Foundry producers to pass on excise duty cut benefits

Foundry producers and cold rolled steel manufacturers are heaving a sigh of relief with the decision to cut excise duty from the existing 10 per cent to 8 per cent. Considering the 3 per cent education cess on the levy, the overall duty will be cut 2.06 per cent.

Both industries are ready to pass on the benefit to the consumer industries.

Finance minister Pranab Mukherjee today announced an across-the-board cut in excise and service tax rates, as part of the third stimulus package to boost the domestic economy. In his reply to the interim budget speech, Mukherjee announced that the goods that attract a 10 per cent excise duty will now be charged 8 per cent. However, excise rates on items that attract 8 per cent and 4 per cent duty will not be changed.

Nearly 90 per cent of excise duty collection comes from the slab rate of 10 per cent which is levied on industries like metal, iron and steel, copper and aluminium.

“The reduction in excise duty will automatically be passed on to consumers in the foundry sector as the rates of foundry products are fixed by customers which excludes value added tax and other levies. Hence, any reduction in taxes will directly benefit consumers as the price of the final output will decline,” said V Mahadevan, managing director, Hinduja Foundries.

Similarly, foundry producers will also benefit as the raw material cost would decline 2.06 per cent, he added.

The foundry sector has witnessed over 30 per cent decline in demand in the last one year because of a slowdown in the auto sector which consumes 25-30 per cent of foundries of various size. The industry has also witnessed 25 per cent job losses in the last six months.

The duty cut will surely provide relief to foundry sector with a marginal decline in input cost, said S R V Ramanan, managing director of Polyrez India, a large-size foundry in south India. Most importantly, the small scale foundry makers that were badly hit because of the slowdown in the auto sector will benefit from the government’s incentive, he added.

Being a high value commodity, even a 2 per cent duty cut may result in a price decline of Rs 800-1,000 per tonne of cold rolled steel, galvanised steel and coated steel products which is significant, said S C Mathur, executive director of Cold Rolled Steel Manufacturers Association. Currently, coated and galvanised steel is sold above Rs 40,000 per tonne depending on the quality of coating and purpose of application.

Most importantly, this will change the market sentiment, said Mathur and added that it would help create fresh demand which was otherwise falling from consumer industries including auto and white goods industries.