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:
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 Countries | Quantity imported during 2021 (‘000 tons) |
| U.S. | 29.0 |
| Thailand | 27.2 |
| Malaysia | 26.8 |
| Indonesia | 5.3 |
| South Korea | 3.3 |
| Italy | 3.3 |
| Germany | 3.1 |
| Canada | 2.3 |
| Japan | 1.9 |
| Others | 9.8 |
| Total | 112.0 |
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.
You may be partly right but ignoring the issue of import of compounded rubber is not in the interest of Rubber growers . It is a step rightly demanded and taken . The reason being that compounded rubber does not come into any of the statistics of NR in the country as if it is not natural Rubber at all . It is no doubt a method to evade duties and push in rubber at cheaper cost which affects the farmers and puts their livelihood at stake . It was important to fix this anomaly and to recognise that compound Rubber is nothing but natural Rubber mixed with some fillers etc . Regarding your suggestion that India could do like china , yes it is possible but it is a huge exercise to check every consignment for the percentage of Rubber in the material . That kind of monitoring requires huge resources and may not be effective . Regarding the so called Rubber mixtures , we are aware that these kind of possibilities exist and these measures will be resorted to over come this new duty regime . As pointed out by you the major quantity is coming from malaysia and thailand which are ASEAN nations where an FTA is in force . Having declared that compound Rubber is nothing but natural rubber , it is important that imports coming from these nations should be in the duty free exclusion list and govt. should ensure that it is taxed at 25 % .
Overall I feel it is a good step in the right direction and the Board under its able leadership has been able to convince the govt regarding the issue and thanks to the government and the commerce and Industries minister in particular for taking immediate steps in this regard which I feel is the need of the hour .
We are aware that another set of challenges will come the moment , one set is resolved . We will have to confront the new challenges and growers of Rubber in kerala will again stand up again to bring up these issues as and when they come up and seek resolution .
Thank you, Mr. Santosh Kumar, for sharing your views. Much appreciated. In fact, it gives us another opportunity to clarify and spotlight the article’s focus:
1. The crux of the above article is NOT TO IGONORE the imports of CR. The article points to the total deficiency of the policy change in meeting its objective. The new tariffication looks so SMARTLY DESIGNED to ensure adequate loophole to continue the imports at 10% customs duty. Instead of labelling the product as HS code 4005, the importer just needs request his supplier to put it as HS 400280 in the bill of entry. He can continue importing the SAME MATERIAL at 10% customs duty. It means, new tariffication lacks any effective protection to reduce the imports. The same material can be imported at the same tariff as before. As such, it cannot reduce imports, cannot help domestic prices, or raise farmers’ income. Simply, it is of no use to the farming community, not beneficial to local traders or processors. Basically, it missed the key objective. This is the focus of the article. (“Good step”, “Right direction”, …. are fancy words often used by politicians to bluff the illiterate masses…..ha ha. A policy change should be evaluated based on its effectiveness in meeting the objective)
2. Import statistics of NR should include not only CR, but mixtures of NR (HS 400280) as well. Imports of “Mixtures of NR” should not be ignored. This point will be more glaring after a few months when we have the imports data from 2023 April onwards.
3. A system which is effectively practised by China over the past 8 years is not practical to India??? Why?? China does not test every consignment to ascertain the NR content. Each exporter is required to attach a test certificate issued by designated authority showing the percentage of NR in each consignment.