New Delhi: Steel is the prime mover for industrial and economic growth. Global steel production has grown 46% over the past five years, from 850 million tonnes in 2001 to 1,244 million tonnes in 2006. While China has led this growth, with a 197% growth in its output, consumption in India is expected to grow by 12% in fiscal 2007 and 13% in 2008. This will meet the requirements of industry, housing and infrastructure development.
RS Ajmera, chairman, CORSMA
India ranks amongst the cheapest producers of steel in the world but the growth of steel industry has been well below potential and demand due to conservative planning. It has lagged behind actual consumption for the last four consecutive years resulting in shortages and high prices.
Reduce customs duty on zinc
Cold Rolled Steel Manufacturers Association (CORSMA) urges the Finance Minister to reduce customs duty on zinc, since this is a basic input for production of galvanized sheets and is utilized extensively for the production of pipes for irrigation and water supply schemes, roofing for weaker sections of society, battery cells, handicrafts and toys and utensils by small scale industries.
The proposed modifications in the duty structure shall:
• Facilitate imports of HR coils to bridge gap between demand and availability for sustained industrial and economic growth
• Reduction of around Rs1,500 to Rs2,000 per MT in domestic prices of HR coils will provide much needed relief to industry/consumers
• India is a low cost producer and the current profit margins range from Rs6,000 to over Rs10,000 per MT and reduction in duty shall have no adverse impact on domestic producers and also curb speculative investment in the industry
Implications of high price of zinc
Hindustan Zinc Ltd (HZL), the sole producer of zinc in the country, is unable to meet demand and around 40% of the industry’s requirement is imported.
The current ex-work price of HZL is higher by over Rs16,500 per tonne vis-à-vis the price of Rs1,37,515 per MT FOB fixed by LME and includes freight from the works to the port and FOB costs. Actual difference between HZL and global prices amounts to about Rs18,000 per MT (See CORSMA Budget Proposal for industry statistics, comparisons and Budget recommendations).
High price of zinc has eroded economic viability and global competitiveness of a wide range of industries including, pipe and tube producers, battery cell manufacturers, handicrafts, toy and utensils industry in the small scale sector.
It has also led to extensive utilization of cheaper asbestos cement sheets which constitute a serious health hazard during the handling of imported asbestos metal, transportation, production and consumers. Production of asbestos products for domestic usage has been banned in developed counties.
The total duty burden on the advalorem duty of 7.65% including surcharge of 2%, works out to Rs5,320 a tonne, since zinc is a high value item. The duty of 7.65% on a basic raw material is considered high. Besides, while the basic customs duty on import of galvanized sheets the finished product is 5% and duty on raw material zinc is 7.5%, resulting in sharp increase of 70% in the imports of Galvanized sheets in 2006-07 due to the inverted duty structure.
In view of the above facts, the Association proposes the basic customs duty on the imports of zinc be reduced from 7.5% to 2% in the Union Budget for 2008-09. This will safeguard global competitiveness of a wide range of industries in the low duty regime and will provide relief to the weaker sections of society while simultaneously creating an environment that protects consumers from health hazards.
CORSMA says hot rolled coil prices in India are related neither to global prices nor production costs. They are arbirarily fixed bu the top five players in a monopolistic manner.
Lower HR coil prices
HR coil prices to be lower by at least $50 per MT vis-à-vis global FOB export prices . Ministry of Steel and GoI are aware of the adverse impact of monopolistic pricing and profiteering by HR coils producers on industrial and economic development. Prime Minister have been advising major producers to refrain from the arbitrary hike in prices and roll back the prices to global levels but it had no impact and prices have continued to go up.
It has been held that with the appreciation in the value of rupee vis-à-vis the US dollar the prices of imported HR coils and domestic prices will come down. The central issue is the huge differential between global and domestic prices of HR coils must be removed for the survival and growth of the Indian engineering industry.
Curb shortages and monopolistic pricing
Against the background of above facts, intervention by government through fiscal and trade control measures to remove imbalances between demand and supply of steel products will be essential to curb shortages and high prices to promote the industrial and economic growth of the country and provide relief to consumers for all inclusive growth.
Levy export duty on semis/intermediates
Levy of export duty on export of semis/intermediates, particularly as an interim measure is essential to strengthen supply side and curb value added imports of finished steel and manufactured products.
Export of low value semis/intermediates should be discouraged as a matter of policy to conserve scarce resources like iron ore, coal, energy, water land etc. Besides, they account for 70% consumption of energy and pollution.
Export duty shall also generate additional revenue for the exchequer and more than compensate loss in revenue due to proposed cut in customs duty from 5% to 2%.
The author is chairman, Cold Rolled Steel Manufacturers Association