Leading steel companies alleged that traders have been making a quick buck through the hawala route. The process is simple: While the floor price on seconds is $232 per tonne, the same is available in South Africa and other countries at around $170 per tonne.

The traders, steel companies say, have been buying the seconds at the prevailing rates of $170 per tonne but invoicing them at the floor price level, and routing in the difference through the hawala route.

As a result, figures from the customs show that imports of sheets and coils have increased from 30,000 tonne in December 1998 to 51,000 tonne in March 1999, topping 60,000 tonnes last month.

Import of plates in the same period has increased from 11,000 tonne to around 20,000 tonne in April.

According to officials atone of India's largest steel companies, a large portion of these imports have been routed through the advance licence scheme which allows duty-free imports of inputs used for re-exporting.

Any importer having an advance licence can use it for further processing. As a result, hot-rolled sheets can be bought at international prices under advance licence and later processed into cold rolled sheets, plates or galvanised sheets for exports.

But since the advance licence itself can be traded among players, many traders and indentors have used it for bringing the products into India against exports which may not be steel goods at all.

Since the international prices are still at a discount to the domestic prices by at least $30 to $40 per tonne, the total transactions through this method is quite advantageous to the trader and the end-user.

Leading traders, when asked, are quick to point out that the surge in imports is not due to advance licence scheme.

There are various development projects under the UNDP(United Nations Development Project) wherein free import of steel is allowed so as to keep the project cost lower.

In addition, some of the refinery projects and the ports coming up in Gujarat and Goa have received deemed export status. Even the requirement of steel for these projects is met through imported steel because international prices are lower than domestic prices, after taking into account the concessions available through waiver of indirect taxes.

The mechanism of imports could not be confirmed from the indentors. Domestic traders say that the scenario now is no different from what it was before the floor price was imposed.