India needs a national aluminium policy – Here is why

By: |
Published: August 10, 2018 3:49:11 AM

The impact of coal cess, electricity duty, rPOs, evacuation facility charges on coal, and import duty on CP coke raises the cost of production to nearly $238/MT

Aluminium, national aluminium policy, india, GDP, National Capital Goods Policy, Make in IndiaIn India, aluminium consumption is pegged at 2.5 kg per capita.

VK Saraswat & Aniruddha Ghosh

Aluminium is the second most used metal in the world after steel, with an annual consumption of 88 million tonnes, including scrap. It is also the fastest-growing metal, growing by nearly 20 times in the last 60 years (compared to 6-7 times for other metals). Its light weight, recyclability, conductivity, non-corrosiveness and durability have helped establish it as a metal of choice for defence, infrastructure and other strategic sectors.

In India, aluminium consumption is pegged at 2.5 kg per capita. To reach the global average of 11 kg per capita, India must up annual consumption by 16 million tonnes, becoming the second largest consumer in the world in absolute terms. Even at its low consumption, aluminium contributes 2% of manufacturing GDP (steel 12%, cement 9%) and provides nearly 800,000 jobs. This growth is critical for India’s vision of achieving 25% of GDP from manufacturing by 2022.The industry also has a high direct and indirect employment multiplier. Going forward, it will be a key contributor to ‘Make in India’, National Capital Goods Policy, setting up of smart cities and the goal of 100 GW solar capacity by 2022.

A country’s over-reliance on foreign imports for essential strategic metals may be detrimental towards the objective of economic and national security. Keeping this in mind, many industrialised nations have included non-ferrous metals/aluminium industry as a strategic sector in their industrial strategy/plan. This could be attributed to the sector’s strong forward and backward linkages, substantial market potential, a high degree of technological intensity and high scope of value addition. Additionally, aluminium has a greater role to play in promoting a sustainable future and lowering carbon footprint.

As India strives to meet its economic growth targets, aluminium will be critical for its infrastructural needs. Therefore, identifying bottlenecks that stifle capacity addition in the wake of rising demand is necessary. First, the domestic aluminium industry is struggling to remain globally competitive, thanks to rising production costs. Amongst the largest producers of aluminium—Canada, Russia, the Middle East, Norway and China—India has the highest cost of production, attributable to its high energy costs. Power is a critical input for the industry, accounting for 30- 40% of the cost of production. The impact of coal cess, electricity duty, renewable purchase obligations, evacuation facility charges on coal, and import duty on CP coke raises aluminium’s cost of production to nearly $238/MT.

Second, coal and bauxite account for roughly 70% of aluminium production costs. Implementation of royalty on coal and delays in obtaining environmental, forest and other statutory clearances for mining, increases production costs. Third, as India embarks on a growing aluminium consumption trajectory, having both primary and scrap-recycling industries are essential to meet its growing consumption. Currently, India imports all the scrap that it consumes with virtually zero domestic scrap generation.

Fourth, as per many studies, bilateral trade deficits with our FTA partner countries have increased post the signing of FTAs. The aluminium sector has not benefited from these agreements. For example, aluminium imports from the ASEAN region have surged from $122 million in 2010 to $302 million in 2016, despite significant under-utilised domestic capacity. Fifth, logistical and infrastructural issues in terms of rake availability and railway connectivity push costs upwards.

Therefore, the need of the hour is to formulate a National Aluminium Policy (NAP) which focuses on holistic short-, medium- and long-term visions, identifying growth targets for demand augmentation and capacity addition. This will require a strategy for achieving the targets on raw material, infrastructure, value-addition, power, energy requirements and scrap recycling. Here are some recommendations that can form the pillars of the NAP.

First, we suggest looking actively at classifying aluminium as a core industry. Currently, India identifies coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity as its eight core industries. Given aluminium’s growing consumption trajectory and its increasing requirement in nation building, it will be feasible to accord it core industry status. Second, it is imperative that, once this is allotted, the industry should not face administrative and legal hassles during the operation of coal and bauxite mines. This hampers the spirit of the ‘ease of doing business’ and induces inefficiency.

Third, NITI is drafting a National Material Recycling Policy which aims to enable India to establish an appropriate legislative, administrative and institutional framework for the recycling of metals and materials. Domestic scrap generation has to be our priority and this policy will be an important step in this regard. Fourth, a separate energy policy needs to be developed for the energy-intensive sectors. It is recommended that RPO obligations, coal cess and electricity duty charges be looked at, and rationalised, to make these sectors globally competitive.

Fifth, with respect to the aluminium industry, before opening up our domestic market to FTA members, a level playing field should be ensured for domestic manufacturers to compete with foreign players. FTAs have tilted the balance of trade in favour of our trading partners; these need to be reviewed leveraging our maximum export potential and keeping trade complementarities in mind. Sixth, downstream producers of aluminium need to be encouraged towards high-end production and value-added exports. This must be in sync with the objective of ‘Make in India’ with a focus on the development of the entire value chain of aluminium production in India. Seventh, as aluminium is a continuous process industry, it will require priority access to infrastructure in terms of transport wagons and rake availability.

India’s growing economic might enables it to produce enough high-quality aluminium to ensure self-reliance in defence and critical infrastructure, and avoid global volatility in supply and prices. An NAP will be an important step.

Saraswat is a member, NITI Aayog and Ghosh is a Delhi based economist and LSE alumni

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1And what happens after WhatsApp is blocked?
2Let the foreign proxy firms be – They have their views, and FPIs are free to go by their advice
3Indra Nooyi was right in saying ‘having it all’ is impossible – Here is why