India: Aluminium duty at 8.25% remains conditional amid structural import dependence

• Tariff stability persists, but market deficit limits its effectiveness
• Structural inversion continues to favour imports over domestic processing

India can sustain an 8.25% duty on primary aluminium, but only in the short term. With nearly 55% of domestic demand met through imports, the tariff increasingly behaves less as a protective measure and more as a cost burden on the broader economy.

In a structurally deficit market, duties extend beyond producer protection and directly raise input costs for infrastructure, auto, power, and construction sectors, creating friction across the value chain rather than stability.

Inverted duty structure and cost build-up

The larger distortion lies not in the 8.25% rate itself, but in the inverted duty structure. Primary aluminium is taxed at 8.25%, scrap at 2.5%, and downstream products at 7.5-10%, while certain finished goods enter at 0% under FTAs. This allows cheaper imports of finished goods, while domestic manufacturers continue to operate with higher input costs, particularly impacting MSMEs and downstream processors.

The effective burden is significantly higher than the headline duty. With the addition of Social Welfare Surcharge and 18% IGST, the total cost impact rises to around 27-30% on working capital, which remains critical for downstream players operating on thin margins.

Policy direction and scrap sensitivity

The government’s decision in Budget 2026-27 to avoid raising duties to 15% reflects this structural reality. A higher duty would have increased inflation, elevated project costs, and added pressure on manufacturing.

Policy direction is now shifting toward non-tariff measures, with the Quality Control Order 2026 enforcing BIS certification and acting as a filter against low-quality imports without adding further tariff burden.

Scrap remains the most sensitive segment. Despite a duty of only 2.5%, recyclers continue to face tight global supply, elevated prices, and IGST-related pressures. With the recycling sector supporting nearly 90% of employment, these constraints carry broader implications for both supply stability and jobs.

Outlook

The 8.25% duty remains conditionally sustainable, supported by effective QCO implementation, easing energy costs for smelters, and improved scrap availability. In the absence of these factors, risks remain skewed toward downstream margin compression, higher import dependence, and weaker domestic value addition.

India’s aluminium policy is increasingly moving beyond tariff-led protection, with sustainability dependent on aligning trade policy, energy economics, recycling dynamics, and downstream competitiveness rather than relying on duty stability alone.

Note: This article has been written under an article exchange agreement between BigMint and AL Circle.