Economic Survey warns duty hike on aluminium to impact downstream industry

India, the world's second largest aluminium producer, produced 3.96 million tonnes in 2014-15

Stating that the production cost of aluminium here rose even as it became static globally, the Economic Survey today said raising tariffs to check imports will impact downstream sectors like power and construction.

Indian aluminium industry will continue to face difficulty unless world prices increase because in the short-run it is "virtually impossible" to reduce production cost, said the 2015-16 report card of state of the economy tabled by Finance Minister Arun Jaitley in Parliament.

Globally, aluminium prices like other metal prices are cyclical and though it is difficult to forecast when they will begin to move upwards, the trend is expected to change when world industrial growth improves, it added.

"Imposition of additional duties to reduce import of aluminium may erode the competitiveness of downstream sectors like power, transport and construction," the survey said.

It further said the capacity utilisation of domestic aluminium industry has fallen drastically in the last one and a half years as global prices have declined.

The cost of production is higher than the international prices. Huge capacity has been created in China and world growth has slowed down.

The Indian capacity rose substantially in 2014-15 and 2015-16 (first half) but its utilisation, which was nearly 100% up in 2013-14, has declined to 50%, it added.

World aluminium prices fell by 41% from $2,662 per tonne in April 2011 to $1,570 a tonne in August 2015 and $1,500 a tonne in January this year, it said.

"During this period in India, imports as a proportion of total demand (sales plus imports) have increased substantially from 39.8% in 2011-12 to 56.5% in 2015-16," the Survey added.

India, the world's second largest aluminium producer, produced 3.96 million tonnes (MT) in 2014-15, which was lower than China's 21.48 MT.

It is the third largest aluminium consuming country with a consumption of 3.8 MT in 2014-15, lower only to that of China's 22.09 MT and the US 5.5 MT, the survey noted.

The country's share in world aluminium consumption has increased from 3% in 2008-09 to 7% in 2014-15, it added.