Budget 2022 Series: Steel sector
The Indian Steel Association (ISA), the country's industry body for steel manufacturers, has submitted its wish list to the government ahead of the Union Budget 2022-23, which includes, among other things, the reduction and rationalization of various duties and taxes, as well as policy measures to boost the industry's growth. Because the supply of these input raw materials is relatively limited, the ISA has asked the government to decrease the basic customs tax on coking coal, SS scrap, and nickel to zero from the existing 1% + 1.5 percent agricultural cess.
Additionally, in a significant proposal made to the government, the industry association has asked for the repeal of the 'Lesser Duty Rule,' often known as the LDR, which was first implemented almost two decades ago in 1999. In addition, the International Trade Association (ISA) has pointed up that the Ministry of Commerce supports the elimination of LDR. Because it is not binding on WTO members, the LDR, according to the industry group, has become ineffective, as has been demonstrated by large economies such as the United States, China, and Canada, which have refused to comply with the rule, despite the fact that import tariffs have been reduced to as low as zero under various free trade agreements and regional trade agreements.
The government is concerned about the effect that increasing steel prices have on the MSME sector, which is already dealing with skewed margins and operational issues. This is one of the primary worries that the government confronts ahead of the Budget.
According to reports, the Niti Aayog and the Finance Ministry debate how they might best assist the industry. According to a source familiar with the situation, the government acknowledges that it would take time for the MSMEs to completely recover from the effect of the Covid interruptions on their operations. "A discussion has taken place over input pricing, notably the high cost of steel. The use of financial technology platforms to aggregate small and medium-sized enterprise loans has also been considered. With regard to steel imports, the administration is now investigating the potential of additional reductions in import taxes," informed a senior government official.
Although lowering import duties on steel products will benefit small and medium-sized enterprises (SMEs), this move could be detrimental for domestic steelmakers because the market could be flooded with imported steel and steel products. The government would have to strike a compromise between the aspirations of small and medium-sized enterprises (SMEs) and the local steel sector.
At the beginning of December 2020, Indian steelmakers saw record-high prices as global commodity prices surged after a comeback from the second wave of the pandemic. Commodities prices have eased towards the end of the year, but input costs, which had fallen marginally in November and December, have begun to rise once again in recent weeks. The steel industry is requesting an ADD (anti-dumping duty) on specific steel goods as well as a correction to the inverted duty structure in order to assist small and medium-sized businesses, which have been especially severely impacted among other things.