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Copper smelters face uncertain future

Source : BUSINESS_STANDARD
Last Updated: Thu, Nov 01, 2012 19:50 hrs

About 5,000 small and medium copper smelters that produce brass artifacts and utensils are facing the threat of closure, owing to the massive differential in import duties and discouraging government policies.

The accumulative import duty on raw material works out to 22.85 per cent (12.3 per cent countervailing duty, four per cent special additional duty (SAD) and a host of other duties) on copper and brass scrap. However, the levy on finished products is a mere 12.3 per cent.

“The government has signed free trade agreements (FTAs) with many neighbouring countries and has allowed the import of finished products under preferential duty benefits. Due to this, the domestic small-scale industry and micro units with smelting capacity of up to 100 tonnes per month have been suffering, owing to the higher cost of production through imported raw material,” said Rohit Shah, an industry veteran and former president of the Bombay Metal Exchange (BME). The import of finished products from neighbouring countries, including Sri Lanka, Myanmar, Bangladesh and Vietnam, is cheaper than paying high duty to import raw materials directly.



BLEAK SCENARIO
  • 22.85% The accumulative import duty on raw material
     
  • 12.3% Accumulative import duty on finished products
     
  • 25% Current average operating capacity of small copper smelters
     
  • 40% Average operating capacity of small copper smelters three months earlier
     
  • Most processing units are borrowing working capital from banks at high interest rates

Non-ferrous metals are usually characterised as high-value and high-investment products that provide large-scale employment. However, as raw materials have become more expensive than finished products, the domestic small-scale industry and micro units have turned unviable. Considering the growing demand for artifacts made in India, the government should consider reducing the import duty on raw materials.

The majority of processing units are borrowing working capital from banks and financial institutions at high interest rates, due to high volatility in the prices of non-ferrous metals. As scrap prices move in tandem with those of non-ferrous metals, the cost of raw materials keeps fluctuating. In the last three months, the average operating capacity of these units declined from 40 per cent to 25 per cent, owing to a gradual fall in import of copper scrap.

Secondary copper smelters also face the issue of refund of central value-added tax (Cenvat). There is little room to add value to products, such as copper. According to norms, smelters can claim Cenvat refunds while supplying finished products from the factory. Cenvat is usually paid on the purchase of raw materials. Registered dealers/traders are allowed to claim a refund of four per cent of the SAD amount against the sale of goods. However, manufacturing units are allowed credit of the same payment as Cenvat, which is allowed to be debited while clearing finished goods from factories, said Surendra Mardia, director of BME.




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