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Thursday December 9th, 2021

Sri Lanka’s CEAT Kelani radial tyre capacity raised amid money printing, import controls

ECONOMYNEXT – Radial tyre capacity has been raised by 16 per cent to 600,000 a year to cater to strong demand, Sri Lanka-based CEAT Kelani Holdings said as import controls slapped as money printing created forex shortages.

The addition of two tyre presses and a tyre building machine will add the capacity to produce 84,000 more tyres from the current 516,000 units.

The capacity will “ease pressure on supply attributed to government-imposed restrictions on the import of certain sizes to conserve foreign exchange,” the firm said.

Sri Lanka’s central bank has printed large volumes of money defending various interest rates including a 12-month bill yield, creating forex shortages when the newly created liquidity comes up for redemption in forex markets.

Instead of stopping liquidity injections, authorities have imposed controls, sometimes backed by so-called import substation crony firms who are not competitive enough to export but are exploiting domestic consumers with ‘black market’ prices under cover of import duties.

CEAT however is export competitive.

With new machinery commissioned earlier this year, radial capacity is already up 30 percent this year, CEAT Kelani said.

“The CEAT brand supplied nearly half of Sri Lanka’s pneumatic tyre requirements for several years before the pandemic,” CEAT Kelani Managing Director Ravi Dadlani said in a statement.

“The disruption of transport logistics worldwide due to the pandemic combined with the temporary import restrictions on certain categories and sizes of tyres required us to accelerate production to help meet the domestic shortfall”.

Now monthly production was about 50,000 tyres.

The expansion will help meet the demand for Suzuki Alto, Maruti Suzuki Alto, Maruti Suzuki Omni, Tata Ace Ex2, Hyundai- Eon, Mitsubishi Minicab, Toyota HiAce, Nissan Vanette, Lanka Ashok Leyland Dost, Tata Winger, Nissan Urvan, Kia K2500, Suzuki- Super Carry, Maruti Suzuki, Super Carry, Piaggio Porter, Toyota Town Ace, Toyota Lite Ace, SuzukiWagon R, Daihatsu Mira ES, Nissan Dayz, Nissan Note, Honda Freed and Toyota Avanza models, the firm said.

CEAT Kelani increased two-wheeler tyres by 85 per cent between June and September 2020. Production of motorcycle and scooter tyres had been raised from 27,000 to 41,000 units between July and August 2020 and 50,000 from September.

Repeating Mercantilism peddled by authorities, CEAT said it had potentially saved “Sri Lanka 11 billion rupees a year in foreign exchange.”

However, Sri Lanka’s forex problems had become worse amid liquidity injections. Credit financed by liquidity injections flowed into areas pushing imports back to 1.7 billion rupees in March.

Meanwhile, a parallel market for foreign exchange had also developed at around 230 to US dollar from around June as extra tyre production was commissioned.

In Sri Lanka, there is a strong Mercantilist belief that monetary instability is linked to trade and not the monetary anchor or credit.

Sri Lanka has been suffering forex shortages and import controls ever since a Latin America style central bank was set up in 1950 and economic policy is usually directed to ‘save foreign exchange’ at the expense of basic economic freedoms of the citizenry.

Tyre imports are controlled under an import control law enacted in 1969, when foreign reserves fell to 40 million US dollars from 190 million dollars when a currency board (fixed exchange rate or hard peg) was abolished to create an unstable soft-peg. (Colombo/July12/2021)

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