India raised its rate of import duty (Customs tax) on Compounded Rubber (HS 400510, 400591 and 400599) bringing parity with that on natural rubber (HS 400121, 400122 and 400129). As per the Union Budget proposals presented to the Parliament on 1 Feb 2023, the new MFN tariff, to be effective from 1 April 2023, will be 25% as against the currently levied rate of 10%.

This important policy intervention by the government was in response to the hue and cry against the alleged guised imports of Compounded Rubber in huge quantities. Manufacturing companies allegedly undertake guised imports by importing Compounded Rubber to take advantage of its lower import duty compared to natural rubber which attracts a 25% duty. Last few months have seen a few political aspirants emerging in the State of Kerala as the messiah of rubber farmers. They diagnosed that the imports of Compounded Rubber at lower tariff was the root cause of the unattractive domestic prices of natural rubber. With the support of the media, they succeeded in making the farming community believe that rubber prices will shore up if the central government raises the import duty of Compounded Rubber and bring the rate in parity with the rate levied on natural rubber. They managed public attention by organizing mass protests against the central government and the ruling political party at the Centre. The Union government has now heeded to their demand by raising the import duty of Compounded Rubber to 25% which is the rate of import duty applied on all dry forms of natural rubber.

Will this policy intervention bring any positive change in the domestic prices of natural rubber or the income of the farmers?

India imported 102,000 tons of Compounded Rubber during the first 11 months of 2022 (Jan-Nov 2022). Please see the table below:

Compounded Rubber constituted 16.5% of the total quantity of natural rubber, Mixtures of natural rubber (HS 400280) and Compounded Rubber imported into the country during Jan-Nov 2022 (i.e., 102,000 tons out of 620,000 tons)

Around 40% of Compounded Rubber imported into the country during 2021 came from countries such as the U.S., South Korea, Italy, Germany, and Canada which are not producers of natural rubber. Obviously, these were not guised imports for taking advantage of the lower import duty levied on Compounded Rubber. Moreover, India imported only negligible quantities of Compounded Rubber from Indonesia. Furthermore, Vietnam does not even produce or export Compounded Rubber at all. India imports Compounded Rubber in significant quantities from Thailand and Malaysia only among the major rubber producing countries (The following table establishes this point).

Source CountriesQuantity imported during 2021 (‘000 tons)
South Korea3.3

The government has done exactly what the farmers and their leaders adamantly demanded for. But the new policy WILL NOT influence the domestic prices of natural rubber. It WILL NOT contribute anything to the income of the farmers. This is because the manufacturing companies in India can still continue enjoying the lower duty of 10% by labelling the consignment as “Mixtures of Natural Rubber” (HS 400280). It means, the policy intervention WILL NOT help the central government either to realize more revenue by way of import duty. Now, the import of compound rubber will come down and that of “Mixtures of Natural Rubber” will increase.

To restrict the guised imports of natural rubber, India could have considered the policy adopted by China. China put a ceiling on the percentage of natural rubber contained in the Compounded Rubber imported into the country. The details were published a few months ago through another newsletter from the WhatNext Rubber Media International.