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India:DTY makers affected by duty differentials |
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2005-3-25
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The effects of the budget are now been felt albeit negatively, by the manufacturers of large integrated drawn synthetic texturised yarn (DTY) manufacturers.
In the Budget 2005-06, Finance Minister P Chidambaram had announced reduction of excise duty from 16 percent to 8 percent for yarns while it remained unchanged for composite DYT producers.
Major players in the markets like IndoRama, Modern, Nakoda, Nova Petro, Sanghi, Parasrampuria and JBF now find their product losing out to independent DTY producers in the market, forcing them to consider substantial under-utilisation of capacities.
Industry watchers say that while integrated producers own partially oriented yarn (POY) capacities, the stand-alone units purchase POY to make DTY. Hence, integrated units, constituting 26 percent of the total DTY production of 8.24 lakh tonnes (worth Rs 7,600 crore at current prices), are unable to use the Cenvat credit on tax suffered at the input stage, while stand-alone units can avail of this credit. Thus they are burdened with additional tax incidence, and composite producers’ DTY is costlier to the spun yarn industry that consumes DTY by Rs 3 per kg.
In the man made fibre segment, the Budget rendered inputs like polyester staple fibre (PSF) less competititive to equivalent products like acrylic staple fibre (ASF). There was a 5 percent reduction in the customs duty on acrylonitrile (ACN), the raw material for ASF, while corresponding inputs for polyster chain like PTA and DMT attract the peak rate of 15 percent, benefiting domestic manufacturers Reliance, Mitsubishi and Indian Oil to accrue higher prices. At present, a 10% duty differenial exists between ACN and ASF, while PTA and PSF attract the same rate of customs duty.
Most of the 940,000 tons per annum POY manufactured in India is consumed in making DTY. Largest producer of POY Reliance has integrated POY-DTY capacity of 300 tons per day at the RIL-JCT plant. However, since this is quite lower than its stand-alone POY capacities, the company stands to benefit due to duty differential. Now, the companies which use substantial quantity of inhouse POY for DTY production get hit due to this anomaly in the budget. |
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