Personal Taxes

“A personal revenue tax lower will assist MSMEs develop their enterprise and adjust to authorities norms.”

As the world looks to the China+1 policy and developed countries like Europe and the United States stare at India as a sustainable supplier, the Indian government has set a goal of quintupling the country’s plastics exports over the next five years. Arvind Goenka, Chairman of the Plastics Export Promotion Council (Plexconcil) and Managing Director of RMG Polyvinyl Pvt Ltd, lists challenges and opportunities in an interview with Polymerupdate’s Dilip Kumar Jha and Pratiksha Jaipal. Edited excerpts:

What do you think should be the priorities for the plastics industry in the Union budget 2022-23?
Indian plastics processors are working on a razor-thin margin that needs improvement to survive. The government has set a target to increase India’s plastics exports fivefold over the next five years, which will only be possible if micro, small and medium-sized enterprises (MSMEs) achieve profit margins and show some growth. Currently, import duties on polymers are unusually high and those on value-added products are very low. Therefore, we have raised our concerns with the Department of Commerce about increasing import tariffs on value-added plastics. The import tariff for most polymers is 7.5 percent, but for a few it is 10 percent. But the import duty on value-added plastics is currently 10 percent. However, while some value-added plastic products incur 15 percent of import duty, the effective duty on such products is 5 percent as they are imported from the countries with which India has signed a duty-free agreement – ​​either bilaterally or multilaterally (regionally). For example, only about 5-7 percent of imported finished products are subject to a 15 percent net duty, the rest come into India with 10 or less import duties, similar to polymers. So there is no appeal for plastics manufacturers in India. In the 2022-23 Union budget, we expect either the import tariffs on polymers to decrease or the import tariffs on value-added products to increase. Rather, import duties on value-added products will increase.

How do you see the import ban for used plastic machines and the potential of their local production?
The government intends for the domestic plastics industry to import state-of-the-art machinery to produce world-class products. The government is trying to promote “Made in India” as a brand. Today, when we buy a Japanese or German product, we don’t think about its quality because we believe in it. It’s a great vision. But in the current situation where the processors are financially tight, the government should allow high quality used plastic machinery to increase the production capacity of value-added products in India. So far, the government has not imposed a general import ban on used plastic machinery, but there are some restrictions.

Large companies have deleveraged and are therefore better off than MSMEs, despite MSMEs’ larger contribution to the growth of the Indian economy. What should MSMEs do to scale?
The effective tax impact on individuals, which may include small sole proprietorship or partnership organizations, is much higher as corporate tax is low and income tax is exorbitantly high. Because of this, some entities in the unorganized sector have failed to comply with government GST tax requirements. Therefore, there is a need for government to reduce income tax on individuals and small businesses, including LLPs (London-Listed Partnerships), which help them organize businesses, obtain working capital loans from banks and ultimately grow their businesses. Considering India’s annual import of value-added plastics worth US$5 billion and export of US$13 billion, we can conclude that the demand for plastics is very high here (including polymers, India’s plastic import value is US$20 billion U.S. dollar). Importing $5 billion worth of products can therefore only be replaced by domestic products if local actors offer high-quality products at a reasonable price. This will only happen if MSMEs grow. If a few producers grow and become even bigger producers, it doesn’t change India’s import and export dynamics. A reduction in income tax for individuals and small businesses will certainly help MSMEs to grow.

How can we promote green technologies in this sector and make plastics green?
Plastic products replace wood and metals, helping us conserve natural resources such as trees and minerals. Therefore, we consider plastics as a green product. Due to consumer behavior and associated littering across India, we see plastic as the culprit for the pollution problem. So when we associate plastics with green, the first thing that comes to mind is recycling. However, in order to prevent the threat, great importance is attached to biodegradable plastics. At present, biodegradable plastics are not widely used in India due to high import tariffs, but their use can be increased.

What is the status of the production-linked incentive system (PLI) for polymers and plastics?
Indian plastics processors have called on the government to introduce a PLI program to help polymer manufacturers scale up their capacity. It is highly unlikely that the government will introduce a PLI system for the plastics processing sector. Recently the government has introduced a PLI system for technical textiles incorporating a number of plastic products. A minimum investment of Rs 100 – 200 crore is required to take advantage of the PLI scheme. The investment threshold should be much lower for a processing unit to use the PLI system. Small players with an annual turnover of Rs 15-20 crore should also be considered for the PLI program. In government circles, however, there is no fuss about the PLI system for plastics processors.

India’s plastics export target has been set to increase fivefold in five years. Where do you see the real potential – new regions or innovative products with added value?
The proposal to increase India’s plastic exports came just a few days ago. The Plastics Export Promotion Council (Plexconcil) is currently investigating the possible areas. We also compare China’s $200 billion in plastic exports to India’s $13 billion. We will come to a conclusion after analyzing the numbers. At first glance, India is lagging behind in high polymer prices compared to China and other Asian countries. Therefore, India competes with manufacturers in China and some eastern countries, but certainly not with manufacturers in Europe and the United States. We will come to a definitive conclusion after analyzing a variety of other issues. We’re working on that very quickly. We will shortly submit a dossier on our findings to the government.

Has a sharp increase in logistics costs become an obstacle to the growth of India’s plastics exports?
A sharp increase in logistics costs will definitely have a negative impact on India’s plastics exports. Since most of the shipping companies are based in India, there is not much our government can do to regulate sea freight rates. In order to relieve exporters, however, a transport subsidy or transport compensation could certainly help exporters. However, export subsidies may not be possible at this time as the government is already dealing with the coronavirus (Covid) and other challenges arising from the pandemic. In the last Union Budget, India’s Finance Minister Nirmala Sitharaman announced that local companies would set up Indian shipping companies. We hope that an attractive program will be announced in this budget, encouraging Indian private companies to establish a local shipping line. India’s freight bills are estimated at US$50-60 billion which could increase this year due to high waterborne freight rates. This is how India can save billions of dollars in foreign exchange by establishing a local shipping line. The freight rate from China to Europe is higher than that from India to Europe and the United States, which gives us some relief. But nobody can predict the future. Therefore, more of a local shipping company is better for India.

What is your forecast for India’s plastics export and import for FY2021-22?
India’s plastics exports are expected to increase by 30 percent and imports by 50 percent, a significant part of which is due to price increases. The industry wants to expand. Plenty of opportunities have opened up during the pandemic with the China+1 policy as all major buyers including Europe and the United States seek alternative suppliers where India is a front runner. We get new inquiries and make new customers. We all want to expand, but the profit margins are very small.

Will the proposed ban on single-use plastic have an impact?
The export segment is excluded from all such political initiatives. We can produce anything for export. For domestic consumption, increasing the thickness of polyethylene carrier bags would lead to a proportional increase in production costs. Private customers have to pay a slightly higher price.

How beneficial would plastic clusters be for both domestic and export segments?
There will be shared facilities such as waste water treatment plants. The transportation of raw materials and finished products also becomes easier and cheaper because these factories are located on the same premises. Therefore, the development of clusters will bring great benefits to the Indian plastics industry. Proposals have also been sent to the ministry to have a plug and play facility where all units large and small are fitted with all the benefits such as water, electricity and sewage connections; and be available for rent so that if an investor wants to set up a factory, they don’t have to spend their money on land and buildings. The investor, in turn, would use his capital to purchase high-capacity plant and machinery or modern technology for better productivity.

DILIP KUMAR JHA
editor
dilip.jha@polymerupdate.com

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