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Favourable duty structures alone will not help steel industry

MIP and anti-dumping duties benefit local producers, but not the consumers. In the case of steel, user bodies have protested saying they are forced to buy expensive domestic steel when global prices are far lower

August 05, 2016 / 04:28 PM IST
Santosh Nair
moneycontrol.com

The government has pruned the list of items on which it has imposed a minimum import duty (MIP) to 66 from 173 earlier.

The items that have been excluded will be covered under anti-dumping and safeguard duties. According to a metals analyst, the move may be an outcome of steel producing nations complaining that the MIP was not compliant with WTO norms. Anti-dumping duties are, however, legitimate global trade norms, where a member country can prove that importers are dumping products and damaging the local industry.

MIP and anti-dumping duties benefit local producers, but not the consumers. In the case of steel, user bodies have protested saying they are forced to buy expensive domestic steel when global prices are far lower.

Usually, the government balances the needs of users--who will benefit from cheaper steel--and the industry, which benefits if imports become difficult. The pro-active approach on display suggests that they want the industry to remain profitable so that they can service the huge debt on their books, with a large part lent by state-owned banks. The steel industry collectively has around Rs 3 lakh crore of debt on their books, and industry accounts for the largest proportion of the banks' non-performing assets. If steel prices weaken, it will push more steel companies to the edge and make many loans unrecoverable.

But are MIP and anti-dumping duty the answer to the steel industry’s woes?

For one, domestic demand for steel is tepid right now. High steel prices could hurt demand even more.

The other problem is a fundamental one.

In an interview to CNBC-TV18 in August last year, former Finance Secretary Rajiv Meherishi had said that the cost of production of steel in India was nearly 1.4 times that in other parts of the world.

"If the cost of production is 1.4 times higher than anywhere else, then higher import duty or safeguard duty will not be the answer," he said, adding, “we also need to see how we can make our domestic cost of production lot more reasonable."
first published: Aug 5, 2016 03:28 pm

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