In the Indian rubber industry, small is really the big whether it is in the plantation or the products manufacturing sector. The small sector constitutes the largest chunk of rubber enterprises, yet they are the worst affected ones by endless price fluctuations, marketing difficulties and a host of other adverse conditions which threaten their very survival.
With the natural rubber prices bouncing after a slight setback in the wake of the Japan’s earthquake and tsunami, the raw material price related woes of the small scale rubber units are once again becoming severe.
Natural rubber (NR) production in the country during 2010-11 was higher by 3.7 per cent over the 831400 tonnes figure of 2009-10. According to the Indian Rubber Board, the projected NR consumption in 2011-12 is 977,000 tonnes. This indicates a deficit of 75,000 tonnes which means that the industry may be forced to meet the shortage through imports.
The tale of woes
But the crucial question is how viable will the import be if the international prices continues to be higher than the domestic prices as it is at present. It may also be noted that the Government is yet to consider the industry’s plea for duty free import of NR
And it is here exactly that the micro, small and medium enterprises (MSMEs) are at a disadvantage. The Indian rubber products manufacturing players, a majority of whom are MSMEs, will find it harder in the coming days if the NR continues to be dearer.
According to Vinod Simon, President of the All India Rubber Industries Association (AIRIA), if the industry fails to check the demand-supply gap, the country is likely to witness around 500,000 tonnes of NR shortage by 2015.
Profile of the industry
The Indian rubber industry manufactures around 35,000 different products and employs more than five million people. In Kerala, the home of Indian NR alone, more than 20,000 workers of rubber-based industries are facing a bleak future as unprecedented rise in natural rubber price is threatening the existence of around 800 units.
Of these rubber-based industries, mostly tread rubber units, some are registered with the Rubber Board while several small units are not.
“The small rubber-based units have no option but to wind up in the face of continued price rise”, says a small scale unit owner in North Kerala. According to small scale industry sources around 20 rubber-based units are facing the threat of closure in Thrissur district alone. The small and medium enterprises (SMEs) have their hands tied because any hike in the price of the products would meet with resistance from buyers.
These enterprises, which also comprise footwear units, are severely reeling under the rising cost of synthetic rubber. Many have drastically cut production of late. These units want the Government to take a more sympathetic attitude towards them and be allowed to import synthetic rubber at concessional rates.
The growth saga
The history of the Indian rubber industry dates back to 1921 with the setting up of the first rubber goods manufacturing unit in Kolkata, Dixie Aye Rubber Factory (now Bengal Water Proof Ltd.) for water proofing of fabrics. The Bengal Water Proof Ltd. is now a leading manufacturer in the non-tyre rubber sector under the trade name Duck Back.
Since then the industry has completed eight decades of fruitful development and growth What is more remarkable is the compounded annual growth rate of 8%, which it has achieved over the last four and a half decades
One major feature of the Indian NR production sector is its relatively high degree of regional and structural concentration. Regional concentration of NR production in the country is characterised by a near monopoly position of the State of Kerala in terms of control over the area under crop (over 80%) and production (over 90%). Another is the NR sector’s structural concentration, which is characterised by the dominance of the smallholdings in the areas under crop
A unique feature of the Indian rubber products manufacturing sector vis-à-vis the world rubber products industry is the pattern of rubber consumption dominated by NR. The NR- SR ratio in India’s total rubber consumption is 80:20 compared to 39: 61 in the world rubber consumption.
The rubber products manufacturing industry, as a result of the development of the multilateral trading system, may get a boost in the developed countries, but industries in some of the developing countries may suffer since they will take time to make their industries globally competitive. There is a possibility of some of the small-scale units in the developing countries closing down as they lack the economies of scale and state-of-the-art technical know-how.
Further, some of the labour-intensive NR–based industries now operating in the developed countries may shift their location to selected NR producing countries to become more price-competitive. All these possible developments, point to a restructuring of the rubber products manufacturing segment in the years to come.