Budget 2019-20: India’s aluminium consumption is expected to double to over 7 million tonnes in five years.
By Ansuman Das
Budget 2019 India: Across the world, steel and aluminium are used the most with critical applications in core sectors like defence, aerospace, infrastructure, manufacturing and automobiles. With a demand of around 100 million tonnes in India, steel sees the most usage. However, globally, industries are fast adopting aluminium as their metal of choice. If one looks at the growth trajectory of aluminium, it is safe to say that at the pace of 21x in the last 60 years, aluminium is one of the fastest growing metals in the world.
India, too, is catching up to this global trend. India’s aluminium consumption is expected to double to over 7 million tonnes in five years. In spite of such robust estimates, aluminium sector continues to be neglected. This is difficult to gauge when one takes into account the huge potential India has to build a self-sufficient domestic industry that can meet internal demand as well as boost India’s position as a leading exporter in global markets.
While the government has extended support to the steel sector with a dedicated policy, trade facilitation and duty benefits, the aluminium industry continues to haemorrhage due to lack of similar support. The lack of such focused attention for aluminium sector has been hurting the industry and India’s prospects in international markets.
The focused attention has resulted in a drop of steel imports by 21% because of special provisions like anti-dumping duties for Chinese imports, safeguard duties of 10-20% levied on steel imports, and an increase in basic customs duty on all steel products in range of 10-12.5%. In stark contrast, aluminium has witnessed the highest ever import of 23.18 lakh tonnes, resulting in a forex outgo of Rs 38,000 crore ($5.5 billion) in FY19 (i.e. 1.1% of total Indian import bill). At the current pace, aluminium import could result in an estimated forex outgo of over $25 billion in the next five years.
The double whammy of crashing LME prices and increasing production costs, along with surging imports, has affected the Indian aluminium industry adversely and necessitated the need for immediate protection by increasing import duties across all aluminium products in the upcoming Union Budget.
Major economies like the US and China have already imposed high tariffs on both steel and aluminium imports, along with restriction of metal imports based on quality. India is yet to take this measure for its aluminium industry, thereby making it vulnerable as a dumping ground of non-essential imports from other countries. Steel, due to the robust national policy, remains majorly unaffected.
Additionally, it is mandatory for 53 categories of steel products to be covered under the Quality Control Orders (QCO) released in August 2018 to get a standard mark. The Bureau of Indian Standards has also released notifications urging all manufacturers to use standard marks even if their product is not covered under the QCO list. However, such quality stringency and mandates are missing for aluminium, thereby encouraging use of inferior quality scrap instead of a higher grade of aluminium available in the domestic market. China has recently announced inclusion of aluminium in the restricted list of imports from July 2019, with a plan for complete ban on all scrap and waste by 2020. This shall further divert the entire global scrap imports into India.
Now with the US withdrawing benefit of Generalized System of Preferences (GSP) from India and China restricting imports of aluminium scrap, India’s vulnerability to aluminium and scrap import is at its peak. If this goes unchecked, the domestic aluminium industry will be forced to fight for survival.
In the light of recent developments, where India has decided to impose tariffs on 29 US products, it is important for the government to take it further by imposing similar measures to protect its domestic aluminium industry that has the potential to contribute to the nation’s economic growth. There cannot be a more opportune moment to do so than the upcoming Union Budget, which will set the tone of the intent of the newly elected government.
In this context, the aluminium industry deserves certain benefits in the form of an increase in the basic customs duty on primary aluminium products from 7.5% to 10%, and those on downstream products in range of 10% to 12.5%, with the same duty on primary aluminium and scrap as in the case of all other non-ferrous metals. The duty parity also needs to be maintained for secondary aluminium products to protect interests of both primary and secondary segments of the industry.
More importantly, however, it is necessary to provide the aluminium industry with a core sector status at par with steel. There is also a need to extend the necessary benefits as well as a national policy to the same effect that will help the industry realise its full potential, enable it to achieve self-sufficiency and contribute substantially to the economic growth of India.
(The author is former CMD, NALCO, and an aluminium sector expert)