Budget 2004: Aluminium
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Finance minister has reaffirmed the thrust on infrastructure development by announcing new infrastructure projects. |
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Surcharge on corporate tax halved from the current 5% to 2.5%. |
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Spending on infrastructure sectors and the announcement that mega power status would now be given to all power projects meeting existing norms is a positive for the aluminium industry. It must be remembered here that power and transportation are the two key aluminium consuming industries. This will help raise the per capita consumption of aluminium from current levels, which currently rests at very low levels. |
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The reduction in the surcharge on corporate tax will benefit companies, as it would have the effect of reducing their tax outgo. |
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| The industry is recommending an increase in protection from imports. The move will help align realisations to international levels. |
| Given the fact that the Indian aluminium industry is ensuring adequate supply and providing for the future too, there is no need to encourage imports. Moreover, Indian companies, unlike their international peers, also face higher costs, as they need to set up their own power plants. |
| Remove anomaly in excise law as a result of which CENVAT credit on capital goods and inputs is denied to captive power plants. Provide concessional rates of CENVAT on selected aluminium products including pressure cookers and vehicles. |
| Lower excise duty to perk up domestic demand. |
| Key Positives |
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| The per capita aluminium consumption in India is less than 1 kg compared to 26 kgs in U.S. And while globally there are about 3,000 applications of aluminium, in India one can see only around 300 applications. These factors leave a lot of room for the domestic sector to grow. |
| International aluminium prices have staged a smart rally in the last one-year as the demand for the metal increased. China made a major contribution on the demand front. The demand and hence, the prices are likely to remain firm going forward. |
| Indian aluminium producers are one of the lowest cost producers in the world. Abundant bauxite reserves and access to cheap labour have given aluminium manufacturers an edge over their international peers. |
| Consolidation in the domestic market is likely to augur well for the industry. With lesser competition, companies could have a greater control over pricing. |
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| Key Negatives |
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| The year 2001 was tough for the aluminium industry due to a fall in demand for the metal by 6% in the western countries. The performance in year 2002 was also lackluster. Slower growth in key economies like the US, Japan and Europe continue to be a cause for concern. |
| The electrical sector consumes over 1/3rd of the domestic aluminium production. But considering the sticky positions of the State Electricity Boards (SEBs), the growth in this segment is likely to remain sluggish. |
| The reduction in import duties reduces the net tariff protection for the aluminum producers. |
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