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Petrochemical industry opposes Oman FTA, deal may be delayed

Financial Express | 8 January 2024

Petrochemical industry opposes Oman FTA, deal may be delayed

by Mukesh Jagota

The negotiations on India-Oman free trade agreement that were racing towards concussion may drag a bit longer as Indian petrochemical producers have opposed any deep duty cuts on polypropylene and polyethylene that might be offered in the pact.

Both polypropylene and polyethylene, key raw materials for plastics, currently attract import tax (basic customs duty) of 7.5%. This is in addition to 18% Integrated Goods and Services Tax, which is meant to offset the GST incurred by domestic products.

The contention of domestic industry is that Oman provides a large raw material subsidy to its petrochemical product industry and duty concessions on these would be a double advantage for Omani firms.

In FY 23 of the total imports from Oman of $7.5 billion, $ 383 was accounted for by polypropylene and ethylene polymers.

A government official said that they are holding talks with domestic players in both the private and public sector on the issue. Reliance is the biggest producer of polypropylene in India while Haldia Petrochemicals is the biggest producer of polyethylene. Other significant players in the segment are Indian OIl, GAIL (India) and other state-run oil companies.

User industry, mainly plastic makers maintain that duty cuts will give a boost to the labour-intensive sector as raw material cost accounts for about 60% cent of the final goods.

Earlier an official had said that negotiations on the Comprehensive Economic Partnership Agreement could get over soon and even signing may happen by January-end. The reason for the speed is that this agreement is similar to what India signed with the United Arab Emirates (UAE) in 2022. The answer to the question of what could be the duty cuts offered to Oman in petrochemicals lies in the CEPA between India and UAE.

In both polypropylene and polyethylene India has offered to bring down the duties by half to 3.75% over a 10 year period. Apart from duty cuts over a longer period, India has also imposed quotas on the quantity of these products that can be imported every year. The Tariff Rate Quota will increase with the passage of time in India-UAE agreement.

Already two rounds of talks have happened between India and Oman since November where text of most of the chapters or policy areas has been finalised, a senior official said.

The first round talks between India and Oman happened in New Delhi between November 27-29. Within weeks the Indian team went to Muscat for the second round of talks in the middle of this month.

Oman is India’s third largest export destination among the Gulf Cooperation Council (GCC) countries. While Oman’s economic size and population limits the benefits that can be directly derived from the CEPA its true value lies in fostering economic and strategic ties in the region of critical importance.

Oman’s population is 5 million as compared to India’s $1.4 billion. Oman’s economy is $115 billion as compared to $3.5 trillion for India. Local opportunity for India’s exports comes from the high per capita income in Oman which is $ 25060.

Over 83.5% of India’s goods exports, valued at $3.7 billion, currently face a 5% import duty in Oman. With the new Free Trade Agreement (FTA), products like motor gasoline, iron, steel and products, electronics will benefit from duty elimination. Petroleum products account for India’s 49% India’s exports to Oman.

Around 16.5% of Indian exports to Oman worth $ 800 million already enjoy zero tariffs. These include wheat, basmati rice, fruits, vegetables and medicines, fish, tea and coffee.

India’s imports from Oman were $7.9 billion last year of which petroleum products accounted for $4.6 billion and urea $1.2 billion. The FTA will give an opportunity to Oman to diversify its economy to address the vast market offered by India.

In 2022, India’s service exports to Oman were worth about $2.8 billion, while its imports were $0.2 billion. India could seek increased access to the Omani market for business services and computer and information services, which Oman regularly imports. India might also negotiate for priority visas for its professionals on short-term assignments in Oman.

 source: Financial Express