Union Budget 2022-23: Increase in imports of aluminium and scrap are destabilising the entire value chain
Indian Union Budget 2022: An aluminium factory. Image courtesy uc_rusal_photo_gallery/Wikimedia Commons
To boost the V-shaped recovery of the economy and domestic manufacturing, the aluminium industry has sought government support to increase the basic customs duty on imports of the strategic metal aluminium and its products. India is one of the fastest-growing economies globally, in addition to also being one of the fastest emerging markets.
The Indian aluminium industry has been acknowledged as one of the champion sectors that have contributed to this growth. Aluminium has unequivocally played a vital role in the nation’s economic development and its continued sustenance is crucial for achieving the Prime Minister’s vision of making an Aatmanirbhar Bharat and a $5 trillion economy.
Pandemic, lockdown hit ailing industry
The domestic industry is struggling to revive itself over the last two years due to the unprecedented COVID pandemic and the subsequent lockdowns, that have resulted in a depressed global demand and global meltdown with crashing prices. Now with the gradual resumption of industrial activity, rise in global demand and the uptick in metal prices, the business environment would have been ideal for reviving growth.
However, the declining market share of domestic producers with surging imports, coupled with significant cost escalation for primary producers– rise in input costs of critical raw materials, escalating ocean freights and logistics costs due to container shortage, current coal crunch situation etc.– is again putting the industry on the back foot.
Rise in imports of aluminium, scrap destabilises value chain
Increase in imports of aluminium and scrap are destabilising the entire value chain and depriving the country of any domestic value addition and subsequent economic value creation. Imports account for 60 percent of India’s aluminium demand, majorly in the form of sub-standard scrap and waste, which has increased multi-fold and now accounts for 70 percent of total aluminium imports.
This has also resulted in a plummeted market share of domestic producers at just 40 percent in FY-21 from as high as 60 percent a few years back. This precarious situation can be resolved by safeguarding the domestic industry against these non-essential imports in the upcoming Union Budget.
Rising cost of production of aluminium
The cost of production of aluminium metal in India has also substantially increased due to the rising cost of critical raw materials, inverted duty structure on import of raw materials, increase in various taxes / cess like coal cess, electricity duty, and logistics costs etc. The burden of Central/State taxes and levies amount to 15 percent of aluminium production cost, placing the domestic industry at a significant disadvantage compared to its global competitors.
While other major aluminium producing countries support their domestic industry with cheaper raw material security, power subsidies, tax rebates, export incentives etc, India is struggling to retain competitiveness despite having the natural advantage of fifth largest bauxite and coal reserves in the world.
Within a period of two months, the LME prices have again crashed by around $400-500/ MT in December 2021. The increased production costs along with the ongoing coal shortage have also taken a toll on the domestic industry eroding margins and reducing cost-competitiveness when compared to global players.
The domestic aluminium industry has been requesting the government to reduce basic customs duty and for correction of inverted duty structure on critical raw materials for aluminium industry value chain like CP Coke, Alumina, Caustic Soda, Aluminium Fluoride etc. for global cost-competitiveness. The domestic industry has also been seeking rationalization of high cess on coal (presently levied at Rs 400/MT) to support the high-power intensive aluminium industry in easing its burden.
The coal cess has been repeatedly hiked by 100 percent multiple times, moving from Rs 50/MT to Rs 400/MT currently which adds to the increased power cost burden rising from $8/MT to $64/MT of aluminium production costs. The high coal cess needs to be rationalised to support the industry, and the urgent need for this has been discussed and recommended by various ministries and government think tanks including the NITI Aayog, Mines Ministry, Coal Ministry, Power Ministry etc. The GST Compensation Cess on coal under GST regime was to be levied only for the first five years, i.e., from 1 July 2017 to 1 July 2022.
Aluminium is a sector of strategic importance for the country and an essential commodity for various other industries and SMEs due to its critical role in diversified applications that are crucial for the economy such as energy security, national defence, infrastructure, electrification, aerospace, automobile, consumer durables, packaging etc. Its performance is one of the key levers for boosting the economy and bringing industrial activity back on track.
Union Budget 2022 thus holds hope for streamlining policies to enable the survival and nourishment of the second-most important metallurgical industry of the country.
Theauthor is president, Aluminium Association of India.
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