Now that the government has appreciated the difficulties faced by steel industry from the alarming threat of rising imports, it has rendered policy support by first enhancing duties on flat products from 7.5% to 12% in two tranches and secondly by announcing a provisional safeguard duty of 20% for 200 days.
The concern by the government centered on the Rs 1,230 billion of stressed assets of steel industry in the banks and the inability of the steel majors to invest significantly in augmenting capacities due to market distortions caused by cheap flow of imports. Thus stepping up of actions by the Government against increasing imports was timely and most appropriate.
There are a few associated issues that need to be addressed.
Firstly, enhancing customs duties, including provisional Safeguard duties, is being termed as protective as user industries of flat steel are well spread out and some of them are small and medium enterprises and exporters. While more dialogue and interface with the user segments are needed to resolve the issues, it is not exactly known if the erstwhile gain out of the availability of cheaper steel from imports was reflected in lowering the prices of the finished products by the user sectors. If not, there is no perceptible reason that it would go up now on the back of additional duty on imported steel.
Secondly, it may be argued that their products became competitive in the market due to the lowering of the cost of steel and now they would lose with the impending rise in cost of steel. Taking this argument a little further, the power distribution companies might prefer transmission towers (either complete or semi-knocked down form) imported at a cheaper rate from abroad than procuring the same from indigenous TLT manufacturers. Under the current scenario, this may actually be happening, however, in a smaller way. But the matter would definitely be hotly resisted by the domestic industry and would go against our “Make in India” programme. Therefore it is logical to conclude that in areas where adequate capacities have been created and more are in the offing with superior technology to generate value-added cost competitive products to cater to the emerging demand from various end users, the government must come forward to extend a helping hand to the sector suffering disastrously from unfair trade.
By looking around, we find that governments in each of the steel-producing countries threatened by massive rise in imports from some of the countries shaking off their excess capacity load at throw away prices or under the garb of free-trade agreements are taking suitable measures to eliminate this risk.USA is currently investigating dumping and subsidy charges on CR sheets and coils imported from Brazil, India, China, Japan, Korea, Russia and UK. This is in addition to similar duties already in vogue on imports of HR, coated products. India must learn to protect its critical industrial segments from the onslaught of unfair imports.
The issue of cost competitiveness of Indian steel is paramount in all these trade measures. Cost competitiveness determined by efficiency parameters, raw material availability and prices, labour and capital costs must be seen separately from the prices of the finished products determined by compulsions of selling the products and this is to be distinguished from the prices based on fairly traded market forces. As per studies by World Steel Dynamics, Indian steel is cost competitive below China and CIS countries, but well above South Korea, Japan, USA, EU in spite of high capital costs. However, when steel transported from steel plant in the country reaches far-away customers in the country and abroad, it becomes costly due to very high internal freight (both rail and road) and excise duty, VAT, entry tax etc. It is reported that China has an operating cost of $384/t of HR coils, marginal cost of $335/t , export price at $295/t FOB port ($315-$320 CFR Mumbai) with ex-works price realization $80/t less than marginal cost. If this is set as a standard, Indian steel would continue to remain uncompetitive.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
