Anushruti Singh
Since the economy is going through a slowdown, expectations across sectors from the Union Budget 2020-21 are at an all-time high. The manufacturing sector especially has high hopes from Finance Minister Nirmala Sitharaman to give it a boost. The domestic steel industry, therefore, list down its concerns and expects immediate relief from the upcoming Budget. The Federation of Indian Chambers of Commerce and Industry has sought reduction in basic customs duty on key raw materials such as coking coal, pet coke, limestone and dolomite from the government.
While recommending measures for the Indian steel sector, FICCI said, “Anthracite coal, coking coal, coke, limestone, dolomite are vital inputs for the steel industry. The availability of these items in good quality is declining in the country and the industry has to depend on imports on regular basis.”
Zero import duty on Met Coke
Ferro alloy industry plays a vital role in steel manufacturing. Thus, it is recommended to reduce the basic customs import duty levied on anthracite coal from 2.5 per cent to zero. This will help make Indian steel mills more competitive globally, according to the industry body.
On the other hand, metallurgical coke or Met Coke had always attracted lower and concessional rate of customs duty. The basic customs duty was enhanced from 2.5 per cent to 5 per cent with effect from March 1, 2015; additionally, anti-dumping duty was also imposed on its imports with effect from November 25, 2016.
In its recommendations, FICCI stated, “As a result, the cost of this (met coke), a vital input in steel manufacturing, has gone up necessitating increase in price of steel which is acting as deterrence to the competitiveness of domestic products in international markets vis-a-vis similar products of other countries like China.”
Moreover, high inputs costs have led to an inverted duty structure in the domestic industry and are acting as a deterrent to the government’s ‘Make in India’ initiative, as domestic players have less incentive to import met coke. Thus, imports of finished steel goods are preferred. FICCI suggested that duty on metallurgical coke should be reduced to zero.
Exemption available to coking coal was also removed by the government in Budget 2014-15 by bringing it at par with other types of coal, and 2.5 per cent basic customs duty was imposed. This amendment has adversely affected steel manufacturers in India, the industry body said.
Coking coal is one of the principal raw materials used in steel manufacturing and predominantly used for making coke for use in steel making, and thus forms a major part of the final price of the steel, it said. “Levy of 2.5 per cent of duty on coking coal and simultaneously fixing the import duty of 5 per cent on coke has adversely affected the costing of steel. It is requested to restore the exemption of nil rate of duty allowed earlier to coking coal without any technical definition of coking coal,” it added.
Duty cut on other key raw materials
FICCI has also recommended zero customs duty on steel grade limestone and dolomite as increase in steel production has led to rising demand for SMS (steel melting shop) and BF (blast furnace) grade limestone. Limestone imports have been increasing consistently as the reserves of SMS and BF grade limestone within the country are scattered and there is a capacity limitation of the existing limestone mines in various states.
“This substantially increases transaction costs and litigation defeating the purpose of benefit of concessional duty. So, it is requested to reduce the customs duty on all grades of limestone and dolomite from 2.5 per cent to nil in line with similar imports from ASEAN countries, without any technical condition.”
Exemption of import duty on ferrous and stainless steel scrap, imposing 30 per cent export duty on graphite electrodes, increase in basic customs duty for certain steel products, reduction of import duty on moly oxide are some of the other recommendations made by FICCI to the Finance Ministry.
Protect domestic stainless steel industry from excessive dumping
Despite the brimming global trade challenges, India continues to be the second largest producer and consumer of stainless steel. The demand for stainless steel in India is growing at a compound annual growth rate (CAGR) of ~8-9 per cent across an array of applications. However, Indian per capita consumption of stainless steel is 2.5 kg against the world average of 6 kg. And, the capacity utilization of the Indian stainless steel manufacturers is stagnant at 60-70 per cent as cheap imports engulf a significant market share. Further, high input costs reduce the competitiveness of domestic players globally.
As part of its Budget 2020-2021 recommendations submitted to the Finance Ministry, stainless steel industry body Indian Stainless Steel Development Association (ISSDA) has also sought for zero duty on import of key raw materials and anti-dumping duty on steel imports from other countries. Some of these include:
- Make import duty on ferro-nickel and stainless steel scrap zero. These raw materials are not available in the country, and “must necessarily be imported.”
- Impose 12.5 per cent custom duty on stainless steel flat product imports in order to bring it at par with carbon steel.
- Abolish 7.5 per cent import duty on graphite electrodes, another major raw material for stainless steel manufacturing.
- A minimum export duty of 20 per cent should be imposed on graphite electrodes, ensuring priority treatment and availability for domestic customers.
These measures, according to ISSDA, are expected to boost domestic stainless steel production and protect Indian manufacturers, which are currently facing the dual challenge of excessive dumping by other major stainless steel producing countries like Indonesia, China, and other Free Trade Agreement (FTA) countries, and non-availability of key raw materials in the country.
The government took a significant decision by withdrawing from the Regional Comprehensive Economic Partnership (RCEP) treaty. However, rampant imports from FTA countries continue to harm the domestic stainless steel industry. The government must proactively review the existing FTAs to ensure a level-playing field for the Indian producers.
“At a time when the government is assessing its trade relations with other countries and trade blocks, it is also necessary to boost domestic manufacturing by reducing high input costs. The Indian stainless steel industry has reached an inflection point where support from the government, for availability of raw materials at zero duty, will help preserve its competitiveness,” K K Pahuja, president, ISSDA said.
“We urge the government to not see the duty on raw materials as a revenue source; rather, consider the larger vision of higher manufacturing growth resulting in job creation, a push for the ‘Make in India’ drive, and contribution towards the USD5 trillion Indian economy target by 2024,” he added.
