India to Increase Bauxite Export Tax to Aid Aluminum Makers

India will raise export duties on bauxite to help local aluminum producers, which are facing a shortage of the raw material because of mining curbs.

Export taxes on bauxite will be doubled to 20 percent, Finance Minister Arun Jaitley said in his budget speech to lawmakers in New Delhi today. The higher levy will boost local availability for smelters, including those of Sesa Sterlite Ltd. (SSLT), Hindalco Industries Ltd. (HNDL) and state-owned National Aluminium Co.

Prime Minister Narendra Modi’s government, which in May won the biggest Indian mandate in 30 years, is seeking to revive the nation’s metals industry to bolster economic growth from near a decade low, while narrowing one of Asia’s widest fiscal deficits. Environmental concerns and land-acquisition delays have impeded mining of raw materials from bauxite to iron ore, hampering the production of aluminum and steel among other metals used to build infrastructure.

“Increase in export tax will send a positive signal that the government wants to conserve the raw material,” Goutam Chakraborty, a Mumbai-based research analyst at Emkay Global Financial Services Ltd., said by phone.

Sesa Sterlite was unchanged at 294.40 rupees at the close in Mumbai after climbing as much as 3.5 percent, while Hindalco rose 3.3 percent to 176.25 rupees. National Aluminium also climbed 3.3 percent to 56.65 rupees.

Uniform Tax

Jaitley also proposed to impose a uniform import tax of 2.5 percent and a 2 percent countervailing duty on all types of coal. That will translate into a 50 basis-point increase in duty on coal shipped to power plants. Steelmakers, who import about half of their requirements of coking coal, currently don’t pay any tax on overseas purchases.

India’s thermal coal imports are expected to rise to a record in 2014, according to Bloomberg Industries analyst Andrew Cosgrove, as rising industrial demand spurs plants to replenish stockpiles.

The finance minister also proposed to double a clean-energy levy, placed on miners to fund research in renewable energy, on coal and lignite to 100 rupees ($1.7) a ton. The increase in import and clean-energy taxes may result in a 2 percent increase in power tariffs for consumers, said Debasish Mishra, a Mumbai-based partner at Deloitte Touche Tohmatsu’s energy and resources practice in India.

The government is working to improve coal deliveries to power plants, Jaitley said, assuring supplies to all operators of existing plants or those slated to start by March.

Attracting Investment

Jaitley said he plans to extend a 10-year tax holiday for power generation, transmission and distribution companies that plan to begin operations by March 2017. The move will help attract investment to an industry beset by fuel shortages and debt-laden distribution companies, said Kameswara Rao, leader, energy, utilities and mining in India at PricewaterhouseCoopers LLP.

The finance minister plans to raise the import duty on flat-rolled stainless steel to 7.5 percent from 5 percent to help the industry.

“We applaud the government for recognizing the challenges, which the domestic industry is facing especially in light of the huge surge in imports from China,” said N.C. Mathur, president of the Indian Stainless Steel Development Association.

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Abhay Singh, Indranil Ghosh

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