Will aluminium get the shield?

Vedanta Resources chairman Anil Agarwal does not consider aluminium and steel competing with each other for application in construction and manufacturing sectors. He sees plenty of scope for growth in the use of both in India, where infrastructure development is accorded high priority and which aspires to become a factory to the world under the Make in India banner. This is why Agarwal considers the argument that India should be targeting steel capacity of 300 million tonnes (mt) by 2025 and aluminium capacity of 20 mt some years down the road.

"India will need all that steel and aluminium for domestic consumption as it remains the world's fastest-growing economy. What makes it ideal for the country to grow aluminium and steel industries is our rich endowments of bauxite, iron ore, and thermal coal," says Agarwal.

Both industries here are taking a lot of beating from imports mainly from China. It is in this context that Agarwal remains an advocate of treating the two metals in the same way when it comes to offering protection from imports believed to be loaded with subsidies in contravention of World Trade Organization (WTO) norms. Fortunately, for local aluminium producers, whose losses climbed to Rs 4,025 crore in 2015-16 from Rs 1,480 crore in the previous year, mines minister Piyush Goyal sees merit in aluminium getting protection through minimum import price (MIP).

In February, New Delhi had brought 173 steel products under MIP with prices ranging from $341 to $752 a tonne for a period of six months. But, ahead of its renewal, the goods council of WTO expressed reservations about India continuing with MIP on steel. What should be noted is that three of the nine members of the council - China, Japan and South Korea - happen to be principal exporters of steel to India adopting predatory pricing. WTO reservations are supposedly based on Article 11 of General Agreement on Tariffs and Trade. But, JSW Steel's joint managing director Seshagiri Rao points out quoting Article 19 from the same Agreement that exceptions to the rule can be made in the event of a sudden surge in imports, injury caused to domestic industry from large-scale imports and shortage of any food items.

Without splitting hairs on what trade actions are justified under WTO rules, the fact remains that anti-dumping duty is preferred to MIP since the former is preceded by thorough investigations into complaints by parties affected by imports "below normal value". But, since such investigations are time-consuming, the government will use MIP to protect local industry from import related injuries. Is the aluminium industry's demand for a much higher tariff wall than the prevailing 7.5 per cent justified? Vedanta Aluminium chief executive officer Abhijit Pati says "imports growing relentlessly from 881,000 tonnes in 2010-11 to nearly 1.608 mt last year and in the process meeting half the domestic demand are proving harmful for local producers of the metal". The industry here has built capacity of 4.129 mt. But, at capacity use of less than 60 per cent, its production last year was 2.372 mt. In recent years, Hindalco, Vedanta in Odisha and Bharat Aluminium have all created significant aluminium smelting capacity.

Imports into India are principally originating in China, which continues to commission new smelting capacity as it is found slow in eliminating old, inefficient plants and West Asia, where smelter viability is linked to export success. Out of India's total imports last year, China and West Asia combined had a 44 per cent share, says Pati. It can well be argued that if steelmakers with capacity use of 80 per cent and imports meeting 14 per cent of domestic demand could have the benefits of MIP and safeguard and anti-dumping duties, then aluminium has a stronger case for getting identical relief. Goyal's pronouncement has raised hope among aluminium producers. But, he will have to get commerce and finance ministries on board for the dispensation to be made. Aluminium makers have a debt load of around Rs 70,000 crore. Without duty protection, they will falter in servicing bank loans.