 1100) Chemical and Petrochemical industry ishighly energy intensive. Cost of energy inIndia is very high putting local producersat major disadvantage. Current cost ofgas is relatively higher in India comparedto Middle East countries. LiquefiedNatural Gas (LNG) is a major input both asenergy source as well as feedstock forfertilizers and for petrochemicals. Whileduty on crude has been reduced to 0%,LNG continues to attract 5% duty. Due toits significant potential for value addition,duty on LNG needs to be brought down tozero level.
3. Elimination of Customs dutyon basic petrochemicalfeedstock like Naphtha(2710 1190). Naphtha is a basic feedstock for thepetrochemical sectors. It is used toproduce petrochemical building blockslike Ethylene, Propylene and eventually toPolymers like Polyethylene andPolypropylene. Most of the countries havezero import duty on Naphtha. At presentduty on Naphtha is at 5%. Duty on naphthafor production of fertilizer is already atzero level. Through a recent notificationGOI has also exempted import duty onnaphtha for Haldia Petrochemicals. Thisneeds to be made uniform for all users ofnaphtha for petrochemical production.Current duty on Naphtha has also resultedin duty inversion, particularly withrespect to Singapore where due to FTA,duty on polymer is 2.8%.
4. Elimination of Customs dutyon basic petrochemicalfeedstock like SaturatedAcyclic Hydrocarbon Ethane(2901 1000), Propane (27111200) and Butanes (27111300) Similarly Ethane, Propane and Butane areused in gas crackers for production ofpetrochemical building blocks likeEthylene, Propylene used for productionof Polymers. These gases also attractbasic custom duty of 5%. Since these arealso basic feedstock for petrochemicals,duty on these also need to be broughtdown to zero
5. Elimination of Customsduty on Aromatics FeedStock (2707 9900) Aromatic Feed Stock is used for productionof Benzene, Ortho-xylene, Paraxylene andToluene. Duty on this is 10% whereas duty onmain product made out of Aromatic FeedStock, Paraxylene is at zero level resulting ina major case of inverted duty.
6. Elimination of CustomDuty on Crude C4's (27111900). Crude C4's is used for the manufacture ofButadiene and attracts 5% duty. The endproduct Butadiene also attracts 5% duty.There is no duty differential between CrudeC4's and Butadiene which discourages valueaddition along the chain. Inlike with otherproducts, it is necessary to eliminate duty onCrude C4s to have a duty differential to givea boost to rubber industry and otherproducts.
7. Elimination of CustomDuty on EDC (2903 1500)and VCM (2903 2100) EDC and VCM are required to produce PVCand attract 2% duty. PVC produced from EDCand VCM attract 5% tariff. This provides asmall 3% differential and effective dutyprotection.
8. Rationalizing CustomsDuty on Naphthalene(2902 9040) in relation toBenzene & Toluene Naphthalene is an important input for thespeciality chemical sector. Current duty ishigh and needs to be treated at par withcomparable chemicals like Benzene - crudeand also pure.
9. Reduction in import dutyon Titanium Dioxide(2823 0090) Custom Duty on Rutile Grade TitaniumDioxide is 10%. The product is widely used bypaint industry and also for dyes and pigmentsector. It is proposed that this may bebrought down to 5% to support the end-usesegments.
10. Elimination of CustomsDuty on polymer buildingblocks like Ethylene(2901 2100) andPropylene (2901 2200 ) Current rate of Customs Duty on theseimportant building blocks is 5%. Productsmade from these like Polyethylene andPolypropylene also attract an import duty of5%. This needs to be rationalized byeliminating Customs Duty on Ethylene andPropylene.
11. Elimination of CustomsDuty on Octene (2901 2990), Butene-1 (29012300) and Hexene (29012990) These are used for production of polymersand hence Customs Duty should be aligned with Ethylene and Propylene and broughtdown to zero as is being proposed forEthylene and Propylene.
12. Elimination of CustomsDuty on spares for Chlor-Alkali industry (98010030) Indian Chlor-Alkali industry has voluntarilyswitched to membrane cell replacingmercury cells being used in past. This hasmade the industry more environmentfriendly in its operation. However, whilereplacing membrane cell which are to beimported 10% import duty is levied whichincreases the maintenance cost. It issubmitted that this be brought down to zero.
13. Elimination of CustomsDuty and Clean EnergyCess on Coal (2701 2090)for captive powergeneration. Chemical industry is significantly energyintensive. Being process industry, most ofthe units require quality and un-interruptedsupply of power. As a result most of theunits in the industry need to have captivepower plants. To help generate power atreasonable cost Customs Duty of 2.5% and"Clean Energy Cess of Rs.50/MT on coalshould be eliminated. Similarly 5% customsduty on fuel oil should be eliminated.
14. Elimination of CustomsDuty on Fuel Oil (27101950)
15. Tax free imports of R&Dequipments &consumables (asapproved by OST) to thetune of 25% of exportearnings should bepermitted. Currently, pharma companies are allowed toimport R&D equipment. This should beextended to other chemical industry also

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