NEW DELHI: The government recently raised the import duty on steel from 0% to 5% and said this was necessary for increasing the profitability of steel industry— read primary steelmakers— to a certain level so that it remains viable.
The government seemed to share the perception that with global commodity prices tumbling and China etc wanting to turn from the slumping western markets to countries like India to keep their steel mills running, Indian steelmakers were facing a serious threat of dumping.
This was reported widely in the media. What went largely unreported is the shifting of import of HR coil, the most important and most price-sensitive product of primary steel industry, from the open general licence (OGL) to the restricted list. The commerce ministry issued a notification to this effect on November 21 without offering any specific justification. It merely said, as is customary, that the move was “in public interest.”
Was it? At least the users of HR coil think it was not. The cold-rolled steel manufactures’ association or Corsma—which claims HR coil accounts for 75% of the production cost of CR coils, sheets, pipes and tubes—argues in a letter to the commerce minister Kamal Nath thus: “The modification would benefit only a few HR coil producers by blocking competition from imports but would have a deep adverse impact on the entire industry and the economy by destabilisation of supplies, hike in price of a basic input in breach of the measures adopted by the government to stimulate demand and economy, to counter the slowdown and the retrenchment of workers.” Other users of steel such as the auto industry, electric equipment manufacturers and furniture companies seem to share Corsma’s view.
There could be different views on the degree of price-elasticity of demand, but low prices do revive pent-up demand to an extent. If steel prices fall, the infrastructure industries and various other users of the material would gain in terms of input costs, and that would drive up the demand for their products. Since the government is apparently stepping up public investment in infrastructure and providing incentives to private investments by facilitating the PPP route, reduction in the cost of a vital building material like steel should indeed matter to it.