“Reducing personal income tax will help MSMEs grow their business and comply with government standards”

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As the world watches the China + 1 policy and developed countries like Europe and the United States see India as a sustainable supplier, the Indian government has set a goal to increase plastics exports fivefold country over the next five years. Arvind Goenka, Chairman of the Plastics Export Promotion Council (Plexconcil) and Managing Director of RMG Polyvinyl Pvt Ltd, lists the 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 EU budget 2022-23?
Indian plastic processors operate on a very thin margin which needs to improve 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) make profit margins and save some growth. Currently, import duties on polymers are abnormally high and those on value-added products very low. We have therefore raised our concerns with the Ministry of Commerce to increase import duties on value-added plastics. Import duties for most polymers are 7.5%, but the same is true for a few at 10%. But the import duty on value-added plastics is currently 10%. While a few value-added plastic products attract 15% import duty, however, the effective duty on these products is 5% as they are imported from countries with which India has signed a duty-free treaty – bilateral or multilateral (regional). ). Thus, barely 5-7% of imported finished products are subject to a net duty of 15%, the rest arrives in India at an import duty of 10% or less, similar to that of polymers. So there is no attraction for plastic producers in India. In the 2022-2023 Union budget, we foresee either a reduction in import duties on polymers or an increase in those on value-added products. More likely, import duties on value-added products will increase.

How do you view the import ban on used plastic machinery and the potential for their local production?
The government intends for the domestic plastics industry to import machinery with the latest technology to produce world-class products. The government seeks to promote ‘Made in India’ as a brand. Today, if we buy a Japanese or German product, we don’t think about its quality because we are confident in it. It’s a big vision. But in the current situation, when processors are facing financial difficulties, the government should allow good quality used plastic machinery to increase the production capacity of value-added products in India. So far, the government has not imposed any general ban on the import of used plastic machinery, but there have been some restrictions.

Large companies have reduced their debt and are therefore in better shape than MSMEs, despite the higher contribution of MSMEs to the growth of the Indian economy. What should MSMEs do to grow?
The effective tax implications for individuals, which may include small sole proprietorships or partnerships, are much higher, with corporate tax being low and income tax exorbitant. This is the reason why some units in the unorganized sector have not complied with the government’s GST tax requirements. There is therefore a need for the government to reduce income tax for individuals and small businesses, including LLPs (London-Listed Partnerships), which will help them organize their businesses, obtain working capital loans from banks and possibly to develop their activities. Looking at India’s annual value-added plastic imports worth $5 billion and exports worth $13 billion, we can conclude that the demand for plastics is very high here (including polymers, the value of India’s plastic imports is $20 billion). Thus, the import of value-added products of 5 billion dollars can be replaced by products of national origin, only if the local actors offer good quality products at a reasonable price. This will only happen if MSMEs grow. If a few producers grow and become even bigger producers, it will not change the dynamics of India’s imports and exports. Thus, a reduction in personal and small business income tax 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 and therefore help us conserve natural resources like trees and minerals. Therefore, we consider plastic as a green product. Due to consumer behavior and hence waste all over India, we consider plastics to be responsible for the pollution problem. So when we associate plastics with green, the first thing that comes to mind is recycling. To prevent the threat, however, biodegradable plastics are of great importance. Currently, biodegradable plastics are not used extensively in India due to high import duties, but their use can be increased.

What about the Production Linked Incentive Program (PLI) in polymers and plastics?
Indian plastics processors have asked the government to introduce a PLI program to help polymer producers increase their capacity. The government is highly unlikely to introduce a PLI scheme for the plastics processing sector. Recently, the government introduced a PLI program for technical textiles in which a few plastic products are incorporated. To avail the benefit of the PLI scheme, a minimum investment of Rs 100 – 200 crore is required. The investment limit must be much lower for a processing unit to benefit from the PLI scheme. Small players with an annual turnover of Rs 15-20 crore should also be considered for the PLI scheme. However, there is no buzz in government circles about the PLI program for plastics processors.

India’s plastics export target has been set at five times in five years. Where do you see the real potential – new geographies or innovative value-added products?
The suggestion to increase India’s plastics exports came just a few days ago. The Plastics Export Promotion Council (Plexconcil) is currently investigating potential areas. We also compare China’s plastics exports of $200 billion against India’s of $13 billion. We will come to a conclusion after analyzing the numbers. At first glance, India lags behind in terms of high polymer prices compared to China and other Asian countries. So India is competing with manufacturers in China and some eastern countries, but certainly not with manufacturers in Europe and the United States. We will come to a final conclusion after analyzing a host of other issues. We are working very quickly on that. We will soon present a brief to the government on our findings.

Has a sharp increase in logistics costs become an obstacle to India’s plastics export growth?
A sharp increase in logistics costs will certainly have a negative impact on India’s plastics exports. Since most shipping companies are based in India, there is not much our government can do to regulate ocean freight rates. However, to lighten the burden on exporters, a transport subsidy or transport compensation could certainly help exporters. But export subsidies may not be possible at this stage as the government is already stressed by the coronavirus (Covid) and other challenges emanating from the pandemic. In the last Union budget, Indian Finance Minister Nirmala Sitharaman announced that local companies would establish Indian shipping lines. In this budget, we hope that an attractive program will be announced so that Indian private entities will be encouraged to establish a local shipping line. India’s freight bills are estimated at US$50-60 billion and could increase this year due to high ocean freight rates. Thus, India can save billions of dollars in foreign currency 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 a saving grace. But no one can predict the future. Therefore, sooner a local shipping line is better for India.

What is your forecast for India’s plastics exports and imports for FY 2021-22?
India’s plastics exports are expected to increase by 30% and imports by 50%, a large part of which can be attributed to escalating prices. The industry wants to grow. Many opportunities have arisen during the pandemic with the China+1 policy, with all major buyers including Europe and the United States looking for alternative suppliers of which India is a forerunner. We receive new requests and make new customers. We all want to grow, but the profit margins are very low.

Will the proposed ban on single-use plastics have an impact?
The export segment is excluded from all these policy initiatives. We can produce anything for export. For domestic consumption, increasing the thickness of polythene carrier bags would result in a proportional increase in the cost of production. Domestic consumers will have to pay a slightly higher price.

How beneficial would plastics clusters be for domestic and export segments?
There will be common utilities such as effluent treatment plants. The transport of raw materials and finished products will also be easier and more profitable thanks to the existence of these factories within the same site. Therefore, the development of clusters will greatly benefit the Indian plastics industry. Suggestions have also been sent to the ministry to have a ready made facility where all large and small units are equipped with all the amenities like water, electricity and sewage; and be available for rent so that if an investor wants to set up a factory, he doesn’t have to spend his money on land and buildings. The investor, in turn, would use his fund to buy a factory and machinery with high capacity or modern technology for better productivity.

DILIP KUMAR JAI
Editor
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