India's Inverted Aluminium Duties Cost MSMEs Billions in Value
India ships raw aluminium and imports finished goods due to a 7.5% primary versus 0-2.5% finished duty gap.
Key points
- India exports 76% of aluminium as primary metal while importing finished goods due to inverted tariffs.
- Primary aluminium faces a 7.5% duty, whereas finished products enter at 0-2.5%, making local manufacturing costlier.
- LME prices rose 27% in 2026, increasing the absolute cost burden on domestic MSMEs by approximately USD 250 per tonne.
India produces 4.2 million tonnes of primary aluminium annually, making it the world’s second-largest producer after China. Despite this volume, the country exports 76% of its output as raw material and imports finished goods worth billions of dollars, ceding high-margin value addition to foreign manufacturers.
The core issue is an inverted duty structure where primary aluminium faces a 7.5% import duty, while finished products enter at 0% to 2.5% under trade agreements. This makes domestic manufacturing of finished goods more expensive than imports, directly undermining the roughly 3,500 micro, small, and medium enterprises that rely on local metal for production.
Tariff structure favors imports over local processing
According to ET Government, the current policy taxes raw materials while admitting finished goods, creating a cost disadvantage for domestic downstream producers. In contrast, China taxes raw ingot exports to force domestic processing, resulting in a trade mix dominated by high-value sheet, foil, and extrusions rather than raw metal.
This disparity squeezes profit margins for Indian MSMEs that cut, roll, and extrude aluminium. Large integrated producers remain insulated as they capture value across the entire supply chain, but smaller firms face higher input costs compared to their foreign competitors who benefit from zero-duty access to finished products.
Rising LME prices amplify domestic input costs
The burden of the duty structure intensifies when global prices rise. LME aluminium averaged USD 3,341 per tonne in 2026, up 27% from 2025, causing the absolute cost of the 7.5% duty to climb proportionally. Recent geopolitical tensions in West Asia triggered a 13% to 22% spike in ingot prices, further compressing margins for downstream manufacturers.
Policy gaps threaten 2047 global trade targets
The Ministry of Mines aims for 37 million tonnes of capacity and a 10% share of global trade by 2047. Current projections indicate a shortfall of at least seven million tonnes if the existing distorted tariff regime remains unchanged. Achieving these targets requires treating aluminium as a strategic industry with corrected incentives that protect domestic value addition.
