Aluminium companies urge finmin to revise duty structure on metal, scrap

The Aluminium Association of India, the apex body of the sector, wants import tariffs on aluminium scrap to be increased to 7.5% from 2.5% at present and a marginal increase in the import duty on primary aluminium, if necessary, to 10%, it said in a representation to the finance ministry. The budget is due to be presented on July 23.

“We have asked the government to control imports by fixing scrap import duty at par with that on primary aluminium, i.e. 7.5%, in the upcoming Union budget to discourage the influx of sub-standard materials and safeguard the domestic industry, which provides livelihood to over 10 lakh people," a spokesperson of AAI said.

An increase in import duty on the metal and its scrap is expected to prevent a surge in imports of aluminium, which had captured about 55% of India’s demand in FY24, while the share of domestic producers plummeted to 45% in FY24 from 60% in 2011. Also, low-quality foreign scrap, which poses safety and environmental risks, has almost quadrupled upwards to 1,768 kt in FY24 from 472 kt (kilo tonnes) in FY11.

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According to the spokesperson, lower prices and a 5 percentage point import duty difference between scrap and primary aluminium are the key reasons for the increase in scrap imports. Despite sufficient domestic production, primary aluminium imports continued to rise, registering a 30% increase year-on-year, driven by imports from China and free trade agreements with ASEAN and the Middle Eastern countries.

This influx hampers the viability of small and medium enterprises in downstream production as well, the association said in its representation.

Tax burden

The aluminium industry also highlighted that the sector faces high central and state taxes, which account for a significant chunk of their total production costs, putting domestic producers at a disadvantage. According to its estimates, taxes and duties comprise almost 17% of the production cost presently incurred by aluminium companies.

With the introduction of the Carbon Border Adjustment Mechanism stifling exports to the European Union, the domestic industry is staring at the potential loss of a $2.2 billion market. While it increasingly explores low-carbon energy options, aluminium companies view this as a long-term transition with significant costs involved that are not feasible in the short term.

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To support its viability in the interim, the AAI has sought duties to be capped at 2.5% on key inputs such as petroleum coke, green anodes and pre-baked anodes to avoid an inverted duty structure. At present, primary aluminium producers do not sell to deemed export customers, who enjoy duty-free benefits.

AAI has proposed that benefits under the government’s Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme and coal cess credit be extended to deemed export sales as well, which will help producers reduce inventory and transaction costs.

Aluminium is especially crucial for the defence, energy, infrastructure, and aerospace industries. Its growing role in these strategic sectors and those crucial to a net zero emissions future have earned it the position of a metal of prime importance.

Supporting domestic production aligns with India's goal of self-sufficiency amid a global economic slowdown and geopolitical tensions. At present, India’s per capita consumption of aluminium is extremely low at 3 kg, against the global average of 12 kg.

Increased usage of aluminium is acknowledged as a reliable indicator of developed economies and would be important in the nation’s journey to a Viksit Bharat, or Developed India, by 2047, AAI said.

In FY24 alone, India utilised over 4.9 million tonnes of the second-most consumed metal in the world, with domestic demand expected to double to 10 million tonnes by FY33. This rise will be led by factors including public spending on infrastructure, rising adoption of electric vehicles, rapid transition to renewables, and sustainable packaging in the pharma and food & beverage industries.

The industry wants the rise in domestic demand to be captured by a commensurate increase in domestic production rather than meet it through imports. Higher prices of key inputs and steep carbon levies have the potential to not only restrict exports but redirect primary, downstream and scrap imports into India.

Moreover, higher import duty on aluminium and scrap in major production centres in the US and China and stringent quality control for scrap in EU and other developed markets is also pushing surplus material to India, hurting the domestic industry.