Source: Business Line – A metal in the dumps

On November 11, 2020, the Union Cabinet chaired by the Prime Minister approved the Production-Linked Incentive (PLI) scheme for 10 sectors, to encourage domestic manufacturing. The scheme, first envisaged in March this year, entails earmarking financial outlays that will drive the country’s manufacturing sector by cutting down on imports and provide scope for harnessing the growth potential of domestic manufacturing.

As a driver of the manufacturing sector, the PLI scheme will help embrace Atmanirbhar Bharat. It will enhance India’s manufacturing capabilities and increase exports for these champion sectors, which include automobiles and auto-components. It will make domestic manufacturing competitive internationally, build economies of scale, and help India position itself firmly on the global supply chain map.

Playing a crucial role in achieving the objectives of the Government’s ₹1.46 lakh crore PLI scheme will be the downstream sectors, especially the secondary aluminium segment. However, this crucial segment, whose products are a critical requirement in some of the key sectors under the PLI scheme such as automobiles and auto-components, telecom, textile, solar modules, white goods, etc., is in need of policy support.

Focussing downstream

With a processing capacity of 3.9 million tonnes, India’s downstream aluminium segment comprises around 2,500 companies that include both large and mid-size firms, and a much bigger base of smaller and unorganised players. Schemes like PLI are needed to give wings to this sector.

What is missing is one specific scheme from the government that will help boost demand and encourage domestic manufacturing of downstream aluminium products. Such a scheme will bring in investments from both within and outside.

Manufacturers in the downstream aluminium segment have been suffering on account of poor export incentives as well. Unlike their counterparts in the production of primary aluminium, those in the secondary and downstream segments have historically faced indifferent treatment.

This comes from the fact that the downstream segment procures material from primary aluminium producers at a premium over the London Metal Exchange prices and then has to fight in the same space, to sell finished downstream products competing with some of the largest primary producers. It is well-known that the US-China trade war has hit downstream aluminium producers the most as products from nearby countries are dumped in India, as the US market has suddenly closed for them.

If the government extends the PLI or a similar scheme to the downstream segment, it will help the sector to perform better and thus ensure a level-playing field for the local manufacturers.

Introducing non-tariff measures to lessen dependence on Chinese imports will go a long way in giving impetus to local manufacturing and curbing imports.

The secondary aluminium sector can boost India’s manufacturing capabilities to a great extent. There are close linkages between the downstream segment and the manufacturing industry. The secondary aluminium sector also needs a sector-specific strategy like in the case of speciality steel.

This will not only help in value addition but also improve quality across user industries.

RK Jain, Senior Vice President – Commercials, Jindal Aluminium Ltd