Financial Daily from THE HINDU group of publications
Thursday, Jun 03, 2004
Industry & Economy
ICRA calls for dereservation of plastic industry
Sindhu J. Bhattacharya
New Delhi , June 2
WITH the demand rate for plastic products expected to slow down this year, prices of polymer resin (a key raw material) likely to remain high and investments moving southwards, the Indian plastic industry must gear up for some very tough times ahead.
And the situation is made worse by the fact that the existing reservation for small-scale manufacturers makes economies of scale nearly impossible to achieve by the organised players.
In its latest sectoral study, the market research agency, ICRA, has categorically said that unless dereservation is ushered in, this sector may suffer.
``The future performance of the organised sector would critically hinge upon the removal of reservation policy of the Government towards SSIs. The rationale for removal of plastic products from the list of products reserved for SSIs draws from possible economies of scale, use of modern technology and better ability of larger firms to export and compete with imports,'' ICRA said in a report titled `Indian Plastics Industry 2004'.
Take the case of investments, which saw a decline of 87 per cent last fiscal at only Rs 94.25 crore against Rs 176.42 crore in 2002-03. While investments have been declining since 2002 in this industry, the decline has been the sharpest in 2003-04.
Also, the fall in investments is far greater than the sales turnover growth the industry has shown during the period under review; sales grew by about 34 per cent to aggregate Rs 2,600.02 crore in 2003-04, as per ICRA's survey. And even as investments are declining in this sector, ICRA forecasts rise in polymer prices, thus hiking input costs as well. Raw materials comprise a whopping 63 per cent to the cost structure of this industry.
``The Indian plastic processing industry is dominated by a large unorganised sector which gets excise exemption and other fiscal concessions. In the absence of these fiscal concessions, the organised sector has not grown significantly,'' ICRA says while underlining the urgent need to dereserve the sector.
``Consequently, it (the organised sector) accounts for less than 15 per cent of the industry. The financial performance of the organised sector players continues to be unsatisfactory; the operating margins are inadequate to cover depreciation and interest costs and the sector, as a whole, has been making losses.'' The organised sector posted Rs 4.93 crore net loss last fiscal.
On the growth rate too, ICRA expressed concern, saying that though the demand for plastic products in the country is expected to grow, the growth rate may be slower at between 8 and 10 per cent per annum over the medium term.
The research agency is also upbeat on duties of polymers and plastic products being halved to 10 per cent over the medium term. ``This is likely to result in a reduction of 18.5 per cent in the conversion margins of the plastic processors. Simultaneously, the raw material (polymer resin) prices are likely to remain high over the medium term which is further likely to hurt the plastic processors,'' ICRA noted.
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