Duty hike on aluminium to impact India's downstream industry

Stating that the production cost of aluminium in India rose even as it became static globally, the Economic Survey today said raising tariffs to check imports will impact downstream sectors like power and construction. Indian aluminum industry will continue to face difficulty unless world prices increase because in the short-run it is "virtually impossible" to reduce production cost, said the 2015-16 report card of state of the economy tabled by Finance Minister Arun Jaitley in Parliament.

Globally, aluminum prices like other metal prices are cyclical and though it is difficult to forecast when they will begin to move upwards, the trend is expected to change when world industrial growth improves, it added.

"Imposition of additional duties to reduce import of aluminum may erode the competitiveness of downstream sectors like power, transport and construction," the survey said.

It further said the capacity utilisation of domestic aluminum industry has fallen drastically in the last one and a half years as global prices have declined. The cost of production is higher than the international prices. Huge capacity has been created in China and world growth has slowed down.

The Indian capacity rose substantially in 2014-15 and 2015-16 (first half) but its utilisation, which was nearly 100 per cent up in 2013-14, has declined to 50 per cent, it added.

World aluminum prices fell by 41 per cent from USD 2,662 per tonne in April 2011 to USD 1,570 a tonne in August 2015 and USD 1,500/tonne in January this year, it said.

"During this period in India, imports as a proportion of total demand (sales plus imports) have increased substantially from 39.8 per cent in 2011-12 to 56.5 per cent in 2015-16," the Survey added.

India, the world's second largest aluminum producer, produced 3.96 million tonnes (MT) in 2014-15, which was lower than China's 21.48 MT. It is the third largest aluminum consuming country with a consumption of 3.8 MT in 2014-15, lower only to that of China's 22.09 MT and the US 5.5 MT, the survey noted. The country's share in world aluminum consumption has increased from 3 per cent in 2008-09 to 7 per cent in 2014-15, it added.