Import parity pricing of primary aluminium is raising raw material costs for India's downstream aluminium manufacturers, squeezing already-thin margins and eroding the competitiveness of the domestic value-added sector, according to a report by public policy think tank Policy Consensus Centre published on July 31, 2026.
Import parity pricing mechanism
According to the report, India is the world's second-largest producer of primary aluminium, with an installed capacity of over 4.16 million tonnes annually. Yet the country's nearly 3,500 downstream and secondary aluminium units — mostly micro, small and medium enterprises (MSMEs) — face significant structural disadvantages, the report said.
The central challenge is that domestic primary producers price aluminium on an import parity basis by incorporating customs duties into domestic prices. As a result, downstream manufacturers pay import-equivalent prices even when sourcing metal produced within India. The report said:
Domestic primary producers price aluminium on an import parity basis by incorporating customs duties into domestic prices, resulting in downstream manufacturers paying import-equivalent prices even when sourcing metal produced within India.
This pricing mechanism substantially raises raw material costs, compresses already-thin operating margins, and weakens the competitiveness of India's value-added manufacturing sector, the report said.
Duty and trade-policy burden
One of the most significant challenges for MSMEs, the study said, is the 7.5 per cent basic customs duty (BCD) on primary aluminium, along with the applicable social welfare surcharge. The report also pointed to an inverted duty structure that places a higher tariff burden on primary aluminium than on several finished aluminium products.
Simultaneously, free trade agreements with ASEAN, Japan and South Korea allow many finished aluminium products to enter India at concessional or zero duty rates, intensifying competitive pressure on domestic MSMEs, the report said.
Employment and end-use significance
The report said these enterprises provide almost 90 per cent of employment across the aluminium value chain and supply critical inputs to sectors including power transmission, renewable energy, railways, electric vehicles, construction and engineering.
Policy recommendations
The report suggested a phased, time-bound reduction of the BCD on primary aluminium to zero, supported by targeted energy cost compensation measures for primary producers to ensure a balanced transition. It also recommended correcting tariff inversions through:
- stronger rules of origin
- tariff-rate quotas where appropriate
- enhanced verification under free trade agreements
- targeted trade remedies against unfairly priced imports
Rationalising duties on primary aluminium will improve the competitiveness of downstream MSMEs, stimulate domestic manufacturing, encourage higher value addition and support India's broader objectives of employment generation, industrial growth and the 'Make in India' initiative, the report said.
| Metric | Figure / Detail |
|---|---|
| India's installed primary aluminium capacity | Over 4.16 million tonnes annually |
| Downstream and secondary aluminium units | Nearly 3,500, mostly MSMEs |
| Employment contribution across the aluminium value chain | Almost 90% |
| Basic customs duty on primary aluminium | 7.5% plus social welfare surcharge |
| FTA partners granting concessional/zero duty access | ASEAN, Japan, South Korea |
| Recommended BCD level | Zero, in a phased, time-bound manner |
For commodity traders and procurement teams, the report's core finding is that the effective landed cost of domestic primary aluminium is tied to import parity benchmarks even when the metal never crosses a border, according to the report. The recommended duty rationalisation and tariff-inversion corrections would, in the report's assessment, improve the competitiveness of downstream MSMEs and stimulate domestic manufacturing, while the proposed energy cost compensation is aimed at supporting primary producers during the transition.
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