Hanging by wire

At the threshold of survival, the copper industry of Kashmir is facing a slump and requires intervention at highest level. Haroon Mirani reports.

The government of India announced a special central excise package for the state of Jammu and Kashmir in 2002 which provided for 100 percent exemption on excise for units set up in the state. The incentives were boon to a struggling copper industry and the state emerged as the hub of copper recycling with over 150 metal recycling units employing over 10,000 people. Most of these units produce copper wire and cables. With the units employing people with basic skills, most of the employees included people living in neighbouring rural belts.
However, the industry came in for a rude shock when government of India modified the excise exemption policy on March 27, 2008 and added a new concept of Value Addition. According to a report by Confederation of Indian Industry (CII) for Northern Region, “The copper recycling Industry in J&K was worst affected as the excise exemption benefit for copper based units was reduced to 15  percent plus government also imposed 5 percent duty and 4 percent SAD on copper scrap, forcing the Copper Recycling Industry to the brink of closure.”
Copper ranks third in world metal consumption chart after Iron and Aluminium. Ironically the first two metals invite zero custom duty while as copper is liable to a 5 percent duty.  
Being an organised industry in Jammu and Kashmir has also added to its disadvantage. The unorganized sector buys copper scrap from kabbadis (scrap sellers) and conducts their business without paying any taxes. But J&K traders have to shell out five percent custom duty on copper scrap which is at par with copper cathode, billets and bars. According to CII report, “The taxes don’t end here as J&K traders have to further pay additional duty (CVD) of 8.3 percent and special addition duty (special CVD) of 4 percent.”  
The copper industry also has to compete with finished products from Bhutan, Nepal and Sri Lanka. These countries export their finished products to India free of any duty. “Ironically, in India the Raw Material for Copper Recycling Industry, i.e. Copper-Scrap, is being imported with 5 percent basic custom duty, and 4 percent SAD, whereas manufacturers from Nepal, Bhutan and Sri Lanka import it duty free in case of Bhutan even without any excise duty,” says CII.
Imposition of 5 percent customs duty and 4 percent special additional duty on copper scrap in India and on the other hand allowing duty free imports of finished products from countries has not only denied the industry in J&K as well as other parts of the country a level playing field vis-?-vis imports, it has also added cost on essential industrial input.
Regarding copper industry in J&K CII says, “The industry in J&K is unable to find enough good quality scrap from local sources as the scrap trade in India is dominated by small-time kabbadis who do not maintain sufficient stocks of copper scrap required by the industry.”
These kabbadis trade in hard cash and are not inclined to sell their products outside their existing areas of operation to the units based in J&K.
CII has estimated that copper traders of J&K face more disadvantage than their counterparts elsewhere. It points out: “Copper scrap recycling units in J&K have additional input cost of 7 percent on account of the following additional freight components on raw material inputs and consumable 2 percent, additional freight on finished goods one percent,  difference taxes like CST 2 percent, additional financial expenses and production costs on account of higher inventory and higher cost of technical skill labour as well as additional cost on account of lower capacity utilization, poor infrastructure and combined 4 percent.”
The copper recycling industry provides productive employment to about 10,000 local unemployed youth in J&K and has a potential to grow further as number of more units were in various stages of materialization.
Traders say that the imposition of import duty of copper scrap is particularly inexplicable as India is deficient in copper and almost the entire copper requirements of the country are imported in the form of either scrap or copper concentrate. “Besides copper recycling offers an energy saving of 85 percent compared with primary production (that is to say, the mining and conversion of copper ore). This substantial energy saving also helps to reduce greenhouse gas emissions,” the CII report remarks.
Due to its inherent advantages copper scrap import is encouraged all around the globe and no import duty is charged on its imports by nations except a few.
The Confederation of Indian Industry for Northern Region has forwarded some recommendations which call for waiving of 5 per cent Customs Duty, exemption of 4 percent Special Addition Duty on copper scrap, increase of excise-refund from 15 percent – as has been done in case of other industries like Iron Ore, Cement, Chrome where raw material does not have incidence of excise and therefore no input credit is available. It also asks for increase in excise exemption to allow the industry in J&K to compete with goods imported from Bhutan.

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