India’s 8.25% Aluminium Import Duty Paradox: Downstream Manufacturing Under Cost Pressure

India is the world’s second-largest aluminium producer, with primary output reaching around 4.2 million tonnes. Yet a growing policy debate is questioning how much value the country actually retains from every tonne it produces. According to the Ministry of Mines’ Aluminium Vision Document, 76% of India’s aluminium exports by volume are unprocessed primary aluminium, while downstream value-added products account for just 24%.

This imbalance has put India’s effective 8.25% import duty on primary aluminium back under the spotlight, creating a policy paradox: the tariff designed to support domestic smelting is now squeezing the country’s downstream manufacturing ecosystem.

The 8.25% Duty Structure & Import-Parity Pricing

Primary aluminium currently attracts a 7.5% Basic Customs Duty plus a 0.75% Social Welfare Surcharge, bringing the total effective import levy to 8.25%.

The tariff was originally introduced to nurture India’s domestic smelting industry. However, downstream aluminium manufacturers argue the structure now inflates their raw material costs due to import-parity pricing rules. Domestic primary aluminium prices are set to match international benchmark prices plus applicable import costs, meaning downstream producers pay inflated prices even when buying domestically produced metal.

In July 2026, two downstream industry associations called on the Ministry of Mines to rationalise the duty, arguing the current structure places disproportionate pressure on aluminium-intensive micro, small and medium enterprises (MSMEs).

Downstream Manufacturers Face Mounting Cost Pressure

India’s downstream aluminium ecosystem includes extruders, cable and conductor makers, utensil producers, sheet manufacturers and component suppliers. For these businesses, aluminium accounts for 60–80% of total production costs.

Pressure has intensified alongside surging global aluminium prices. Primary aluminium prices have risen to more than $3,200 per tonne in recent months, up from around $2,200 per tonne three years ago. Overall input costs for downstream players are estimated to have risen 20–35% over the preceding three months.

The Ministry of Mines’ Aluminium Vision Document previously estimated that import-parity pricing cost downstream manufacturers roughly $470 million in extra payments to domestic primary producers in 2022, eroding investment in value-added manufacturing.

Finished Product Imports Add a Second Layer of Pressure

While primary aluminium carries an 8.25% effective duty, many finished aluminium products enter India at lower or zero duty under free trade agreements (FTAs).

Data from the policy debate shows India imported $4.1 billion worth of finished aluminium products in FY 2025–26, with nearly one-quarter entering at low or zero duty under FTAs. This creates an uneven playing field: Indian downstream companies pay inflated prices for domestic primary metal, then compete against imported value-added products that benefit from lower tariff barriers.

MSMEs Bear the Brunt of the Tariff Imbalance

The duty debate carries particular weight for India’s MSME sector, which forms the backbone of the downstream aluminium industry. Recent assessments put India’s downstream aluminium ecosystem at roughly 3,500 MSMEs, supporting a substantial employment base.

Industry submissions highlight severe margin compression of up to 70% in recent years, alongside falling capacity utilisation. The Global Trade Research Initiative also estimates import-parity pricing raises costs for aluminium-intensive government infrastructure projects by around 3%, including power transmission, railways, metro systems, renewable energy and defence schemes.

Policy Outlook & Longer-Term Industry Goals

The Aluminium Vision Document sets an ambitious target of 37 million tonnes of total aluminium capacity by 2047, and a 10% share of global aluminium trade — up from less than 4% today. It also identifies a potential capacity shortfall of at least 7 million tonnes against the long-term target under existing plans.

A strong downstream sector is critical to meeting those goals, as value-added aluminium products feed into power transmission, renewable energy, railways, automotive, packaging, electronics and other core manufacturing sectors.

The Indian government has already signalled that correcting inverted duty structures is part of its broader customs policy agenda. The Union Budget 2026–27 stated its customs proposals aim to simplify tariff structures, support domestic manufacturing, improve export competitiveness and correct duty inversions.