Secondary metals producers are worried that an inverted duty structure on raw materials and finished products will hit them hard and also affect around 2.5 million workers in the industry.
Under a regional co-operation agreement signed by the members of ASEAN (Association of South East Asian Nations) countries, India has cut import duty on finished non-ferrous metals to zero. But, import duty on non-ferrous metallic scrap remains 2.5 per cent.
This inverted duty structure has resulted in a number of Indian secondary metal users switching to import of finished products from metallic scrap. Existing recycling units that have invested on setting up plants and machinery, however, continue to import metallic scrap for domestic processing .
But, profit margins of players using metallic scrap as raw materials have been lower compared to the ones using imported finished products.
The inverted duty structure has prompted many Indian players to shut down their shops for scrap recycling and import finished products for production of valves, tubes, panels, engines parts etc. If this continues, the survival of Indian metal recycling units would be difficult.
"Around 3,500 units, primarily SMEs (small and medium enterprises), in the sector employ around 2.5 million people directly and indirectly. Any further increase in import duty would bring the entire industry to a grinding halt and render these workers jobless," said Sanjay Mehta, President, Material Recycling Association of India (MRAI).
Interestingly, primary metals producers have urged the Finance Minister Nirmala Sitharaman to raise import duty on metallic scrap in their pre-Budget recommendations.
A higher import duty on scraps could spur an additional duty collection of Rs 330 crore annually.
"An import duty hike on metallic scrap would be detrimental to the metallic scrap recycling industry and could result in shuttering of units and large scale lay offs," said Mohan Agarwal, Managing Director, Century Metal Recycling, which recycles aluminium scrap to make alloys and enjoys over 20 per cent of the market share.
The metal recycling industry is already facing a huge downturn due to declining auto sales in India. Many aluminium recyclers have cut their output to adjust the weak demand from the automobile sector.