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Increase incentive under Export Incentivisation Scheme for Q4 from 2% to 3% to boost refined copper exports: Assocham plea
Apex industry body Assocham has urged the government to increase the incentive under Export Incentivisation Scheme for fourth quarter (Q4) of the current financial year (FY) 2013-14 from two per cent to three per cent to boost refined copper exports as it would also help the CAD (current account deficit) position substantially.
“If significant boost is provided to exports in Q4 through additional incentives than it would help increase production, utilise incremental production for additional export volume and give the domestic producers a much needed level playing field,” according to a paper on ‘Copper Industry’s suggestions on Foreign Trade Policy & Procedures for 2014-19’ prepared by The Associated Chambers of Commerce and Industry of India (Assocham).

India's refined copper industry, in the past, has witnessed an overall higher production in Q4 as compared to other quarters of the fiscal as is evident from the following table:

FY

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Q4 production in ‘000

Average of Q1, Q2, Q3 in ‘000

Q4 production higher to rest by

2010-11

178

161

10%

2011-12

184

157

17%

2012-13

178

172

3%

 
Considering that it is critical for domestic refined copper producers to remain competitive against global competition to protect market under deemed exports sales and explore avenues of export growth, Assocham has also suggested the government to extend Incremental Export Incentivisation Scheme for 2014-15.

In its paper, Assocham has also appealed to the government to extend full CST (central sales tax) exemption against H-form to manufacturers/OEMs under deemed export transaction where-in the import product undergoes value added fabrication before being exported.

Growing at a compounded annual growth rate (CAGR) of 25 per cent, steep rise in imports of refined copper products in India from about 65,000 ton in 2008-09 to about 130,000 ton in 2012-13 mainly due to the two per cent non-modvatable central sales tax (CST) has resulted in significant disadvantage for the domestic copper industry.

“Despite domestic capacity being higher than domestic demand, the imports of refined copper products are likely to reach 202,000 ton in the current financial year 2013-14,” said Assocham.

The empowered group on state-level value added tax (VAT) in January 2005 emphasized the need for phasing out CST. The CST rate was brought down from four per cent to three per cent from April 2007 and further to two per cent in April 2008 and has since stayed at the same level and further phase-out has been halted.

“CST, though a generic issue, hurts copper industry harder due to its thin margins in a conversion business model and just 2.5 per cent duty differential which gets nullified by two per cent CST,” said D.S. Rawat, secretary general of Assocham.

“Besides at LME of $8,000/ton, CST burden amounts to $160 and eats away one-fourth of the industry’s already slim revenue stream,” said Mr Rawat. “As such, it has now become impossible for the industry to further carry on this burden.”

Thus, providing relief to industry from CST for deemed export transaction will help the industry in import substitution, highlighted the ASSOCHAM paper. “Extension of ‘full CST exemption against H-Form’ to manufacturers/downstream manufacturers (OEMs) under deemed export transaction where-in import product undergoes value added fabrication before being exported.”

The trend of deemed export sales by Indian Refined Copper Industry which was 31474 mt in 2009-10 has come down to 7383 mt in 2012-13 in expected only 1936 mt in 2013-14, the paper noted.

High capital infusion, high working capital requirement, large workforce requirement, currency volatility and CST are certain key factors affecting the viability of Indian copper smelters. “India’s copper industry is currently working at 70-75% of the installed capacity due to limited demand in domestic market and low margin/high expense export market and there is a possibility of significant under-utilization of capacity in the near future.”

In its paper, Assocham has also highlighted that Indian copper industry which is highly dependent upon China and rest of Asia needs to explore new markets to increase their export volume due to rampant slowdown and downward trend of copper consumption registered in China and Asia during the course of past three years.

Assocham has urged the government to include high potential markets of Germany, Italy, Netherland and Turkey in the SFMS (Special Focus Market Scheme) of Foreign Trade Policy (FTP).

“Indian copper producers have an opportunity to explore huge potential for copper consumption in countries like Germany, Italy, Netherland and Turkey that are already importing large quantities of copper from other sources,” noted the Assocham paper. “Indian industry needs to be more aggressive in its marketing approach in order to stay competitive, besides, it has to deal with challenges like high freight costs together with high cost of servicing and long transit time for exporting to these countries.”

It is very critical for the industry to increase overall export volume considerably to get stronghold in all major markets and also to remain competitive in overall value chain.

Refined copper consumption in India is likely to grow at over 10 per cent in the coming years from current levels of about 5 lakh tones as it is a vital metal for India’s infrastructure development and is significant for power generation and distribution, automobile, consumer goods and defence sector. 

 

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