The STC and Kerala government's Rubber Cooperative and Warehousing Corporataion (RCWC) have already purchased an estimated 30,000 tonnes from the market. According to market sources, the purchases were made at the rate of about Rs 35 per kg.

The price of rubber has since slipped to less than Rs 25 per kg and hence the two outfits have already faced a notional erosion of Rs 30 crore on a conservative estimate. This estimate, however has not taken into account the holding and other costs incurred by the corporations.

If the commerce minister's announcement were to be implemented, the STC may have to dole out another Rs 50 crore, assuming the purchases were to be made at the current price of about Rs 25 per kg. The holding cost on fresh purchaseswill further add to the burden on the corporation.

If one were to club these purchases together, the average cost of purchase for the corporations would work out about Rs 31 per kg. The notional erosion in the stock purchased, would become real losses, should the corporations sell below this bench mark.

At the macro level, the fall in tax collections will give the government a hard time in keeping down the fiscal deficit to acceptable levels. Budgetary allocations to these corporations may not consequently increase much. This may restrict the corporations' ability to hold on to the stocks they have acquired.

Though fresh purchases may prop up prices in the short term, the long term repercussions may be difficult to manage. Offloading the stock in the market, when there is a revival in rubber prices will be a tricky task. If the corporations do not time their sale well, they may push prices down, thereby drawing further flak.

However, current indications seem to suggest that a revival is still faraway. The commercial vehicle industry, which accounts for a bulk of tyre production, is yet to show any signs of revival and tyre sales in the original equipment segment too are expected to remain sluggish. In fact, automobile industry sources do not expect any improvement during the first half of the current year. The second half too, may not witness any significant turnaround.

With freight still very weak, the demand for tyres in the replacement market too is unlikely to revive. The current financial year is therefore expected to be a tough one.And if the commerce minister chooses to continue supporting the 10 lakh strong rubber farming community, the STC and RCWC may quite possibly have more work to do in the market during the course of the current financial year.