Global crisis affecting Plastic industry drastically: AIPMA

The All India Plastics Manufacturers’ Association (AIPMA), 63-year-old apex body of the Plastics Manufacturers in India, is continuously monitoring the impact of global economic crisis on all industry sectors. Plastics Industry is worst affected. In India as well, it is as much a crisis of confidence as it is of liquidity. Lack of liquidity, high interest rates together with uncertainty has forced India Inc to either defer investment or avoid it totally.

This is a dangerous situation. If not arrested, the liquidity crisis will quickly descend into a solvency crisis. This volatile status and turmoil in the economy has exposed Plastics Industry to huge risk, and has adversely affecting not only the raw material manufacturers but also the processors, specially micro, small and medium sectors.

As usual AIPMA has taken initiative to discuss with All India Industry Captains and Association Heads to chalk out strategies for the industry and find out solutions to steer through the prevailing situation, the industry is subjected to at the current scenario. Plastic industry is facing severe demand crunch causing serious concern to the domestic industry.

Demand for major polymers was 10% lower in Q2 this financial year as compared to the same period last year. The slowdown in demand is particularly pronounced in the commodity segment. This slowdown in demand is adversely affecting the industry comprising of 15 raw material producers and approximately 50,000 processing units in the country with adverse impact on the employment of 4 million people associated with this industry.

There are multiple factors contributing to this southward slide in demand. While overall slowdown of the Indian economy is certainly one factor, this is not the only reason for current demand crunch. Because of their wide spectrum of usage, demand for plastics typically grows in multiples of GDP growth during the developing phase of an economy.

This had been the historical experience in other countries through their developmental phase. In India, demand in the past had been growing at 1.5 to 2.0 times the GDP growth. Thus, while we expect Indian economy to grow in excess of seven per cent this fiscal, even at the most conservative estimate, a negative growth of demand in last quarter has made the overall outlook rather gloomy.

One of the major factors is total tax incidence on plastic in India which is over 28% - perhaps the highest in the region. The 14% excise duty levied on polymers and articles of plastic makes plastic products (which are mostly products used by the masses) dearer to masses. At a time when inflation continues to remain a major concern for Indian economy, a reduction in excise duty on polymers and articles of plastic from the existing 14% to 8% will make plastic products affordable to common man and also provide a fillip to demand growth.

The rate of VAT levied on polymers and articles of plastic varies from state to state, with some states levying as high as 12.5% of local taxes, this consequently pushes the price higher. Levying a uniform VAT of 4% on polymers and articles of plastic across states will rationalize the state VAT structure and will also boost demand. Other factors threatening viability of Indian petrochemical industry are high cost structure, low duty protection and emerging avalanche of capacity in Middle East region based on highly subsidized feedstock.

All the above factors have created an adverse business environment where the survival of existing players and viability of future investment of Rs. 80,000 crores in this industry, mainly in the state as well as in the private sector, has become doubtful.

AIPMA appeals to authorities of Finance Ministry, Commerce Ministry and the parent Ministry, of Plastics Industry i.e. Chemicals & Fertilizers Ministry, to support Plastics industry to come out of the crisis. The Government has already announced Petrochemical Policy to increase the growth of Plastics industry. This is the time to accelerate the same.