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Round tripping of industrial inputs by large players unfavourable to local value chains
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SME Times News Bureau | 26 Apr, 2022
The Indian Industrial Value Chain Council (IIVCC), a group representing
organisations involved in industrial production and consumption supply
chain activities across India, has carried out research on some of the
anomalies that exist in Indias aluminium industrial ecosystem, which are
resulting in loss of forex for the country, an increased cost burden to
Indian customers, and a denial of timely raw material inputs to the
domestic aluminium manufacturing industry.
According to
Ashok Kumar Agrawal, National Convener, Indian Industrial Value Chain
Council (IIVCC), "As the country is rapidly rising from the ravages of
the pandemic, there is a need to nurture and protect local manufacturing
value chains, so that all participants, from large to small, medium and
micro enterprises can benefit. Our research has revealed that there are
policies and practices that send value outside India at the cost of
domestic industry and consumers which must be reversed."
"NALCO
was provided bauxite mines free of cost for the express purpose of
promoting the growth and development of the domestic aluminium industry
in the country. Hence, excess aluminia which is not being consumed by
NALCO should be offered to other domestic producers instead of exporting
it," he added.
Aluminium is one of the most critical metals in
existence today, second only to steel in the overall level of
consumption. Its versatile properties have been harnessed for a range of
sectors including construction, electricals and defence, and its
availability will be central to the success in adopting emerging
technologies such as electric vehicles and renewable energy. But India's
future in terms of access to sufficient supplies of aluminium appear
set to be disrupted by certain anomalies.
NALCO, a government of
India enterprise, has an aluminium smelting capacity of 0.48 mtpa and an
alumina production capacity of 2.3 mtpa, utilising India's rich bauxite
resources to produce the material and touching production above 2
million MT in both FY20 and FY21.
After utilising alumina for
its own aluminium production, the company has surplus availability of
alumina to the tune of 1.3 mtpa.
However, NALCO's alumina exports
presently account for a gigantic 60 per cent of its production. It
utilises 1 mpta of alumina generated for captive consumption and the
balance 1.3 mtpa is sold via tenders only to overseas buyers. That the
company appears to prefer exporting this large volume instead of helping
promote value addition within the domestic aluminium sector is
baffling, especially in the light of the shortage of alumina
availability within the domestic aluminium sector.
This worrying
situation is against the spirit of the 'Aatmanirbhar Bharat' initiative.
Alumina is a valuable intermediary product that is essential for
producing sufficient quantities of aluminium. By exporting alumina,
NALCO is creating an uneven playing field for its peer aluminium
companies. Notably, NALCO has been provided bauxite mines free of cost
solely for the growth and development of the aluminium industry in the
country. But instead, the company is exporting an intermediary raw
material to foreign beneficiaries, including to US-sanctioned countries
and even to nations with whom India is experiencing geopolitical
tensions.
It is believed that the primary rationale for the PSU
to follow this policy is that it needs to secure export benefits through
supplying to overseas customers. However, there are several domestic
aluminium smelters operate in established SEZs in the country and by
supplying to these producers the PSU will get all the export benefits
like duty drawback, EPCG benefits and others. SEZ-based plants have
expressed their interest in participating in the NALCO tenders and
paying the port prices for directly securing supplies from NALCO, which
could net the PSU an additional 200 crore.
Due to NALCO's policy
to not supply locally to domestic aluminium players, there now exists a
situation of simultaneous export and import of alumina within India,
which has caused a loss to the exchequer of nearly $5 billion (Rs 40,000
crore) in just the last seven years.
This same alumina, which is
being exported, is subsequently dumped back into the market in the form
of aluminium. Currently, India imports nearly 60 per cent of our
aluminium requirement annually, despite possessing the domestic
production capacity to fully meet this demand.
The situation has
given rise to a number of challenges. If the alumina being exported were
instead processed within the country, a value addition of up to three
times more could be achieved. The unnecessary roundabout in exporting
and reimporting alumina is also congesting the logistics network
domestically, in addition to creating additional pressures on the
environment through increased carbon emissions.
Ultimately,
foreign companies stand to gain from the increased access to alumina and
consequent higher exports to India. It is astonishing to note that the
nation in facts loses more forex than it gains through this approach, as
it spends more on importing aluminium to account for the shortfall in
alumina.
Urgent steps need to be undertaken to rectify this
situation in the greater interest of the nation. Domestic utilisation of
NALCO's excess alumina, will promote value addition within the country,
leading to more jobs and higher contributions to the exchequer.
The
need of the hour is to enhance cross-enterprise collaboration for the
greater good. Major producers need to work together to harness natural
resources and dedicate them to the development of the nation. This would
help greatly boost the national GDP and place India prominently on the
global manufacturing map.
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