Posted on 28 Mar 2016
Decision on steel levy likely today
In response to a global commodities glut, the
Board of Safeguards will take a final call on Monday over recommending
extension of up to 20 per cent levy on certain steel products to protect
domestic sector. The board, an inter-ministerial panel chaired by
Commerce Secretary Rita Teaotia, with representation from the steel and
heavy industries ministries, will decide whether to extend safeguard
duties on hot-rolled steel products till March 2018. Based on the
board's recommendation, Finance Minister Arun Jaitley will decide within
a week, according to sources.
The Directorate General of Safeguards has recommended continuation of
the 20 per cent safeguard duty (minus anti-dumping duty) till September
13 and a reduction to 18 per cent in the next six months (till March
2017), and to 15 per cent during the six months after that. A 10 per
cent safeguard duty has been recommended for six months from September
14, 2017 till March 13, 2018.
The decision will be taken amid stiff resistance from free-trade
agreement (FTA) partner- countries such as South Korea and Japan, which
have argued the move will severely impact their investments in India,
considering most imports were for captive use. The two countries have
said action should have been taken under the FTA provisions rather than
the general safeguards route.
Multinational companies, including Posco, Maruti Suzuki, Hyundai and
ArcelorMittal Brasil, beside the Indian end-user industry, have made a
strong pitch against imposition of safeguard levy. They argued the move
will be counter-productive to the government's Make in India campaign
and impact investments into India.
For instance, Posco has been hit by the safeguard duty as it was
importing products from its domestic manufacturing facility in South
Korea for processing.
India had imposed a 20 per cent provisional safeguard duty on hot-rolled
steel in September 2015 for 200 days as cheaper steel import from
China, South Korea and Japan posed a threat to the domestic industry.
Beside, import duty has been raised by five per cent on all categories
of steel. The protectionist measures are being taken for a few primary
steel producers, on the ground that they are over-leveraged and their
bank loans could become non-performing assets (NPAs).
Japan, South Korea and China accounted for about half of iron and steel
imports into India in the first six months of the financial year, worth
about $3 billion. In February, the government imposed a minimum import
price on 173 steel products, ranging from $341 to $752 a tonne.
The asset quality of banks deteriorated in the third quarter of the
current financial year on account of higher provisioning requirement for
NPAs. Gross NPAs of all banks rose to $69.2 billion in December 2015
from $53.8 billion in September 2015, owing to stress from sectors such
as steel, power and textiles.
The range of protectionist measures over the past several months have
led to a decline in steel imports. These fell 8.7 per cent in January
and 9.3 per cent in February, year-on-year. Steel imports had grown 20.5
per cent in April-February, compared to 71 per cent growth in 2014-15.
JSW Steel, Essar Steel and Steel Authority of India had petitioned for a
safeguard duty.
According to the FTA with South Korea, the import duty imposed by India
is only 0.85 per cent on majority of steel products. India's
comprehensive free-trade pact with Korea came into effect from 2010 and
with Japan in 2011. India agreed to eliminate duties on 75 per cent of
products imported from South Korea on a custom-value basis during the
eight years from 2010. South Korea agreed to remove duties on 93 per
cent of its products from India during the period.
Safeguard duty is a World Trade Organization (WTO)-compatible temporary
measure, brought for a certain timeframe to avert damage to a country's
domestic industry from cheap imports. However, the country concerned has
to prove injury to domestic industry from cheaper imports.
Chief Economic Advisor Arvind Subramanian in the Economic Survey argued
India should resist seeking recourse in protectionist action and instead
opt for WTO-compliant procedures to deal with perceived threats.
The commerce department had earlier attributed the impact on domestic
manufacturers to global factors. It argued 85 per cent of steel demand
was being met domestically, and that Indian steel companies were
operating at nearly 80 per cent capacity compared to 70 per cent
globally. India's peak steel import in the current financial year has
been 15 per cent of total domestic steel consumption, compared to nine
per cent in previous years.
