Dyes: Cut customs duty on inputs

The dyestuff sector is one of the important segments of the chemicals industry in India, having forward and backward linkages with a variety of sectors like textiles, leather, paper, plastics, printing inks and foodstuffs.

The textile industry accounts for the largest consumption of dyestuffs. From being importers and distributors in the 1950's, it has now emerged as a very strong industry and a major foreign exchange earner. India has emerged as a global supplier of dyestuffs and dye intermediates, particularly for reactives, acid, vat and direct dyes.

India accounts for 7% of the world production. Dyestuff sector has exported dyes & dye Intermediates worth more than $2.7 billion during 2007-2008. 

Industry expectations

• Remove customs on all types of fuels, low duty rate of 2% on basic building blocks like benzene, toluene, xylene, naphthalene, etc.; moderate customs duty on Intermediates of 5% and high duty rate on finished products of 7.5%.
• Seeks duty drawback on par with the present DEPB rates of 5%.
• Seeks to retain import duties on dyestuff at the present level to enable them to compete with the imported products.
• Income tax rules are amended to reduce the depreciation rate for general plant and machinery from 25% to 15%. At 15% depreciation, plant and machinery will become zero value only in about 18 years. The industry expects that the depreciation rate should be increased to 35% and if that is not possible at least to earlier level of 25% should be maintained.
• Seeks cut in corporate income tax to be reduced to max. 30% and removal of surcharge and cess.  Seeks cut in Income Tax for individuals and others to 25% maximum.
• The industry expects the fringe benefit taxes should be abolished totally. Even in rare cases, where the Government feels that under certain accounts heads, expenses of personal nature are included, this may apply only to large corporates and definitely not in case of smaller firms. Hence, firm with less than Rs.50 crore turnovers at least be totally exempted.
• The industry wants the service tax on overseas commission to get abolished.
• The industry expects a special fund be allotted for setting up a research and development center for the industry.

Analyst/Market expectations

It is likely that the duty drawback shall be made at par with the DEPB rates however it is unlikely that the demand for reduction on excise duty shall be met.

Stocks to watch

Atul

Outlook

The dyestuff industry is at a threshold of momentous change where individual companies can either grow and become stronger or can flounder in the changing environment.

The changed environment is due to various factors viz. legislations like REACH, CWC, etc or shifting of markets from the west to India and China; uncertainties regarding the US dollar.

There is an urgent need to encourage consolidation of dyestuff industry instead of fragmentation to meet global competition mainly from China, where big size of each unit is an advantage (economy of scale).  Textiles are the major users of dyes and pigments.  So, any benefit to textile sector will also indirectly benefit the dyes and pigment sector, in terms of better demand.