Plastic manufacturers face threat of closure
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Looking wishfully for an urgent help line
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— PHOTO: R. Shivaji Rao
BLEAK FUTURE: Plastic products on display at a shop.
Plastics have perhaps the widest possible application in day-to-day life. When international crude prices zoom and the prices of petroleum products get revised, little do people realise that dozens of other smaller and much bigger products also get affected. All of them are made from petrochemical products and the price rise hits them too.
The plastic manufacturers and converters depend for their raw materials on just three petrochemical plants — Reliance, Haldia, and GAIL. Between December 2007 and May 2008, there was a 20 per cent increase in price. But between May 1 and June 15, the prices have skyrocketed, with the major producers jacking up the cost five times in six weeks. As a result, there has been a 60 per cent increase in input costs to the manufacturers.
Low margins
Says Madan Surana, President, Tamilnadu Plastic Manufacturers’ Association (TAPMA): “Our industry has to absorb something like Rs. 20,000 crore in the increased cost of about 50 lakh tonnes of virgin material. We basically convert the material into goods. There is very little value addition and our margins are very low. We cannot be marking up our prices every week when the producers of petrochemical products revise their price. That is the whole problem.”
From cosmetics and fertilizers, to automobiles and ordinary plastic products, hundreds of goods depend on the petrochemical industries for raw materials. Mr. Surana says the domestic producers have a surplus in most supplies, but conveniently link it to international prices. There is also an anti-dumping duty on imports. “Unfortunately, they do not bring down prices when international rates come down. When we try to import the materials, they manipulate the domestic price and market and kill us with just one import.” But the convenience with the local suppliers is that they can cater to the limited demands of medium, small and tiny industries. India’s per capita plastic consumption is only 4.8 kg and this could easily go up to 10 kg.
Virtual cartelisation
TAPMA Secretary Karthikeyan Swami regrets the absence of any appellate forum or even a ministry that can intervene on their behalf. The continuing increase in the price of plastic products will also fuel inflation, he warns. The virtual cartelisation among the domestic players has played havoc with the small-scale industry. He insists that the situation was not so bad till the public sector IPCL was in the scene. With its sale to Reliance, a monopolistic situation arose, with Haldia and GAIL only following the lead given by Reliance in pricing materials.
Other than Tamil Nadu, Maharashtra, Gujarat, and Delhi also have many plastic manufacturers. But they do not seem to be in the kind of crisis that the small and tiny units in Tamil Nadu find themselves in right now. With direct employment to about 1.5 lakh people and indirect employment to, may be, three lakh, TAPMA thinks that the Central and State governments must also look at the socio-economic angle to its problem.
The association wants a regulatory authority to take charge of price and deal with a near monopolistic trade. The promised Competition Council can also look at the possibility of ‘undue profiteering.’ As polymer prices contribute significantly to inflation, it could also be given duty exemption.
Another suggestion is to set up a tripartite monitoring committee consisting of representatives from manufacturing/ converting industries bodies, government agencies and petro-products manufacturers to evolve a transparent pricing and distribution policy.
Working capital
Right now, working capital becomes the critical issue because none of them can afford to buy and store raw material at this cost. Without revising prices every week, the producers must go back to the monthly review of prices so that the manufacturers can also plan and programme their production and supply schedule on that basis.
After an earlier crisis sparked by the charge of pollution caused by plastics, the industry got some comfort from the State government, which agreed to lower the VAT to 4 per cent and bring down the costs to an extent. Now, the manufacturers look to the Centre to provide some breathing space to survive.
V. JAYANTH
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