Foundry units face Rs 11k-cr export loss

Costlier raw material, due to government import duty, to make shipment of castings uncompetitive

Indian foundry units are facing a severe threat of losing Rs 11,000 crore of exports business to competing countries like China and Taiwan due to the recent levy of import duty on metal scrap - the only raw material for producing critical equipment for the heavy-engineering sector.

Effective May 8, the government levied 2.5 per cent of import duty on all types of scrap imports, including aluminium, stainless steel, iron and steel. Also, four per cent of special additional duty (SAD) was levied on brass scrap -used for manufacturing brass artifacts, popular in developed countries.

Since, India does not generate adequate metal scrap to meet the annual requirements to produce 10 tonnes of castings, it imports it from development countries.

"The import duty on scraps of iron and steel, stainless steel and aluminium in most other competing countries is also 'nil'. Hence, the levy by the Indian government will make the Indian Industry incompetitive. This will also lead to inverted duty structure, since metal produced from scrap by free trade agreement (FTA) countries is allowed duty-free, whereas imports of scrap by manufacturers are being subject to duty," said A K Anand, Foundry Informatics Centre (FIC), a premier body of 4,500 foundry units in India.

Foundry units manufacture critical cast equipment from both ferrous and non-ferrous metal for use in automobiles, railways, heavy machinery, textile, cement, agro, power, oil and natural gas. There is no substitute of the critical cast component manufactured in foundry.

The Indian foundry industry has been facing a severe demand slowdown due to the unfavourable economic situation in the West - the major destination for India's casting exports. On the domestic front also, demand from the consumer industry has been lower since the beginning of the last financial year. While the sentiment revived for a short period early this calendar year, demand of castings started gradually waning in the last couple of months.

Primary metal being costlier by $300-350 a tonne, metal alloys are produced through scrap to make the finished products cost-effective.

Interestingly, the findings of Jawaharlal Nehru Aluminium Research Development & Design Centre (JNARDDC) appointed by the Ministry of Mines also highlighted the fact there was no alternative to imports of aluminium scrap, since the availability of aluminium scrap in domestic market for producing auto components was almost negligible. The said report recommended the imports of aluminium waste and scrap at "nil" duty.

"India imported 45,405 tonnes of aluminium alloy in 2010-11 from Thailand. These countries enjoy the advantage of not only duty-free imports of aluminium scrap, but also the advantage of lower energy and finance cost than India. With the present levy of 2.5 per cent duty on the imports of metal scrap, coupled with duty-free imports of aluminium alloy and other components from Thailand and other Asean FTA countries, the foundry industry in India will be quickly driven out of business, which will adversely affect the employment of millions in this industry," said Anand.

Similarly scrap of stainless steel, iron and steel is used as key input by metallurgical industries such as foundries and other steel producers to produce components for use by the manufacturing industry. They will also be hit badly.

"The levy of import duty on scrap is a counter-productive step. It will not only dissuade the usage and trade of scrap but also add immensely to carbon emissions, scrap recycling being 40 per cent less energy-intensive," said Zain Nathani, Vice President of Metal Recycling Association of India (MRAI).

MRAI urged the government to abolish the import duty levy to protect the metal recycling industry from closure.

Meanwhile, the government's $60-61 billion engineering exports target would be difficult to achieve in 2013-14 through such counter-productive steps, an analyst said.

Engineering exports are estimated to be 56 billion in 2012-13.