Alkali: Cut customs duty on capital goods

To reduce the cost of captive power generation, seeks removal of import duty on all capital goods used for small and medium power projects.

Current status

The Chlor alkali industry in the country produces mainly caustic soda, chlorine and soda ash. Caustic soda is used in soaps and detergent industry, pulp and paper industry, textile processing industry, aluminium smelting, dyes and dyestuff industry, plastic polymers and rayon grade pulp. Chlorine, a co-product of caustic soda industry is very important for manufacturing of PVC, one of the five major thermoplastic commodity plastics. Besides this, it is used in disinfection of drinking water, pharmaceutical industry and various other chemical industries. Soda ash is used in glass industry, soaps & detergents, silicates and various other chemical industries.

Industry expectation

Power constitutes to a major cost for Chlor alkali industry. In order to bring down the cost of power import duty on all capital goods used for small and medium power projects should be made nil from current 7.5 per cent.

Most of the Caustic producers have installed their own captive power plants. To make power generation at competitive cost industry expects allocation of coal blocks should be made by the Government, import duty on all fuel oils and gas used for power generation should be fixed at 0 per cent from current 5 per cent and should put a cap on taxes levied by state governments viz. electricity duty, consumption tax, cess and sales tax etc. and whatever taxes are levied by the State Governments on Captive Power Generation and on the fuels used for power generation like Furnace Oil, LSHS, CNG & LNG, these should be made VATable so that the cost is free from cascading effect.

In India, most of the caustic soda industry has switched over to membrane cell technology. While the plants are imported at 5 per cent import duty, the spare parts still attract 7.5 per cent customs duty plus CVD and 4 per cent SAD. It is suggested that since these plants are not manufactured in India, the customs duty on spare parts used for maintenance of these existing plants should also be reduced to 5 per cent.

Duty structure

Industry expects that the Insecticides Act should not apply for the import of Barium carbonate, which is used as a raw material for Caustic Soda. The industry imports Barium Carbonate, which comes under inorganic chemicals for industrial purposes for the manufacture of Caustic Soda.

Analysts/market expectations

Rationalization of customs duty at 5% for both membrane cell technology plants (5% now also) and for spare parts used in membrane technology plants (higher at 7.5% now) is likely.  But it is unlikely that demand for coal allocation to chlor alkali captive plants shall be meet.

Stock to watch

Gujarat Alkalies & Chemicals, Kanoria Chemicals, DCM Shriram Consolidated

Outlook

Chlor Alkali industry growth is directly related to growth of economic activity in general. Although economic activity has slowed down due to global recession domestic demand still remains significant. Major concern of Chlor alkali is power cost and usage of chlorine (produced as by product of Caustic Soda). Most of Chlor alkali plants have built up their own captive plants. However benefits are taken away by various state level taxes. Any announcements improving the power situation for the chlor alkali industry in the budget shall be boon for the chlor alkali.