India’s engineering and auto components industries rely on cheaper steel imports and hold the view that the government protects large domestic steel firms through measures such as  hikes in import duties and MIP, thus making them uncompetitive in global markets.
India’s engineering and auto components industries rely on cheaper steel imports and hold the view that the government protects large domestic steel firms through measures such as hikes in import duties and MIP, thus making them uncompetitive in global markets.

Govt plans new steel import duty to prevent hawala transactions

The commerce ministry fears the differential between the minimum and actual import prices may fuel inflow of black money

New Delhi: Fearing that the high minimum import price (MIP) imposed on steel items may lead to illegal “hawala" transactions, in turn fuelling an inflow of black money, the commerce ministry has written to the finance ministry to seize the price differential between MIP and the actual import price.

On 5 February, the government announced the MIP for 173 steel products in a bid to curb the dumping of cheap steel by countries such as China, Russia, Japan and South Korea.

However, since the MIP is higher than the import price of steel, it is apprehended that bulk importers may over-invoice imports and transfer the price differential to India through the hawala route.

A commerce ministry official, on condition of anonymity, said that since the actual import price remains the same even after the imposition of MIP, the ministry has written to the revenue department suggesting the levy of an additional duty equivalent to the price differential on steel importers. “This would basically prohibit anybody from importing steel," the official said.

The government is closely watching the situation and will check any attempt by steel companies to form a cartel, he said.

“In Delhi, the maximum price hike per tonne of steel is 2,600 for any product after MIP was imposed. We are closely monitoring the price movement on a weekly basis and will not allow steel companies to form a cartel. We will not allow anybody to run away with the price because our whole downstream engineering industry is relying on steel as input," he added.

India’s engineering and auto components industries rely on cheaper steel imports and hold the view that the government protects large domestic steel firms through measures such as hikes in import duties and MIP, thus making them uncompetitive in global markets.

Cautioning that the imposition of MIP on steel products will lead to further erosion in engineering exports, T.S. Bhasin, chairman of lobby group Engineering Export Promotion Council of India, sought from the government a compensatory mechanism to make up for the increased raw material price, which the distressed exporters, mostly in the SME (small and medium enterprise) segment will be made to bear, following the protection given to large steel manufacturers.

“The introduction of MIP on steel products will raise the cost of raw materials for engineering products by about 6-10%, depending upon the nature of the product. This will have a serious debilitating impact on engineering exports, which have already declined by a huge 15% in the first nine months of the current fiscal," Bhasin said.

Segments such as auto and auto parts, and industrial and electrical machinery, which in any case have low margins and face cut-throat competition, now face a sudden escalation in raw material prices, giving a further jolt to exporters, he said.

There has been a surge in imports over the past 12 months as China’s overcapacity in steel and Japan and Korea’s predatory pricing impact new markets. Imports grew 71% in 2014-15, with China accounting for close to 36% of the total imports.

China accounts for almost half of the global steel production capacity of 2,200 million tonnes per year, as against India’s 110 million tonnes. As China undergoes a domestic slowdown, it is attempting to dump its steel in global markets at cheaper prices.

The official cited earlier said the government is aware that the downstream industry will be adversely impacted by the MIP, “but it is a trade-off between saving the domestic steel industry and downstream industries".

“If all the steel companies become sick, including SAIL (Steel Authority of India Ltd), it won’t be possible again to revive the industry. And then China will start jacking up steel prices. That’s why the government had to take a very calibrated view on this. You cannot let such a crucial domestic industry die," the official added.

India Ratings and Research maintains a negative outlook on the steel sector for 2016-17 as it believes that the industry will continue to face headwinds.

It expects steel consumption demand to grow to 6.3-6.5% in fiscal 2017 on the back of traction in key end-user industries such as construction, capital goods and consumer durables.

“However, the benefit of gradual domestic demand growth will be offset by the weak product pricing capability caused by global overcapacity and cheap imports," it said in a report released on Wednesday.

Close