India needs a national aluminium policy Editorial 10th Aug'18 Financial Express

Headline : India needs a national aluminium policy Editorial 10th Aug'18 Financial Express 
Details : 
 Significance of Aluminium:
  • Aluminium is light weight, recyclability, conductivity, non-corrosiveness and durability have helped establish it as a metal of choice for defence, infrastructure and other strategic sectors.
  • Aluminium is the second most used metal in the world after steel, with an annual consumption of 88 million tonnes (including scrap).
  • It is also the fastest-growing metal, growing by nearly 20 times in the last 60 years (compared to 6-7 times for other metals).
Strategic sector:
  • Many industrialised nations have included non-ferrous metals/aluminium industry as a strategic sector in their industrial strategy/plan.
  • This is because of the sector’s strong forward and backward linkages, substantial market potential, a high degree of technological intensity and high scope of value addition.
  • Additionally, aluminium has a greater role to play in promoting a sustainable future and lowering carbon footprint.
Aluminium in India:
  • Current usage:
    • In India, aluminium consumption is pegged at 2.5 kg per capita, compared to the global average of 11 kg per capita.
    • Even at its low consumption, aluminium contributes 2% of manufacturing GDP (steel 12%, cement 9%) and provides nearly 800,000 jobs.
    • The industry also has a high direct and indirect employment multiplier.
  • Needs to grow:
    • To reach the global average, India must up annual consumption by 16 million tonnes, becoming the second largest consumer in the world in absolute terms.
    • This growth is critical for India’s vision of achieving 25% of GDP from manufacturing by 2022.
    • Going forward, it will be a key contributor to ‘Make in India’, National Capital Goods Policy, setting up of smart cities and the goal of 100 GW solar capacity by 2022.
    • As India strives to meet its economic growth targets, aluminium will be critical for its infrastructural needs.
Bottlenecks in capacity addition in India:
  • Identifying bottlenecks that stifle Aluminium capacity addition in the wake of rising demand is necessary.
  1. High costs of production:
  • The domestic aluminium industry is struggling to remain globally competitive, thanks to rising production costs.
  • Amongst the largest producers of aluminium—Canada, Russia, the Middle East, Norway and China—India has the highest cost of production, attributable to its high energy costs.
  • Power is a critical input for the industry, accounting for 30- 40% of the cost of production.
  • The impact of coal cess, electricity duty, renewable purchase obligations (RPO), evacuation facility charges on coal, and import duty on CP coke raises aluminium’s cost of production to nearly $238/MT.
  1. Delays in clearances:
  • Coal and bauxite account for roughly 70% of aluminium production costs.
  • Implementation of royalty on coal and delays in obtaining environmental, forest and other statutory clearances for mining, increases production costs.
  1. Lack of domestic scrap industry:
  • As India embarks on a growing aluminium consumption trajectory, having both primary and scrap-recycling industries are essential to meet its growing consumption.
  • Currently, India imports all the scrap that it consumes with virtually zero domestic scrap generation.
  1. Negative impact of FTAs on the sector:
  • The aluminium sector has not benefited from the FTA agreements with partner countries.
  • For example, aluminium imports from the ASEAN region have surged from $122 million in 2010 to $302 million in 2016, despite significant under-utilised domestic capacity.
Poor infrastructure:
  • Logistical and infrastructural issues in terms of rake availability and railway connectivity push costs upwards.
National Aluminium Policy (NAP) needed:
  • The need of the hour is to formulate a National Aluminium Policy (NAP) which focuses on holistic short-, medium- and long-term visions, identifying growth targets for demand augmentation and capacity addition.
  • This will require a strategy for achieving the targets on raw material, infrastructure, value-addition, power, energy requirements and scrap recycling.
Recommendations for features that can form the pillars of the NAP:
  1. Classifying aluminium as a core industry:
  • We must look actively at classifying aluminium as a core industry.
  • Currently, India identifies coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity as its eight core industries.
  • Given aluminium’s growing consumption trajectory and its increasing requirement in nation building, it will be feasible to accord it core industry status.
  1. Ease of mining:
  • It is imperative that the industry should not face administrative and legal hassles during the operation of coal and bauxite mines.
  • This hampers the spirit of the ‘ease of doing business’ and induces inefficiency.
  1. Scrap recycling:
  • NITI is drafting a National Material Recycling Policy which aims to enable India to establish an appropriate legislative, administrative and institutional framework for the recycling of metals and materials.
  • Domestic scrap generation has to be our priority and this policy will be an important step in this regard.
  1. Energy policy for the energy-intensive sectors:
  • A separate energy policy needs to be developed for the energy-intensive sectors.
  • It is recommended that RPO obligations, coal cess and electricity duty charges be looked at, and rationalised, to make these sectors globally competitive.
  1. Level playing field for domestic manufacturers:
  • Before opening up our domestic market to FTA members, a level playing field should be ensured for domestic aluminium manufacturers to compete with foreign players.
  • FTAs have tilted the balance of trade in favour of our trading partners; these need to be reviewed leveraging our maximum export potential and keeping trade complementarities in mind.
  1. Value-addition:
  • Downstream producers of aluminium need to be encouraged towards high-end production and value-added exports.
  • This must be in sync with the objective of ‘Make in India’ with a focus on the development of the entire value chain of aluminium production in India.
  1. Priority access to infrastructure:
  • As aluminium is a continuous process industry, it will require priority access to infrastructure in terms of transport wagons and rake availability.
Conclusion:
  • India’s growing economic might enables it to produce enough high-quality aluminium to ensure self-reliance in defence and critical infrastructure, and avoid global volatility in supply and prices.
  • An NAP will be an important step.
Importance:
GS Paper III: Indian Economy