Aluminium consumption to rise

Backed by abundant and good quality bauxite reserves and cheap labour costs, Indian aluminum producers have emerged among the lowest cost producers in the world. India is home to the sixth largest bauxite deposit in the world which makes it the world's 5th largest aluminium producer.

Aluminum industry in India registered a phenomenal growth during the past few years on the back of robust growth in the economy.

However, during the past few months, the sector has witnessed some short term hiccups on account of global credit crisis, which has led to substantial fall in demand and prices of the metal. Though the global aluminium industry is expected to remain muted in FY10, the demand in domestic markets is expected to remain robust on account of government's emphasis on infrastructure and power.

Also the fact that per capita consumption of aluminium in India is way below both developing as well as developed economies, it creates a platform for significant growth over the long term.

Budget Measures

	Allocation under Accelerated Power Development and Reform Programme (APDRP) has been increased by 160% YoY to Rs 20.8 bn in 2009-10.
	Increase in tax exemption limits for citizens.
	Fringe benefit tax (FBT) abolished
	Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years.

Budget Impact

	Increased spending on power sector would result in higher consumption of aluminium.
	Increase in tax exemptions for citizens would result in higher disposable income that will likely trigger increased demand for consumer durables, white goods etc, thus eventually boosting the demand for aluminium.

Company Impact

	Increased spending on power sector will trigger a rise in demand for aluminium, thus companies like Hindalco, Nalco and Sterlite Industries that are major players in the sector are likely to benefit.
	Increased demand for consumer durables, white goods etc will mean a positive development for fully integrated producer like Hindalco.