Moneycontrol Pro Panorama | Steel Walls Return: India’s safeguard duty is about time, not China

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Dear Reader,

India’s decision to impose a safeguard duty of up to 12% on select steel imports has been framed, predictably, as a defensive strike against China. It is that, but it is also something more revealing--an admission that India’s steel ecosystem is once again struggling to cope with global excess capacity, distorted prices and the collateral damage of trade wars not of its making.

The notification published in the official gazette lays out a tapering duty structure—12 per cent in the first year, easing to 11.5 per cent and then 11 per cent over three years. On paper, it looks calibrated and WTO-compliant.

So, what will this move do? In practice, it is a blunt instrument aimed at arresting a surge in low-priced imports that the Directorate General of Trade Remedies has described as “recent, sudden, sharp and significant”. That phrasing matters. Safeguard duties are not anti-dumping measures.  They are emergency brakes. You pull them when the system risks spinning out of control. Probably, that’s what happened in this case too.

Numbers tell the tale

India produced about 140 million tonnes of crude steel in FY24, making it the world’s second-largest producer. Domestic capacity utilisation has improved in recent years, but imports have been rising faster than demand. According to industry data, finished steel imports crossed 8 million tonnes last year, with China, Vietnam and a few ASEAN countries accounting for a disproportionate share. Much of this steel entered at prices domestic mills say were below cost, aided by subsidies, currency advantages and scale that Indian producers simply cannot match in the short run.

China looms large in this story, even when not named explicitly. With an installed capacity estimated at over one billion tonnes and domestic demand slowing sharply due to its property downturn, Chinese mills are exporting their way out of trouble.

Global steel prices have softened as a result, and countries from the US to South Korea and Vietnam have responded with tariffs and anti-dumping duties. Donald Trump’s return to the White House and his renewed enthusiasm for tariff walls have only accelerated this fragmentation of steel trade.

India’s safeguard duty must be seen in that context. When the government imposed a temporary 12 per cent tariff for 200 days in April, it was a signal that patience was wearing thin. The three-year levy formalises that stance. It also reflects political economy realities at home. Steel remains a core input for infrastructure, housing and manufacturing, but it is also a sector with heavy sunk costs, large employers and significant state-owned presence. Allowing domestic mills to bleed indefinitely under import pressure is not an option any government will easily accept.

The implications

Yet, protection comes with trade-offs that deserve honesty. Higher import duties inevitably push up domestic prices, especially in flat products used by auto, appliances and construction. Downstream industries, many of which are far more employment-intensive than steelmaking itself, will feel the pinch. India’s own experience between 2016 and 2018, when a clutch of trade remedies lifted steel prices sharply, is a reminder that shielding producers can end up taxing consumers and manufacturers.

One thing cannot be disputed even by rivals. Indian steelmakers are more efficient today than a decade ago, but structural issues persist--high logistics costs, volatile coking coal imports, and uneven quality standards enforcement. Safeguard duties buy breathing space. They do not fix these fundamentals. If the three-year window is spent lobbying for extensions rather than investing in technology, scale and cost discipline, the industry will be back at the same crossroads.

To sum up, what Delhi has done is defensible, even necessary, given the global mess in steel. But it should be under no illusion that tariffs are strategy. At best, they buy time to further consolidate India’s position in the global markets.

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