LIBERALISATION MEASURES INITIATED IN THE INDIAN RUBBER MARKET

2.1. Introduction

The Indian economy has been undergoing tremendous changes since

1991 by dismantling various controls and regulations as was done in China.

South Korea. Malaysia, Indonesia, Thailand, Latin American Countries and

Russia as part or' Structural Adjustment Programme (SAP) of the International

Monetary Fund (IMF). A number of developments have taken place in the

Indian rubber market. These new developments are treated as the measures

initiated by the government to liberalise the Indian rubber economy under

SAP. All these measures have the effect of changing existing rubber market

in some wa) or other. This chapter deals with the measures taken by the

Government of lndia to liberalise the rubber market since 1991.

2.2. Liberalisation Measures

-1 he measures taken by the Government of India in the NR sector since

1991 as part of the SAP includes import of polyurethane, import of new and

used tyres. import under advance licence scheme, drastic reduction in the

import duty of natural rubber, suspension of Buffer Stock Scheme, STC's

passive attitude towards rubber procurement and curtailment of subsidy to

rubber growers. 7 hese measures are described below.

2.2.1 Import of Polyurethane

Polyurethane is a chemical substance used as a substitute for rubber

latex. This material is used widely for the production of foam cushions and

mattresses. clothes, upholstery materials, packing materials etc. The use of

polyurethane can exert adverse impact on the consumption of latex as it is

widely used for the production of foam cushions, mattresses etc.

On the basis of basic properties, polyurethane can be divided into seven

forms. They are -

i ) Flexible polyurethane form

ii) Rigid polyurethane form

iii) Rigid integral polyurethane form

iv) Semi-Rigid polyurethane filling form

v) Elastic integral skin polyurethane form

vi) Polymythane Elastomers and

vii) Polyurethane coating materials.

The most widely used form of polyurethane is flexible polyurethane. It

is estimated that flexible polyurethane form constitute 52% of the total

polyurethane used all over the world in 1995.

In India. polyurethane is imported under two different EXIM codes.

They are:-a)390950 00 and b)391690 05. Table 2.land 2.2 give year-wise,

quantity-wise and country-wise import of polyurethane fiom 1996-97 to 1999-

2000 under two EXIM codes as mentioned above. India import

polyurethane nrainly from Germany, Italy and the USA. The import of

polyurethane started from 1996 onwards and the quantity imported is steadily

increasing and it is a clear-threat to natural rubber in ~ndia'. It can be seen

fiom the tables that the import of polyurethane having the EXIM code number

390950 00 has increased from 1157 tons in 1996-97 to 1376 tons in 1998-99.

But the import of polyurethane having the EXIM code number 391690 05 has

decreased fiom 15.2 tons in 1996-97 to 0.48 tons in 1998-99.

Table 2.1:-Import of Polyurethane Under Exim Code 390950 00

-~ -- - .

Souru3Parliamentary D ~ e s t , Business information Bursau, New Delhi.

~ ~ . . ~ I Fro~n the reply Bvell by the IJnion Commmce and Industry Minister Shri. Murasoli Maran for the unstarred questionNo.313 of Shri P.C. Thomas MP on 25-02-2000 in the Indian parliament, it is clear dlat the union (iovemmmt has no intention to ban or restrict the impon of polyurethane on the ground that the quantity of polyurethane now imported is not substantial enough to pose a threat to natural ruhher.

Table 2.2:-Import of Polyurethane Under Exim Code 391690 05 ( ~ t ~ in Tons, Value in Rs. Lakhs

1996-97 1 1997-98 r - - I 1 8 - I 1999-2000 --I

I I

I Countries ; QG I Value 1 Qty /Value / Qty I Value I Qty (value L- -~

. ..

. Singapore , .

USA 1 Others -- 1 . - - . .. . . - . ! Total . - -~ - ~~ -~~~

~~A !1~.2'149.80 1 0.271 j 0.58 10.48 1 1 . 2 0 j 4 1 1 0 . 4 9 - , ~ .,

SoutcaPafliamentary Digest. Eusiness Information Bureau, New Delhi.

2.2.2 Import of Used Tyres

The import of used tyres was permitted freely in the EXIM policy

w.e.f. 1.4.1997 when tyres were put in the Open General Licence List along

with 400 other items2. However, after considering the representations from

various quarters especially from the Government of Kerala and the Automotive

Tyre Manufacturers Association (ATMA), New Delhi, the Government has

prescribed a m~nimum c.i.f. value per tyre to restrict indiscriminate import of

such tyres w.e.f. 8-8-1997.

Used tyres at present can be imported freely only if c.i.f. value is US

$175 and a b o ~ e per tyre for buses, lorries, bigger size vehicles and light

commercial vehicles and US $25 and above for passenger automobile vehicles

including two wheelers, three wheelers and personal type vehicles3.

Reply given by the llnion Commerce and Industry Minister Shri. Murasoli Maran for the starred question No.39 of Shri P.C. 'nlomas MP on 25-02-2000 in the Indian parliament and published by the Business Informaion Bureau New Delhi.

From the reply given by theuunion Commmce Minister Shri. Ramalaishna Hegde for the unstarred question No.3517 of Shri. Mullappally Ramachandran on 1 0 ~ July 1998 in the I.ok Sabha. the Government made it clear that it has no intention to ban on restrict the import of used mes.

'Table 2.3 shows the import of used tyres from 1996-97 to 1998-99 of

the post-liberalisation period. From the table it is clear that the import of used

tyres are continu~ng unobstructed from year to year to the detrimental effect of

natural rubber in India. The import of used tyres has increased from 634 in

1996-97 to 6207 in 1998-99. It shows a nine fold increase in the import of

used tyres. The used tyres has been imported mainly from Germany, Japan,

Malysia and thr UK. The Government also made it clear that it has no

intention to ban or restrict the import of used tyres4

Table 2.3:- Import of Used Tyres (Qty in Nos., Value in Rs. Lakhs)

-.

1996-97 1997-98 Qty lvalue

7 / 0.04 -- ~ - U -2

Netherland German - ~ - F.Rep

Japan Korea Rp Sri Lanka

UAF -

Malaysia ~~~~ ~~~ ~ - + - - -.

UK , -- haila and

Others -- .- ----~ - -

Total I 16% ( 2.23 14657 1 18.53 (6207 ..L i 54.64 ~~~~~ 1 ! ~6brce-~arfiarnentary Digest, Business Infonnatbn Bureau, New Delhi.

2.2.3 Import of New Tyres

Another important policy decision of the central government in the

liberalisation era, affecting the natural rubber sector in India is the permission

for importing new tyres". The import of new tyres was allowed w.e.f. 1.4.97.

According to thr present EXIM policy tyres were put in the free list of import.

. ~ - -~

%eply giver~ by the ilnion Commerce Minister Shri.Ramakrishana Hegde for the unstarred question No.3517 of Shri.Mullappally Ramachandran MP, on 1@ July 1998 in the Lok Sabha.

' Rcply give11 by the linion Comnerce Minister Shri. Mwasoli Maran for the starred question N0.39 ol'shri.P.C. Ihoms V.P. on 25" February 2000 in the Lok sabha.

In order to discourage indiscriminate import of new tyres, no steps have been

taken by the Government so far. As a result, the consumption of natural rubber

in India is decreasing to the effect of decreasing prices of natural rubber. Table

2.4. shows the import of new tyre for the period from 1996-97 to 1998-99. It is

very clear that the unobstructed import of new tyres are taking place year after

year since 1996 according to the liberalised policies pursued in the rubber

sector. The import of new tyres have increased tiom 390817 numbers in 1996-

97 to 489375 numbers in 1998-99, registering a growth rate of 25%.

Table 2.4:lmpot-t of New Tyres (Qty in Nos., Value in Rs. Lakhs)

- ~ [ -- ountry 1996-97 ~ - 1 1 S ~ ; 9 9 [---I 1 ~'-~ ,

i . .~ Q!?- + ~ . ' i a l u e Value Value

Belgium - 621 83.91 9531 87.73 543 71.92 I China r.105956+ 140.21 70756 63.5 5396 57.6 L -

I France t - - . 3813 1-427.06 1 18471 P z . 8 6 - j 42634 ' 750.36 1 G e r m F , n e ~ 1 6808 1 247.1 2l630 5 3 3 =

- . - - - . - r Total import ~- i - 3 9 ~ i i ~ ~ \

1.- - - SourcgPadmmentary Digest, Business Information Bureau, New Delhi,

2.2.4 Import Under Advance Licence Scheme

Import of rubber in India has been done through the STC since 1968.

Rubber manufacturers who export their products were allowed to import

natural rubber in large quantity under advance licence scheme. This facility

was granted as an export promotion measure. Imports under advance licence

are made free of Import duty. Under this scheme the tyre companies are

entitled to lmport rubber against export of tyre at the rate of 53 kgs., for every

100 kgs., of tyre and tubes exported. Of this, 9 kgs., can be synthetic rubber

and the rest natural rubbep.

Import under ALS has created an imbalance in supply-demand. When

51640 tons of natural rubber was imported during 1995-96, supply-demand

gap was only 18000 tons7. During 1996-97, 19770 tons of NR was imported

when the supplq-demand gap was only about 12000 tons. Again, in 1997-98

import of rubber under this scheme was 29389 tons when there was over

supply of over 12000 tons8.

As a result of this pattern of import, the accumulated stock of NR in

India increased from 69550 tons in 1994-95 to 192570 tons at the end of 1999-

2000'.

From February 1999 onwards the government has temporarily

suspended the Import of NR under ALS and asked the licence holders to meet

their requirements bq purchasing NR from STC which has procured it from the

internal market

2.2.5 Unabated Import of NR even after the Cancellation of ALS

Since ALS has a normal validity for 18 months after issue and can be

extended twice for a duration of six months each, import of NR has continued

even after the imposition of ban on import under ALS in February, 1999. It is

noted that 20207 tons and 8572 tons of NR have been imported in 1999-2000

and 2000-200 1 respectively'0.

n George, ( 1999),p 23

2.2.6 Drastic Reduction in the Import Duty of Natural Rubber

Duty on import of natural rubber was introduced for the first time in

1957. initially the duty was 5% which was enhanced to 10% in March 1961

and again to 22% in April 1963. In February 1965 the duty was hrther revised

to 32%. In 1980 the duty increased to 45% and again increased to an all time

high of 60% in 1983".

On liberal~sing the rubber sector in 1991, the import duty had reduced to

30%. It was again reduced to 25% and 20% in 1993 and 1996 respectively.

From 1999-2000 onwards the duty was fixed at 25% in accordance with the

WTO Agreement.

2.2.7 Suspension of Buffer Stock Scheme (BSS)

Buffer Stock Scheme was started in February 1986 in order to stabilize

the price of N R In such a way that it is beneficial to both growers and

manufacturers. It was basically introduced as an important device for market

intervention through the STC".

The Scheme was successful in avoiding wide fluctuations in the price

of NR. It was in operation effectively till 1991. But on 22nd February 1994, the

Scheme was suspended in accordance wich the liberalisation policies.

Through the suspension of BSS, the government made it clear that i t has no

intention to intervene in the rubber market, to stabilise the price. But the price

will be determined by the forces of demand and supply.

2.2.8 STC's Passive Attitude Towards Rubber Procurement

S'I'C' was brought into rubber sector in 1968, for the effective market

intervention, when the price shows wide fluctuations. It is supposed to procure

excess rubber from the market, when price is decreasing. It is noted that rubber

I I Burger et.al( 1995)p. 172

l 2 Details show in chapter-7, p.171

procurement was done effectively and successfully by STC during the pre-

liberalisation period and it was helpful to avoid heavy price crash. During

1970s the entire surplus of 26424 tons of NR had been procured.

But the picture of rubber procurement is different in the post-

liberalisation period. During 1997-98, STC procured only 9596 tons of rubber

when the excess rubber was 52000 tons. Procurement was only 19831 tons in

1998-99 when the excess rubber touched the level of 89375 tons. In the year

1999-2000, the excess rubber in the market was 87885 tons but STC procured

only a nominal quantity of 20000 tons.

Table 2.5 shows STC's rubber procurement and its percentage to the

accumulated surplus rubber in the market during the pre and post-liberalisation

periods.

Table 2.5:-STC's Rubber Procurement

- ~

Pre-Liberalisation Period I Post-Liberalisation Period Year I Rubber [Surplus in1 O h I Year I Rubber I Surplus in %

Procurement in tons

It can be observed from the table that rubber procurement had effected

by 93% of the surplus rubber during the pre-liberalisation period. Whereas,

1977-78

1 2Bc24

during the post-liberalisation period, STC has procured only an average of

2 1 % of the surplus rubber.

( 1997-98 1 9596 152000 118

tons

This trend shows the gradual withdrawal of STC and the unwillingness

Source-Lalithakumari and Jom, (2000),p.592

28519

of the government to intervene in the rubber market in the light of

liberalisation.

Procurement in tons

ions

93 199899

1969-00

19831

200W

89375

87885

22

23

2.2.9 Replacement of QBALS with VBALS

Advance 1,icence scheme was being implemented in two ways such as,

a) Value Based Advance Licence Scheme ( VBALS ) and b) Quantity Based

Advance Licence Scheme ( QBALS).

Under VBALS, there is no ceiling in the quantity of material that can be

imported by a l~cence holder. Maximum import is fixed on the basis of the

value of material and it will be specified in the licence. But under QBALS

maximum import is fixed on the basis of quantity and value will not be

considered.

In 1998, the government introduced Value Based Advance Licence

Scheme in the place of Quantity Based Advance Licence Scheme.

Consequently, rubber goods manufacturers have been granted with more

opportunities to import natural rubber in larger quantities. In 1998, 3 1823 tons

of rubber have been imported. But it was 16923 tons and 2861 1 tons in 1996

and 1997 respec t i d y " 2.2.10. Change in the Government Policy Towards the Price of NR

In India. domestic price of NR had been statutorily controlled by the

government from May 1942 to January 1991 with a view to maintain steady

development of natural rubber industry. NR price was controlled by fixing

minimum or maximum prices or by fixing both the prices. It shows that, the

govemment was very particular in stabilising the price, beneficial to both

growers and manufacturers.

From 1991 onwards the government gave up the policy of fixing

statutory price but started fixing benchmark price which has no statutory

backing. Market interventions of different forms devised by the govemment

were cancelled one by one since 1991. During the post-liberalisation period. it

is not the policy of the government to control the price of NR but leave it to the

forces of demand and supply'4.

2.2.11 Curtailment of Subsidy to Rubber Growers

In order to boost the production of rubber in India Replanting Subsidy

Scheme was introduced in 1957. Under this scheme, subsidy was given only

for replanting. In 1980-8 1 a new scheme called Rubber Plantation Development

Scheme (RPDS) was started under which subsidy has been given to re-

plantation as well as new plantations.

During the period from 1980-81 to 1984-85, subsidy was given at the

rate of Rs.5000 per hectare in the small holding sector and Rs.3000 per hectare

in the estate sector. A slight modification was made in the scheme during the

period from 1985-86 to 1989-90 to the effect of giving subsidy at the rate of

Rs.5000 per hectare up to 5 hectares in traditional areas and Rs.5000 per

hectare to all growers in the non-traditional region. The same rate was in

operation &om 1990-91 to 1992-93. It is to be noted that the benefit of subsidy

had been limited to five hectares in traditional areas of rubber production.

The rate of subsidy was again modified during the period 1993-94 to

1996-97 to the effect of limiting the benefits only for two hectares in

traditional regon and up to five hectares in non-traditional region.

Accordingly, subsidy was fixed at Rs.8000 per hectare up to two hectares in

traditional region and Rs.8000 per hectare up to five hectares in non-

traditional region . After a relentless representation to the Central Government

about the inadequacy of subsidy from various quarters, the subsidy rate has

been increased for the period 1997-98 to 1999-2000. Accordingly, subsidy

l4 While giving reply to the ummned questim No.806 on 3/12/1999,Indusny Minister,Shri.Murasoli Maran made it clear that NR is an industrial raw material and its price is determined by demand and supply, Therefore, government has no intenticm to fix floor price to stabilise the price of it. The same reply was repeated to mtarred question No. 5406 on 28/4/2000.But under the Kerala High Court directive, the Union Minishy of C m e r c e has announced a minmum suppat price of Rs.32.09 and Rs.30.79 a kg. of 16s-4 and 5 grades of NR respectively on 13' septanber 2001.

was given at the rate of Rs. 18000 per hectare up to two hectares in traditional

regions and Rs.22000 per hectare up to five hectares in non-traditional

regions. Again, Rs.18000 per hectare was allowed for &rowers having five to

twenty hectares of land under rubber cultivation in non-traditional region.

But from I " April 2000 onwards the amount of subsidy has been

reduced as thllows:

Rs. 12000 per hectare up to two hectares in traditional areas, Rs. 16000

per hectare up to five hectares in non-traditional areas and Rs.12000 per

hectare for growers having five to twenty hectares of land in non-traditional

regions.

It can be seen that subsidy scheme has been subjected to a number of

modifications in the post-liberalisation period to the effect of decreasing the

amount of subsidy.

Table 2.6 shows the subsidy given to rubber growers in India from

1980-81 to 2000-01.

Table 2.6:-Subsidy to Indian Rubber Growers r-- - v I Perlad Amount of Subsidy 7 r 1980-81 to 1984-85 +=000 per hectare for small holders and Rs.30M) per hectare for estate I

- XCtor. 2 1985-86 to 1!%li-<3 k 5 ~ 0 0 & hectare up to 5 hectares in traditicmal areas and ~s-id00 per

'hectare without any upper limit in non-traditional areas. - - - - --.+- i I

1993-94 to 1996-97 Rs.8000 per hectare up to 2 hectares in traditional region and Rs.8000 pe7 - ~

I h a a r e up to 5 hectares in non-traditional region. I 1997-98 tof9%:2000 k ? l 8 0 0 0 pa heclare up to 2 hectares in traditional region and Ks.22000 i

per hectare up to 5 hectares in non-traditional region, Rs.18000 per I I - --

I hectare kom 5 to 20 hectares in nm-traditional regim. 1 From ~ ~ r i l 2 0 ( ~ , Rs. 12000 per hectare up to 2 hectares in traditicmal region, Ks. 16000 pa 7

onwards ' ht~tare up to 5 h-es in nm-traditional region, k.12000 per hectare lio~n 5 to 20 hectares in non-traditional region.

. . . - _-J- !

--/ Souxe: Srafistic_~ und Plunmng Lkpf., Rubber B d Konayam

2.2.12 Reduction in the lmport Duty of Synthetic Rubber (SR)

Lmport duty on SR has been reduced considerably since 1991. During

1980s effective rate of Styrene Butadiene Rubber (SBR), the most common

form of SR, was 135.75% including basic duty of 60%, auxiliary duty of

45%and Coun~ervailing duty (CVD) of 30.75%". Again the rate had been

increased to 141.5% including basic duty of 65%, auxiliary duty of 45% and

CVD of 3 I 5% In 1993'". But the effective rate has been drastically reduced to

49.43% In 1999 according to the commitment with the WTO Agreement. The

Effective rate so fixed includes basic duty of 40% and special customs duty of

4%".

As a result 102185 tons of SR, the highest quantity of SR in the history

of Indian rubber industry, had been imported in the year 1998-99". The low

effective rate of 49.43% will attract the manufacturers to import more SR when

the domestic prlce of natural rubber increases.

2.2.13. High Import of Rubber Products

With the relaxation of import regulations and reduction in import duties,

Indian rubber market is flooded with large quantity imported rubber goods

such as tyre. tubes, flaps, belting, textile fabrics coated with rubber, hygienic

and pharmaceut~cals, latex foam sponge, hoses, ebonite etc from China, Korea,

Thailand, Indonesia. Table 2.7 shows the value of rubber products imported

from 1975-76 to 1998-99. It can be seen from the table that import of products

in 1998-99 is 76 times more than the import in 1975-76. This high import

reflects, the impact of liberalisation and globalisation policies pursued by the

Government since 199 1.

15ALRIA, (1987),pp.114-115

l6 AIRIA, (1993). pp.97 - 99.

l 7 Ravindran, ( 1999).p3

l8 Rubber Board, (20(X)).p36

' Source-Rubber BwrdQ000),pp.61to65

Table 2.7:-Value of Imported Rubber Products

2.2.14. Membership in the Regional Trade Block

p i T

Mutual agreements and understanding among the members of trade

blocks and regional associations are also influencing the export and import

aspects of NR. Following two agreements are to be noted in this regard.

Rs. / %growth 1

a) Bangkok Agreement and

b) SAARC Agreement.

2.2.14.1. Bangkok Agreement

India. South Korea, Bangladesh and SriLanka are the signatories to this

Agreement. These countries agreed to exporb'import among them goods at a

concessional rate of import duty. The agreement follows the guidelines set by

Economic and Social Commission for Asia and Pacific (ESCAP). The

agreement is basically aimed at Asian trade expansion through regional co-

operation among the member countries. Under this agreement, every member

country gives a list of items for giving tariff and non-tariff concessions to other

participating countries. Natural rubber is one of the items to which concession

is allowed for its import. Table2.8 shows rubber and rubber products covered

under this agreement by India.

Table 2.8:-Concessional Customs Tariff under Bangkok Agreement

Giving Countr) import Duty p- - -

Du % INDIA t Carbon black 3 2 27

2.2.14.2. SAARC Preferential Trading Agreement (SAPTA)

The signatories of SAPTA in April 1993 are Bangladesh, Bhutan,

India, Maldives, Nepal, Pakistan and Sri Lanka. The member countries ageed

for low tariff. liberal non- tariff and direct trading measures to be followed for

the trading activities among them under the SAPTA. Table 2.9 shows rubber

and rubber products covered by the participating countries for concessional

import duty. From the table it can be seen that India agreed to allow

concession in import duty ranging fiom 1.5% to 20% on rubber related goods

under the SAPTA. It will have direct influence on the consumption of NRin

India on increasing import of rubber goods.

L ~: i

1 Natural rubber

Pneumatic tyre i

Inner tube I

__ . -

Sourcr-Mohanku~nar and %riun(1YYY),p35

Note- The duty rates are related to the year 1997-98.

From the table, it can be seen that India allowed concession on import

duty on natural rubber and its allied products ranging from 5% to 10% under

Bangkok Agreement.

22

42

42

17

3 2

32 -

Table 2.9:-Concessional Customs Tariff under the SAPTA

giving countries ~

I 2) Compound rubber I 22 1 20 I 1 3) Truck and bus tyre ! 1 42 1 22 I I I 4) Air craft tyre 1 5 1 3.5 I /Bhutan? 1 ) Tubes

I I

30 Nepal -1 q ~ a n r r a l rubber Maldives 1) Inner tube of rubber

25.5

F i i ~ l r a l Rubber I I

5

25

20

I) Carbon black

2.2.15 Impact of WTO Agreement on NR

4.5 23

18

I 2) Pneumatic tyres used in motor cycles

Indian rubber market has been influenced in various ways on signing the

10

WTO Agreement on 1" January 1995.(This aspect is discussed in detail in

9

Source- Mohankw?ar and Thorian,(1999), p.36

30

Thus it can be summed up that the Indian rubber market has witnessed

27

some unprecederlted trends and tendencies which are unimaginable in the past.

These new developments are the potential factors to influence the production,

consumption, price and marketing of NR in India. It can be seen that about

fifteen different measures were devised by the Union Government in the

Indian rubber market during the post-liberalisation period. Impact of these

measures on the domestic rubber market is analysed in the subsequent