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India raises naphtha import tax, which could hamper imports

India has raised its import tax on naphtha to 2.5% from 1%, budget documents showed on Wednesday, in a move that could encourage companies to source locally produced fuel instead of buying from overseas.

Naphtha is used for making petrochemicals and consumer goods, such as plastic and paints.

"The increase in customs duty on naphtha would result in some increase in feedstock cost for petrochemical manufacturers, which would compress their margins," said Sabyasachi Majumdar, senior vice president at Moody's India unit, ICRA Ltd.

The change in the duty supports India's aim to reduce its dependence on imports for key chemical feedstock and encourages increased domestic production in the medium-to-long-term, Majumdar added.

An increase in customs duty would potentially cut both imports and exports of the fuel, said sources at two Indian refiners, as importers turn to the local market for their needs, reducing available supply for export.

India has imported 1.3 million tonnes of naphtha from April-December 2022, the first nine months of this fiscal year, and exported about 4.4 million tonnes, according to the government data.

Indian companies such as Haldia Petrochemicals Ltd and Reliance Industries Ltd import naphtha for producing petrochemicals.

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