Aluminium Price Surge Hits India's MSMEs Amid Policy Gaps

Aluminium Price Surge Exposes MSME Vulnerability in India

The ongoing Iran–Israel/US war has led to a significant surge in aluminium prices, reaching $3,500 per tonne on the London Metal Exchange. Independent analysts forecast that prices could reach $4,000 per tonne by 2026, driven by concerns over supply disruptions in key regions.

Key Statistics:

• 4.1 million tonnes: India's primary aluminium sector operates at maximum capacity, with a utilisation rate of 98%.
• 50%: Primary producers export nearly half of their output, contributing to domestic shortages.
• 3,500 MSMEs: Downstream aluminium processors operate at 65% capacity utilisation, with margins of around 5%.

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Policy Gaps and Structural Burden

India's import duty structure, which includes an 8.25% duty on primary aluminium, conflicts with the country's manufacturing ambitions. In contrast, global competitors impose duties ranging from 3% to 6%. This inverted duty structure places Indian MSMEs at a severe competitive disadvantage, incurring an additional $600 million in raw material costs annually.

Employment Data Highlights Imbalance

• 10%: Upstream aluminium smelting accounts for a small portion of total industry employment, roughly 80,000 jobs.
• 90%: Downstream MSMEs generate nearly 90% of employment, with 8-10 jobs per ₹1 crore of investment.

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Demand Growth and the Case for Reform

India's aluminium demand is projected to rise sharply, driven by sectors such as infrastructure, transport, and renewable energy. Reducing the import duty on primary aluminium from 7.5% to 0% would level the playing field for downstream manufacturers, supporting MSMEs and accelerating GDP growth.

Recommendations

• Reduce the import duty on primary aluminium from 7.5% to 0% to balance competing interests and boost competitiveness.
• Implement similar tariff adjustments in other industries, such as steel and copper, to support MSME growth and GDP expansion.