The industry is the most apt for creating livelihoods. Govt should consider supporting SMEs in the sector through tariffs to prevent their collapse due to the pandemic
By TK Chand
Since its Outbreak in Wuhan, China, Covid-19 has spread to 211 countries, forcing imposition of lockdowns which have created much socio-economic disruption. Global losses are pegged at $9 trillion, and India is losing Rs 35,000 crore every day.
Amid the ongoing slowdown, Covid-19 has pushed the world towards negative growth. IMF projects the global economy to contract by 3%.
This will adversely impact the entire metal industry, especially the world’s second most important metal, aluminium.
Even pre-Covid-19, the London Metal Exchange selling price of the metal was stressed ($1,750/tonne); this has now fallen to a low of $1,440/tonne, making 90% of the world’s smelters unviable. Without any support from the government, aluminium producers will have to shut shop.
With a gloomy global forecast and Chinese smelters continuing operations, there will be an inventory glut. End-users are cancelling contracts for primary aluminium in Europe and North America, contracting demand by 5 mn tonnes.
India’s GDP forecast falling to 2% (from 6%) will impact aluminium demand in the construction, transport, and electrical sectors. Aluminium demand will decelerate by 40-50% unless enough stimulus is given—an SOS call of the aluminium industry.
Global recession, dumping from China, shrinking markets in the western hemisphere, and semi-finished products through FTA countries like Malaysia and Thailand spell trouble for Indian aluminium exports.
India’s own aluminium consumption will recover slowly post FY22, to reach ~6-7 mn tonnes by 2025.
Revival plan for Indian aluminium industry:
The aluminium industry has a high multiplier for job creation. Every job in primary production creates two more in the downstream and upstream industries. The industry provides livelihood to over 8 lakh people and every 1 mn tonne addition creates an additional 2 lakh livelihood opportunities. Aluminium is the most apt industry for creating livelihoods to achieve the coveted V-shaped recovery from ~2% to ~7% by next year.
Tariff support recommendations for aluminium MSMEs:
Immediately impose minimum import price and/or quantitative restriction on imports
Safeguard our MSMEs from cheap imports by increasing import duty in the series 7603 to 76016 to 10-15% (existing duties ~7.5-10%).
To be globally competitive, enhance the MEIS scheme from 2% to 5% for all aluminium products under Chapter 76, and implement the RoDTEP (remission of duties or taxes on export products) scheme expeditiously.
Extend RBI’s moratorium to non-convertible debentures and other commercial papers, for both principal and interest
Waiver/moratorium on all statutory payments (electricity duty, royalty on coal and minerals, coal cess, and on renewable purchase obligation) for next two years, to support highly power-intensive industries like aluminium.
There are also some non-tariff issues that require attention:
Liquidate the stockpile of 70 million tonnes of coal with Coal India by meeting the entire requirement of the aluminium industry at the notified prices through current and new FSAs
Fix the average selling price of bauxite as per Indian Bureau of Mines (IBM) return as is done for other bulk minerals, or on a cost plus basis price to be fixed by the state government
Prioritise rake allocation with discounted freight tariffs of 25%. This will benefit the volumes and revenue of the Railways.
Deemed approvals and public hearing exemptions for mine expansion proposals.
Include the aluminium industry within the core industry group, and introduce national polices on aluminium and aluminium scrap.
Industry, along with the government stimulus, should promote MSMEs and downstream industries. Aluminium parks developed by Nalco and Vedanta will increase value addition, mentor MSMEs, lending brand names to market end products. Other industries can also introduce cashless model for MSMEs to give input material and buy back end-use products. This will be mutually beneficial—spreading industrialisation, creating employment, and developing MSMEs.
With all ingredients of competitive raw material availability (bauxite and coal), best-in-class manpower, and value addition through MSMEs, India has the potential to be self-sufficient and become a global manufacturing hub of aluminium, and can be a strong substitute to China.
The author is Ex-Chairman & Managing Director, Nalco. Views are personal