Base metals industry divided on duty cut

The secondary copper industry would get a new lease of life with the reduction in customs duty from 7.5 per cent to 5 per cent on primary and semi-finished base metals, including copper, aluminium zinc, tin and others, said Rohit Shah, president, Bombay Metal Exchange (BME).

Secondary copper units remained closed for a long time due to higher raw material prices. Now, with lower customs duty, the industry will be able to manufacture copper products on par with its Taiwanese and Korean counterparts.

The duty reduction will enable a price difference of 2.5 per cent between raw materials and finished goods. Importing cathode and wire bar would attract a duty of 5 per cent (7.5 per cent earlier), while finished products such as pipes, tubes and pipe or tube fittings of aluminium, copper and zinc would attract 7.5 per cent duty (12.5 per cent earlier).

"With this differential duty of 2.5 per cent, we will be able to sell our products in the domestic market," said Surendra Mardia, vice-president of the BME. Mardia welcomed the government's decision to cut customs duty before the annual Budget, which the secondary base metals industry had been demanding for the last three years.

However, primary producers would surely feel the pinch, as consumers would switch over to imports in case domestic players failed to supply at reasonable prices. A price difference of 5 per cent could easily be passed on to consumers, felt experts.

The country being a net exporter of alumina, there will be no major impact on customs duty reduction on calcined alumina to 5 per cent from 7.5 per cent.

Customs duty on ferro alloys, stainless steel and other alloy steel has been cut to 5 per cent from 7.5 per cent.

"Further duty reduction from 7.5 per cent to 5 per cent will hamper the entire domestic ferro alloys sector, which is currently utilising only 65 per cent of installed capacity due to huge imports. In fact, the government has opened the doors for massive imports from South Africa, Kazakhstan and China, who were awaiting such decisions eagerly to dump their products in India," said T S Sundaresan, secretary general of The Indian Ferro Alloy Producers' Association.

The Rs 4,000 crore ferro alloy industry is facing acute supply surplus and has been demanding a level playing field by raising import duty to 10 per cent to protect the domestic industry from cheap imports. A duty reduction from 25 per cent to 20 per cent had led to a surge of imports at Rs 263 crore in 2003-04 and Rs 460 crore in 2004-05.

When the duty was reduced further to 15 per cent in 2005-06, the imports surged to Rs 591 crore. In the same year, the customs duty was again cut to 10 per cent. In the first half of the current financial year, the imports recorded a significant gain at Rs 346.62 crore with a duty reduction to 7.5 per cent in February 2006.

The current duty reduction would surely boost ferro alloys imports to Rs 1,000 crore next year, an analyst said.

Customs duty on specified raw materials of refractories has been brought down to 5 per cent from 7.5-10 per cent.

"Duty reduction on zinc will surely help us boost our exports at competitive prices," said Sanjay Gupta, managing director of Bihar Tubes.