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The government may consider reducing import duties on products such as steel, aluminium, copper and polymers in the budget to provide relief to small and medium businesses, which have been hit hard by surging input costs, two people aware of the development said.

A broad understanding between the steel and finance ministries has been reached to review import duties on major metals and bring them down and, in some cases, withdraw them completely to help user industries, the people said, requesting anonymity.

An announcement on this is expected in the upcoming budget, they said.

The steel ministry did not respond to a query seeking comment, while a mail to the finance ministry didn’t elicit a reply.

The import duty on steel is 7.5%, while aluminium attracts 10% basic customs duty, copper 5% and polymers 10%. In addition, all the products also attract 18% integrated goods and services tax to offset local levies on the products.

The taxes may now be brought down further in the budget, with a certain category of metals and allied products getting full exemption, the people said.

In this year’s budget, finance minister Nirmala Sitharaman withdrew the anti-dumping duty and countervailing duty on certain steel products while reducing customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels from 10-12.5% levels earlier.

She also cut the import duty to nil on steel scrap to support user industries hit hard by a sharp rise in steel prices. The budget for the year starting 1 April is expected to cut duties further.

Lower import duties are expected to make it viable for small and medium businesses, reeling under the pressure of high input costs, to import metals if local prices are high. It would help restrict domestic metal producers from raising prices to abnormally high levels, the people said.

Domestic steel prices have risen sharply since late last year when a pick up in economic activity post the lifting of the nationwide lockdown boosted demand. Steel prices also rose due to an increase in iron ore and coking coal prices globally. As a result, India’s benchmark domestic hot-rolled coil prices have risen from 58,000 per tonne in April 2021 to more than 72,000 per tonne now. Though metal prices have softened a bit in December, they have largely remained high, putting pressure on user industries.

In its pre-budget memorandum submitted to the finance ministry, the Federation of Indian Micro and Small and Medium Enterprises (FISME) suggested abolishing import duties on steel, copper, aluminium and polymers and suspending additional customs duties on the four commodities to rein in prices.

“The prices of building blocks of industrialization: steel, copper, aluminium and polymers on which millions of downstream industries/MSMEs are dependent remain 25-50% higher than their international counterparts," FISME said in its pre-budget memorandum.

While small and medium industries seek duty cuts, metal producers want the government to raise duties, particularly on aluminium, to prevent India from becoming a dumping ground for overseas producers saddled with high inventory levels.

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