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India: A national rubber policy is long overdue (20-04-2015)

 

And it must lay emphasis on interconnectedness, market integration and strategic commercial features  

And it must lay emphasis on interconnectedness, market integration and strategic commercial features

The constitution of an expert committee by the government to formulate a national rubber policy (NRP) deserves attention for two important reasons: the first ever attempt to draw a blueprint for the sustained growth of the rubber sector; and the serious challenges posed by growing imports of natural rubber (NR) and rubber products. The daunting task is contextualising the compulsions for an NRP in the backdrop of changes during the past two decades of trade policy reforms.

A distinguishing feature of India`s rubber sector since the mid-1930s had been a high degree of interconnectedness among the constituent segments due to specific historical, structural and regional factors. The interconnectedness rooted in the domestic market was nurtured for achieving self-sufficiency and import substitution in the post-Independence phase. The development of a captive domestic market and a protected policy regime ensuring stable and remunerative prices sustained the tempo of growth in NR production during 1947-91. Import intensity of NR consumption was less than 4 per cent at the time of trade policy reforms in 1991-92.

However, growing exposure to external competition through the multilateral and RTA routes during the past two decades left serious strains on the harmonious relationships prevailed in the rubber sector. Today, India is the fourth largest consumer of rubber behind China, the US and Japan. The estimated total value of output of India`s rubber products manufacturing industry was 7,03,079.5 million during 2012-13.The maturity achieved by the industry is also evident from the positive balance of trade achieved since the early 1970s.

Survival strategies

An important outcome of the trade policy reforms has been a steady increase in the imports of rubber and rubber products and the resultant survival strategies characterised by an explicit conflict among the constituent segments to maintain the margins. While the contentious issue of the adequate supply of NR at mutually acceptable prices had been masked by the protective trade policies during the pre-reforms phase, the current imbroglio led to a breakdown of the linkages within the rubber sector. The unprecedented surge in NR imports attracted wider attention due to its impacts on more than one million dependent households and the regional dimension. NR imports into the country grew at a rate of 23.07 per cent during 2004-05 to 2013-14.

The two explicit outcomes of growth in NR imports are: (i) an increase in the import intensity of domestic NR consumption to more than 36 per cent; and (ii) the gradual replacement of conventional sheet grades of NR from the domestic market by block rubber with important implications on the farm gate price. A major casualty of the convergence of the markets has been a fluctuating farm income leading to staggered replanting and the resultant growth in the share of area under senile trees to the extent of around 50 per cent in the total tapped area in the country during 2013-14. Alongside, the steady increase in the share of synthetic rubber (SR) in total domestic rubber consumption and expansion of its indigenous production capacity during the past one decade are bound to tilt the prevailing equations. The dominant automotive tyre sector has also been undergoing important changes consequent to a higher annual rate of growth in the total value of tyre imports (28.88%) than that of exports (17.21%) during the past one decade. The higher growth rate in rubber products imports are indicative of: (i) a widening domestic market; (ii) weaker links in the indigenous rubber products manufacturing industry; and (iii) a gradual displacement of the domestic rubber sector. This calls for paradigm shifts in policy approaches.

External trade

India`s rubber sector has been confronted with a negative balance of trade since 2007-08; in 2013-14 it was $751.04 million. Asean accounted for more than 70 per cent of India`s negative trade balance in rubber and rubber products over the past five years. Apparently, a persistent deficit supply of raw materials has been the Achilles heel in India`s external trade in rubber and rubber products since Independence. Hence, changes in the composition of the rubber products manufacturing industry, trends in the external trade, and the availability of all kinds of rubber from both internal and external sources are the critical factors for evolving a comprehensive policy framework.

A blueprint for an NRP must recognise three important elements of the rubber sector: (i) the interconnectedness; (ii) challenges of market integration; and (iii) strategic commercial importance of NR. An essential prerequisite for conceiving and implementing an NRP is the consolidation of existing organisational networks related to the rubber sector. The segmented policy approaches for raw materials, rubber products, external trade and export promotion measures will undermine a comprehensive understanding on the interconnectedness of the issues.

A regular mechanism for monitoring the trends in all the constituent segments by a centralised agency will certainly enable the addressing of the challenges of market integration more effectively. The primary objective of the proposed consolidation of the organisational networks is planning, control and technical support for reinforcing interconnectedness, and to ensure a sustainable growth path to the rubber sector.

The writer is the joint director of the Rubber Research Institute of India.

- The Hindu

 

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