Among a number of issues addressed by this Report, three summarise the main areas of policy concerns.
One is in line with the statement of India’s Finance Minister regarding removal of inverted tariffs. In para- graph 117 of the Budget Speech,1 the Finance Minister stated that:
“I propose to undertake a comprehensive review of the rate structure over the next six months to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes.“ (emphasis added)
The inputs of Viscose staple fibre (VSF) are subject to positive import tariffs, but over 80% of the imports of core VSF enter India at zero tariff because of free trade agreements (FTAs) with ASEAN countries. The purpose of removing inverted tariffs is to remove the perverse situation where a country’s own policies provide negative protection to a product made domestically, reducing the competitiveness of the product (in this case, VSF).
This is doubly valid if the main competing economies have a more facilitating tariff regime for the input. The analysis in the Report shows that the actual situation is one where the main competing economies have zero tariff for the main input, dissolvable wood pulp (DWP), while India has a positive tariff on imports of DWP.
Second is the fact that demand for VSF in India is rising much faster than the average growth rate in other parts of the world. At present, the volume of India’s domestic production of VSF is adequate to meet domestic demand. However, given the reduced competitiveness due to policy and the strong rise in demand, by 2030, India’s volume of domestic production will be enough to meet only 70% of the domestic demand for VSF. Thus, 30% of the domestic demand in 2030 will be met from imports, a situation which will get worse if investment is not encouraged.
In effect, the situation in the future will be that instead of achieving the major national objective of increasing Atma Nirbharta, the industry will experience lower and lower levels of Atma Nirbharta. In this situation, the only way to move towards Atma Nirbharta is reduce operational costs to incentivise investment in the domestic VSF sector so that domestic production rises more than otherwise likely. Removal of the inverted tariff is obviously part of the solution leading towards greater investment in production of VSF in India.
Third is the immense growth of India’s imports of Viscose staple yarn (VSY) from China, such that 70% of India’s imports of VSY come from China. The immense growth of China’s VSY exports to India is evident from the fact that by 2023 India’s VSY imports from China had increased massively to become 30 times the level in 2016. China, the largest global exporter of VSY, now sells one-fourth to one-fifth of its global exports to India, strongly up from a low share of 1.1% in 2016. Addressing this situation will also need improving the competitiveness of Indian VSF and VSY production, which would be achieved, among others, through removal of inverted tariffs.