Policy recognition of downstream aluminium segment will be a win-win for economy

If China can manufacture 50% of the world’s aluminium, why is India only stuck at less than 5%, asks Pragun Jindal Khaitan, Vice Chairman and Managing Director, Jindal Aluminium Ltd. Talking about the measures to support the downstream aluminium industry, he says, “the government should immediately look at measures like increasing the import duty differential between downstream aluminium and primary aluminium to incentivize downstream manufacturing.”

In an exclusive interview with Sanjeev Sinha, Mr Khaitan talks about the major issues being faced by the downstream aluminium producers, measures to support them, and shares his business outlook. Excerpts:

What are the major issues being faced by the downstream aluminium producers nowadays?

The London Metal Exchange (LME) is the global price reference for aluminium. But in India, the domestic raw aluminium is sold with an additional customs duty of 7.5% (effectively 8.25% after cess) on an import parity basis. India has excellent quality of local bauxite reserves to produce virgin aluminium. Despite that, the local downstream Aluminium industry has to pay a higher cost, equivalent to the imported raw aluminium price, for domestically made raw aluminium.

India has a massive local demand (of value-added aluminium products) and also adequate domestic downstream capacity capable of meeting this demand. But still, a large quantity of its downstream aluminium consumption is imported. Raw aluminium is being exported and downstream (value-added) aluminium is being imported into the country. Shrinking margins for downstream aluminium producers, no incentive for value addition to aluminium within India, and declining domestic market share due to increasingly subsidized aluminium imports are the major issues being faced by the downstream aluminium producers.

Is dumping by foreign countries affecting the trade, especially for the downstream industry? Kindly explain.

The growing dumping of aluminium downstream products in the domestic market from China, Indonesia, Malaysia and other countries has undesirably impacted the domestic operation of these products. Our (India’s) import duty levied on downstream aluminium products is 7.5 per cent, against 20 to 30 per cent in Southeast Asian nations which are also having free trade agreements (FTAs) with India. Chinese manufacturers, with the aid of a 13% export incentive (available in their country), are dumping downstream products in India at a throwaway price. It challenges the local MSME downstream manufacturers who find it difficult to safeguard themselves from the onslaught of this foreign aluminium dumping. It is important to note that this is not the case with primary aluminium, which sees little dumping from China. China has an export duty in place for its primary aluminium, to incentivize value addition to the aluminium in their country.

What are the probable measures that are needed to be formulated and executed by the government to support the downstream aluminium industry?

There is a need for the government to strategize different aluminium policies for primary aluminium and downstream aluminium. They are essentially two different industries, and the government needs to bifurcate the two to ensure long-term sustainability in both. The government needs to develop policies (not only financial incentives) that can create long-term competitive advantages for the downstream aluminium industry. If China can manufacture 50% of the world’s aluminium, why is India only stuck at less than 5%? The government should immediately look at measures like increasing the import duty differential between downstream aluminium and primary aluminium to incentivize downstream manufacturing.

It should also encourage “greening” of the metal by forming a national aluminium recycling entity that collects domestically consumed aluminium waste. The government should deepen the downstream aluminium industry by forming regional aluminium manufacturing and processing clusters, make dedicated aluminium research and training facilities to build a deeper talent pool and encourage grassroots entrepreneurs to plug into the aluminium industry by creating a national aluminium opportunity portal that highlights gaps in the Indian supply-chain for aluminium. The industry is currently fighting to survive, but these initiatives can allow it to thrive.

What are the anticipations by the secondary producers from the government in terms of foreign trade as well as domestic demand?

Imported downstream products enjoy advantages under various export promotion schemes approved by the government of the originating countries to their exporters; add to this the duty-free imports from countries that have trade agreements with India. Now, the production cost in India is moderately high owing to taxes, heavy duties imposed on raw materials and logistics expenses. If the government undertakes measures to check the duty-free imports of downstream products, the domestic industry would be able to stand a chance to compete in this situation.

Necessary government measures are required to ensure that the customs duty is lower at the raw material stage and increases as you go up the value chain. It will help to increase value addition within the country by consuming domestic raw material and also supporting employment generation. This approach can turn ‘Make in India’ and, ‘Atmanirbhar Bharat’ into a reality. A practical measure in this direction can be to increase the import tariff on domestic aluminium more than the current import tariff on primary aluminium. Recoverable metal plays a crucial role in sustainability. The current import duty of 2.5% on recyclable aluminium is just right and should not increase. Increasing it will compel many of the small industries involved in the circular economy to close down, thus, increasing the unemployment in this sector.

What is Jindal Aluminium doing to voice the issues of the industry?

The company is actively engaging all the stakeholders not only to voice the issues of downstream aluminium producers but also pitching its solutions. We are one of the founding members of the Aluminium Secondary Manufacturers Association (ASMA) which actively aims to safeguard the interests of domestic downstream (secondary) aluminium producers. We are committed to creating Atmanirbharta (self-reliance) in value-added aluminium products. It will have a far-reaching positive impact on the aluminium industry, generating employment and supporting GDP.