India mines ministry proposes increase in aluminium duty

The ministry of mines in India has proposed a hike in import duty on aluminium to 7.5% from 5% now, and a correction of the inverted duty structure in the industry, in its pre-Budget communication to the finance ministry. If the proposals are implemented, domestic aluminium makers such as Hindalco, Vedanta Aluminium and Nalco would benefit.

However, the mines ministry hasn’t favoured the industry demand for a doubling of the import duty on aluminium metal scrap to 5%. The inverted duty structure is deemed to prevail when the taxes on raw materials are higher than that on finished products, disadvantaging domestic value addition.

Explaining the severity of the prevailing situation due to a combination of factors such as lower demand, higher imports and subdued price, a senior mines ministry official said since the Budget is still a few weeks away, it would be better if the import duty on aluminium is increased even before it is presented. “Domestic companies are running their plants at nearly half the capacity due to rising imports from China and West Asia. Our companies are losing out to cheaper imports and their predatory pricing. In our 2.8-MT (million tonne) domestic consumption, the share of imports has gone up to 56% last fiscal from 40% in FY’11. A corrective measure is required,” he said.

India’s installed production capacity of aluminium currently stands at 4.2 MT. However, production was just half of that in the last fiscal. China and West Asia contribute to around 1.56 MT to India’s annual consumption. The 159% rise in imports, from 0.88 MT in 2011, has threatened the industry’s cumulative investments worth INR 1.2 lakh crore.

A continuous fall in international prices in recent years has added salt to the wounds. LME prices have come down 35% in the last three years to $1,660 per tonne in June 2015, from a peak of $2,555 per tonne in June 2011.

In such a scenario, when most aluminium-producing nations are resorting to a non-inverted duty structure, India is clinging to the inverted duty structure for aluminium, the only base metal suffering this fate. The prevalent inverted duty structure in India is making imports of raw material like bauxite and alumina prohibitive despite a meltdown in the commodities market price. China has reduced its customs duties for import of alumina from 7.5% in 2007 to 0% now.

“We also feel the need to correct the prevailing inverted duty structure. While the import duty on aluminium metal is 5%, the duty on import of its raw material varies from 5-7.5%. It has led to higher production cost for Indian aluminium, especially for alumina, which accounts for 40% of the production cost of aluminium. It should also go,” the official said.