India Reboot @2020: How Indian Tyre Industry Can Be Supported To Haul A Post-Covid-19 World

India Reboot @2020: How Indian Tyre Industry Can Be Supported To Haul A Post-Covid-19 World

by Rameesh Kailasam - Apr 17, 2020 09:14 PM +05:30 IST
India Reboot @2020: How Indian Tyre Industry Can Be Supported To Haul A Post-Covid-19 World Representative image (Needpix) 
  • India is already self-reliant in tyre manufacturing and maintaining this advantage is critical for civilian and military needs of the country in a post-Covid-19 world.

The Indian tyre Industry is worth around Rs. 64,000 crore. With 41 tyre companies and 62 tyre manufacturing plants, this sector produces the largest variety of tyres in the world and employs two million people besides providing livelihood to another one million that includes retreaders, dealers, repairers etc.

Tyre manufacturing in India serves two segments viz. the Original Equipment segment—new vehicles fitted with tyres at the factories; and the Replacement segment—consumers buying replacements which accounts for 55 per cent to 70 per cent of the market by category.

While many of us may think of tyre manufacturing as just involving rubber, this sector uses over 200 raw materials that include natural rubber, synthetic rubber, nylon fabric, carbon black, steel wires, cords, rubber chemicals etc. This grants it extended livelihood dependencies. It is thus a critical sector for India and India’s growth.

Technologically speaking, tyres in India are of two type’s viz. bias and radial.

Bias tyres are best suited for Indian terrain due to their tough and rugged build and increased sidewall puncture resistance. They are typically preferred by defence, air force, construction, trucking, both big and small, agriculture, marine and utility space.

Radial tyres on the other hand have wires embedded and are best suited for smoother roads.

In 2016, India skipped BS-V and announced moving to BS-VI norms by 2020.

On 24 October, 2018, the Supreme Court held that no BS-IV vehicle would be sold or registered in India 1 April 2020 onwards. On 31 March 2020, India had over 1.7 lakh passenger cars and 14,000 commercial BS-IV unsold vehicles.

Due to the lockdown, the Supreme court on 27 March granted relief to automobile manufacturers to sell their unsold BS-IV vehicles within 10 days after the end of the lockdown period, but not in Delhi-NCR.

It is evident that the year 2020 is bound to have a profound effect on the automotive segment.

The effects of past policy issues besides those of the Covid-19 pandemic will be felt more by the tyre and the automotive component industry. The tyre industry estimates an impact of over Rs. 15,000 crore, assuming a five-six months period for revival.

Immediate regulatory reliefs and safeguards needed

1. Safeguard from anti-dumping: Post Covid-19, India will see a huge amount of dumping taking place. Import of tyres is under “Free Category” which adversely impacts production, sales and employment generation in domestic tyre plants.

This must be shifted to “Restricted Category” immediately.

An increase in basic customs duty on tyres from current 10 per cent to a 30-40 per cent would ensure effectiveness.

Dumping from countries such as China, Thailand etc. have already caused severe injury to the domestic tyre manufacturing industry.

2. Reduction in Import duty of natural rubber: For India to be a manufacturing base, all sectors need relaxations on import of raw materials that are deficient/unavailable. This sector needs urgent reduction in customs duty on Natural Rubber from existing 25 per cent to 5-10 per cent.

3. Radial vs Bias regulations: At the government level, there have been deliberations around technological choices around radial and bias tyres.

The answer though is straightforward, there should be mutual co-existence and the rest should be left to the preferences of customers instead of government mandates.

In India, 22 plants manufacture bias tyres and India’s defence, agriculture and mining procurements are all predominantly bias besides 70 per cent of the small-medium truckers of India.

While radial tyres come with their own set of benefits for the passenger car segment, bias tyres come with their benefits for their core customers. Hence, regulators need to have a balanced approach and not prescribe any mandates as it can also have a huge bearing on India’s self-reliant tyre industry during these testing times.

4. Labelling regimes: Regulators have also been dabbling on looking at a possible energy star equivalent labelling for the tyre industry which has worked previously for white goods and electronics space, both of which are more predictable.

The contribution of a tyre may, under lab test conditions, perform differently from real life conditions where dependencies run high on vehicle condition, spare parts driving conditions, driver capabilities, speed/load compliances etc. Hence, it is recommended that the government should look at these issues for other important sectors rather than starting with tyres.

5. Vehicle scrappage policy: Industry experts are of the opinion that such a policy can unlock the automotive sector and trigger economic growth besides reviving the automotive manufacturers and reduce carbon footprint.

While this is a welcome step, and was fully supported by the industry in a pre-Covid-19 world, this may require a sensitive and graduated approach in a post COVID world where forcible scrapping may not necessarily convert into forcible buying.

This is because affordability may hit small truckers who may require hand holding and access to capital.

Estimates suggest that many BS-II, III trucks are still plying on the road and around 12 lakh commercial vehicles are older than 15 years.

Hence, a well-structured, phased and graduated approach is needed to ensure that the benefit on one side does not disastrously hurt other sub-sectors of the industry.

Therefore, policy should carefully and practically consider manufacturing capabilities of manufacturers to meet the emerging demand that may come out of such scrappage numbers.

A well graduated phasing out plan will also help the replacement market eco-system of spare parts and tyres and will give them a much needed breather instead of pushing them out of business for next 1-2 years.

Sops and incentives

1. Direct taxes and incentives: Due to the lockdown and reduction in usage, sales and manufacturing, the industry would take four-six months to stabilise back and may require urgent sops in the form of reduction in import duties of raw materials and machinery used in manufacture of tyres, besides increased export incentives and reduction in MAT. Pending tax refunds must also be initiated to support cash flows.

2. GST: The GST council must consider reducing GST rates from 28 per cent to a lower slab and have uniform rates for tubes as well. All pending GST benefits and dues must be initiated to support cash flows.

3. Financial sop: The government must consider a financial package/grant/ relaxation for this sector for next three-four months to tide over the liquidity crisis to meet essential running costs like electricity, wages, statutory payments etc.

4. Essential Commodity: During the lockdown, essential commodities move on trucks and it would be a testing scenario if truckers did not have access to replacement tyres. Hence tyre business should be allowed to ensure availability as an essential commodity.

5. Strategic FTA: Since India has a large manufacturing base but a small share of the global market, strategic FTAs should be put in place to ensure access to markets that do not have a tyre manufacturing base.

India is already self-reliant in tyre manufacturing and maintaining this advantage is critical for civilian and military needs of the country, hence safeguarding and nurturing such sectors is the need of the hour.

Rameesh Kailasam is CEO, IndiaTech.Org. IndiaTech.Org is a non-profit, voluntary organisation that has the objective of creating a strong and vibrant tech and innovation ecosystem in India. The organisation serves as a platform for Indian Internet companies and their investors with the aim of ensuring a level-playing field for Indian entrepreneurs and promoting innovation. In doing so, IndiaTech.Org also intends to help fulfill the Indian government’s vision for Startup India and Digital India.

Get Swarajya in your inbox everyday. Subscribe here.

An Appeal...

Dear Reader,

As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.

We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

Become A Patron
Become A Subscriber
Comments ↓
Get Swarajya in your inbox everyday. Subscribe here.

Latest Articles

    Artboard 4Created with Sketch.