New Delhi : Major steel producers have rolled back the price hikes effected the day after the Union Budget, and now cement manufacturers are expected to follow suit. Prices had been increased on account of the increase in the incidence of excise duties.
The move, which comes on the heels of overt pressure from the government, has triggered fears of a return to the price control era—where the government, in an industrial structure dominated by public sector companies, would specify prices at which manufacturers could sell.
At a meeting with steel secretary R.S. Pandey on Monday, steel companies, both public and private, agreed to roll back prices considering concerns of the government on inflationary trends in the economy. The price of hot rolled (HR) coils has been reduced by Rs500 a tonne to Rs 27,000, while the increase in prices of TMT bars and galvanized steel would be fully withdrawn. It is also not certain whether such measures would have a salutary effect on the inflationary pressures currently afflicting the economy.
Said Rakesh Valecha, analyst, Fitch Ratings India, at Mumbai: “The price rollbacks are too small to impact inflation. Also, to delink steel prices, that are essentially controlled by global demand-supply conditions, might affect investor confidence.”
Speaking at a post-Budget event organized by the Federation of Indian Chambers of Commerce and Industry (Ficci), finance minister P. Chidambaram while stating that the government was “not reinforcing price control” in cement, invited the industry for talks on the different excise duty slabs announced in the Budget.
Revenue department officials maintained that since duties were specific in nature and not ad valorem (as had been recommended by the Kelkar committee on tax reforms), the hike would have been automatic with the increase in prices. “Then it would not have been an issue at all,” says Gautam Ray, joint secretary in the department.
From Rs400 a tonne, the Budget reduced excise duty by Rs50 a tonne for a 90-kg bag provided it was sold at Rs190, but raised duty by Rs200 a tonne on any higher retail price. Cement manufacturers promptly passed on the hike to consumers by jacking up prices by Rs12.50 per bag, since they were unable to take advantage of the duty cut—prices had been ruling at Rs200-plus even before the Budget.
Kanhaiya Singh, economist with the National Council of Applied Economic Research, said: “The differential duty is the worst decision taken by the government in respect of the cement industry, which is already working at peak capacity and is set for a costly expansion. Instead of giving any incentive for that, the government is unfairly trying to force the industry, which is one of the biggest success stories of India’s liberalization, to limit itself to last year’s price. That effort has now backfired as the price hike works as an indirect tax on all cement consumers, even the poorest.”