Dumping Duty Only Short-Term Safeguard For Steel Firms

With the much-talked about 20 per cent safeguard duty on imported steel finally coming into force, it brings welcome relief for the steel sector, which has been struggling due to cheap imports from China and countries with which India has free trade agreements.

While the government has reacted with remarkable speed in response to an application from domestic steel producers in June, the safeguard duty on hot-rolled coils (HRC) will benefit the integrated steel producers (ISPs) only in the short term as it is likely to be applicable only for 200 days.

Earlier a government panel comprising commerce, steel and revenue secretaries had approved imposition of 20 per cent safeguard duty on imports of specific steel products from China, Japan and Korea for 200 days.Finance minister Arun Jaitley on Monday announced the government’s decision to impose a 20 per cent safeguard duty on steel imports with immediate effect. The duty on specific steel products will be valid for 200 days.

This is perhaps the first time in nearly two decades that the government is taking a series of moves to ‘protect’ the domestic steel industry since it was liberalised in the early 1990s.The safeguard duty is superior to the import duty since it is applicable to all nations unlike the import duty which excludes countries falling under free trade agreements. That said, the higher safeguard duty would benefit the ISPs, but negatively impact the companies involved in cold rolling and annealing of HR coils.

However, the players could circumvent this by importing HRC with some value addition. India’s import of iron and steel rose 58 per cent during April-June 2015, making it the country’s sixth-largest import during this period. The sector’s contribution to stressed advances stood at 10.2 per cent of the total advances at end-December 2014 and is among the top five sectors with stressed loans in the system. The Reserve Bank of India in its latest financial stability report highlighted that five out of the top 10 private steel producing companies are under severe stress.

These companies are struggling with delayed implementation of projects due to delays in land acquisition and environmental clearances among other factors.Steel imports have increased primarily from China, Korea and Japan. While the imposition of import duty of 12.5% applies to China, it does not apply to Korea and Japan, with which India has bilateral free trade pacts.

Source:livemint.com