NEW DELHI, November 16: The Tata Economic Consultancy Services (Tecs), in its recent analysis on the Rs 3600 crore domestic chlor-alkali industry, has pointed out that the industry's operations has been hampered due to high production cost coupled with threats of imports from the US, Saudi Arabia and China.

The international price of caustic soda has declined by 60 per cent in 1996-97 from that in 1991-92. The import duty on caustic soda has also been reduced by 60 per cent in 1996-97 from that in 1991-92. This has facilitated cheaper imports and affected the competitiveness of the domestic industry which produces caustic soda as the principal product and chlorine as byproduct.

On the export front when caustic soda is in over-supply in global market, producers compete fiercely with each other for markets, driving down the profitability. Its cost is cross subsidised by realisation from chlorine in respective domestic markets of other countries. When the prices of chlorine rises in global markets, the international players resort to selling of caustic soda much below its cost price. But when chlorine is in over supply, the competition is much less severe, so the profitability is not undercut.

The report suggested adoption of membrane technology by the chlor alkali industry as a measure for energy saving, when the cost of electricity is higher. It also suggested that the industry should have captive power plants.

The report categorically stated that the domestic industry "is not operationally inefficient as compared to global competitors from the US, Saudi Arabia and China... the uncompetitiveness of Indian manufacturers arises due to factors which are not market related and are beyond their control".Besides, high cost of capital, high interests on term-loans and high costs of electricity, raw materials, overhead expenditure, the profitability of the domestic industry is severely pressurised due to the nature of industry being `caustic' driven whereas globally the industry is `chlorine' driven. This has an adverse impact on the Indian industry, since chlorine whose prices are low in domestic market cannot be made available due to hazards in transportation as against caustic soda which is easy to transport.

In India chlorine hardly contributes to ECU realisations. With chlorine prices being low, caustic soda has to realise more than 65 per cent of the production cost, for a chlor alkali plant to be economically viable in India.The severe threats of imports has been caused by highly `inequitous and punishing pricing strategy' adopted by the overseas compititors. The situation, therefore, calls for government intervention in one form or the other to rescue the domestic industry, the report stated.The cost of production in the competitor countries are significantly lower than in India. Suadi Arabia has low costs of inputs like electricity and capital. The state-owned Saudi Industrial Development Fund provides project financing costs at abysmally low interest rates. China also by not using the normative costing principles accepted worldwide charges abysmally low rates for electricity in Fujian province.In this context, the report suggested a level-playing field for domestic industry, reduction of duty on captive power plants, imported fuel oil and benefits of physical exports of caustic soda be made available for deemed exports to further the cause of import substitution without being detrimental to end-user industries.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.