Increase in custom duty on Aluminium Scrap from 2.5% to 10% is a key expectation

As Indian economy pushes forward to grow at 9% and above over the next few years, a key challenge for the country would be to rebalance its energy needs in favour of renewable sources by 2030 to 50% as per the Paris agreement. This is here that the Aluminum sector will play a greater than ever before role. Extensive growth in electric vehicles, renewables, modern infrastructure, energy efficient consumer goods and greater dependence on strategic sectors such as aerospace and defense, will drive Aluminium consumption to grow at CAGR of 10% or more. For example, Aluminium usage in EV battery is 40% – 50% more than a normal ICE. Being 3 times lighter than steel it aids in fuel efficiency making it an efficient choice for EV’s.

However, the Indian aluminium industry is struggling to revive itself over the last two years following the unprecedented Covid pandemic. The declining domestic producers market share with surging imports coupled with significant cost escalation for primary producers due to a rise in input costs of critical raw materials, escalating ocean freights & logistics costs due to container shortage, current coal crunch situation etc. is restricting the industry’s ability to support the future of the country at a time when India cannot rely on import sources alone to fuel this growth.

To give relief to the sector, there is a need for urgently looking at the duty structure. The basic custom duty on Aluminium and Aluminium scrap is not in line with other non-ferrous metals like Zink, lead, nickel and tin which is a huge disadvantage for domestic Aluminium producers. The industry expects increase in tariff rate of basic custom duty or peak custom duty rate from existing 10% to 15%. Currently custom duty on Primary Aluminium is 7.5%, Downstream Aluminium is 7.5% to 10% and Aluminium scrap is only 2.5%. This is the reason why despite having significant presence of primary Aluminium capacity and potential to generate sufficient domestic scrap, India’s consumption of scrap is 100% import dependent. The way forward is to increase custom duty on Aluminium srap from 2.5% to 10%.

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Primary aluminium industry is facing severe threat from the increasing import of Aluminium scrap. The share of scrap in total imports increased from 52% in FY-16 to 66% in FY-21. resulting in Forex Outgo- of US$2 billion (Rs 15,000 Crore).

What is also affecting the Indian industry is China’s renewed measures to restrict Scrap imports through National Sword Policy, which is leading to greater inflow of scrap into India. China imposed 25% duty on Aluminium Scrap imports from USA, and classified Aluminium Scrap in restricted import list from July, 2019, with plan to completely ban all scrap and waste imports. Post that the share of import from the US in China’s total Aluminium scrap imports has declined from 53% in 2017 to just 16% in 2019. India has overtaken China as world’s largest aluminium scrap importer due to Chinese measures. As a result, entire global scrap chain is shifted to India in absence of any quality or BIS standards for scrap recycling/ usage and imports in the country. A major threat is from US scrap imports, as US is diverting large volume of scrap to India, since EU and other developed countries have stringent standards for scrap. The import from US as share of India’s total scrap imports increased from 8% in FY16 to 24% in FY21.

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This precarious situation can be resolved by safeguarding the domestic industry against these non-essential imports in the upcoming union budget.

The industry demands increasing the basic custom duty on Chapter-76 (Aluminium & articles) as per the following: