The inverted duty structure in the aluminium sector has compounded the woes of the domestic industry, which is reeling under the impact of increased import of the metal from China and West Asia.
As a result of this structure, manufacturers face a price disadvantage in the domestic market vis-à-vis imports, as they pay a higher price for raw material in terms of duty, while finished products land at lower duty.
“Import duty on some raw materials used for aluminium production is either equal to or more than the duty on primary metal. This has put domestic producers at a disadvantage," says Satish Pai, deputy managing director, Hindalco. Currently, basic Customs duty is five per cent, whereas duty on some critical raw materials and alumina is equal to or above five per cent.
The Aluminium Association of India (AAI) has submitted a memorandum to the finance ministry to bring down duty on raw material to 2.5 per cent, while raising that on primary metal from five per cent to 15 per cent.
“The industry is reeling under immense pressure as an anomaly in the duty structure has caused huge disadvantage to domestic players (dependent on imported raw materials), making them uncompetitive against cheaper finished product imports and discouraging domestic value addition," the memorandum said.
This scenario is also corroborated by industry data, which pegged imports at 56 per cent of consumption. Capacity utilisation at two million tonnes (mt), against installed capacity of four mt, remained 50 per cent.
The demand for aluminium is growing at 10 per cent in the Indian market. This is expected to see a spurt with the government’s focus on infrastructure and manufacturing. “With the government laying emphasis on smart cities and manufacturing, future demand is going to be robust, as the metal has wide use in sectors like energy, automobile, defence and packaging," Pai said, and added, “domestic industry should be encouraged through enabling policies and tax structure to meet this challenge."
He, however, expressed concern about the speculation that freight rate on coal could go up in the Budget and said, energy being a major cost in making aluminium, any raise would be a blow to the industry.
