Indian foundry units are facing severe threat of losing Rs 11,000 crore worth of export 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 heavy engineering sector.
Effective May 8, the government levied 2.5% of import duty on all types of scrap imports including aluminium, stainless steel, iron and steel. Also, 4% of special additional duty (SAD) was levied on brass scrap – a raw material used for manufacturing brass artifacts that are very popular in developed countries.
Since, India does not generate adequate metal scrap to meet the annual requirements to produce around 10 tonnes of castings annually, it imports the same 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 import of scrap by manufacturers are being subject to import duty,” said A K Anand, Foundry Informatics Centre (FIC), a premier body of over 4,500 foundry units in India.
Foundry units manufacture critical cast equipment from both ferrous and non ferrous metal for use in auto, railways, heavy machinery, textile, cement, agro, power, oil and natural gas. There is no substitute of 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 western world – the major destination for India’s casting exports. On the domestic front also, the demand from 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 on in the last couple of months.
Being primary metal costlier by $300-350 a tonne, metal alloys are produced through scrap route in order to make the finished products cost effective.
Interestingly, the findings of Jawaharlal Nehru Aluminium Research Development & Design Centre (JNARDDC) appointed by Ministry of Mines also highlighted the fact that there is no alternative to import of aluminium scrap since the availability of aluminium scrap in domestic market for producing auto components is almost negligible. The said report recommended the import of aluminium waste and scrap at “nil” duty.
“India imported 45405 tonnes of aluminium alloy in 2010-11 from Thailand. These countries enjoy the advantage of not only duty free import of aluminium scrap but also the advantage of lower energy and lower finance cost than India. With the present levy of 2.5% duty on import 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 of workers who are presently engaged in this industry,” said Anand.
Similarly scrap of stainless steel, iron and steel is used as key input material 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 by the government which will not only dissuade the usage and trade of metal scrap but also add immensely to carbon emissions, being scrap recycling 40% less energy intensive business,” said Zain Nathani, Vice President of Metal Recycling Association of India (MRAI).
MRAI urged the government to abolish the import duty levy to protect metal recycling industry from closure.
Meanwhile, the Indian government’s $60-61 billion engineering exports target would be difficult to achieve in 2013-14 through such counter-productive steps, an analyst said.
India’s engineering export is estimated at 56 billion in 2012-13.
