Budget 2018: Impetus on infra to drive metals sector

Budget 2018 continues to put a strong focus on infrastructure development, which is in line with the expectations. Moreover, this is a great boost for the metals sector as the industry expects to benefit from the government’s massive thrust on infrastructure spend, with an allocation of Rs 5.97 lakh crore proposed in the budget this year.  The FM has allocated an extra-budgetary support of Rs5.97 lakh crore v/s Rs3.96 lakh crore in the last budget for the infrastructure sector, which is encouraging as India needs a large amount of investment in infrastructure due to growing needs.  A slew of measures to boost domestic manufacturing, a step up in allocation for Smart Cities mission, higher expenditure on Railways infrastructure and affordable housing are also slated to drive demand for metals especially steel.

However, the metals industry which is suffering from high input costs is disappointed that its demand for a reduction in customs duty on key raw materials has not been met.  Indian Stainless Steel Development Association (ISSDA), an apex body representing stainless steel industry, has already expressed its disappointment over the decision of the government to continue levying import duty on ferro-nickel and stainless steel scrap, key raw materials used in manufacturing stainless steel. This will act as deterrent for the domestic industry and put financial strain on domestic players. 

The same concern has also been witnessed in the non-ferrous metal segment. The aluminium industry was expecting a duty reduction on essential inputs like alumina and coal tar pitch and moves aimed at equating import duty on scrap with that on the primary metal. 

The industry has expressed that it would have benefited from a reduction in basic custom duty on critical raw materials for aluminium  industry value chain: Alumina from 5% to Nil, Coal Tar Pitch- 5% to 2.5%, Caustic Soda Lye (7.5% to 2.5%, Aluminium Fluoride 7.5% to 2.5%, Anodes - 7.5% to 2.5%. 

They have also hoped for an increase in import duty by 2.5% across aluminium products and GST compensation cess on coal (Rs 400/tonne) to be eliminated to support power intensive industries.

However, prior to the budget, the Metal Recycling Association of India (MRAI) has strongly opposed  an increase in custom duty on aluminium scrap since it will make business unviable for downstream manufacturers. It has argued that aluminium scrap is not the substitute for primary aluminium as both are used in different industries. Primary aluminium is used in electricals , foils, powder and extrusions, whereas the aluminium scrap is mainly used in alloy ingots which are further used in the automobiles industry and deox which are used in steel plants for deoxidation.

On the copper side, the budget came on expected lines as copper majors like HCL were pitching for increased investment in infrastructure and Railways sector to spur demand growth in copper. They were also keen on a hike in import duty on copper concentrate. Now, coming to the zinc industry which was hoping the budget would set norms for the use of only galvanized steel in construction, automobiles, electricity network, petroleum and solar sector, witnessed some disappointments. 

In a nutshell, the budget is balanced. The higher allocation in infrastructure segment will essentially expedite infrastructure development in the country, which in turn will aid many industries i.e. metals, cement, building materials, etc.