Time when iron & steel industry protected under a stiff tariff wall was waiting with bated breath for the Budget recommendations to assess the extent of adverse impact of a few percentage point reduction of customs duties has gone. Thus, 2.5% upward fixation of customs duty on flat steel at 7.5% coupled with 2% change in countervailing excise duty at 12% would only raise the current level of import price by $18/tonne/cfr (R900/tonne) with modvat and may not offer any protection against sudden jump of import arrival (more than 3 lakh tonne in CR import during Nov?11-Feb?12). It was an ideal case for imposition of safeguard duties which is purely short term and most effective. Other recommendations involving duty reduction on coating materials for manufacture of electrical grade steel, reduction of customs duties on plant and machineries for pellet and beneficiation plants from 7.5% to 5% and from 7.5% to 2.5% respectively would benefit steel and mining industries in a limited way as component of CRNO/CRGO steel is less than 1% of total steel consumption in the country and pelletisation and beneficiation would be dependent on other factors like more capacity build up in steel.
Nil customs duty on nickel ore must satisfy the stainless steel sector, it being a long pending demand. Export duty hike to 30% ad valorem on chromium ore is in conformity with the principle of export of value added products.
Steel industry is therefore more concerned with incentivising sectoral investment and especially in infrastructure. Duty on steam coal used by thermal power plants has been brought down to zero with concessional CVD of 1% for the next two years with duty exemption extended to natural and LNG. It would partially help ISPs also using boiler coal in their furnaces. With imports of both non-coking and coking coal estimated to rise high in the coming year, the port infrastructure needs a thorough polish to be able to handle the increased cargo load.
More segments like irrigation (including dams), fertiliser, oil and gas pipeline, LNG storage facilities, telecommunication towers have been made eligible for viability gap funding which would encourage PPP route of investment.
The setting up of infrastructure debt fund to tap overseas markets, issuance of tax-free bonds for NHAI, IRFC, IIFCL, HUDCO, NHB, ports and power sector by about R60,000 crores and facilitation of direct lending for PPP projects by IIFCL are steps in the right direction which would directly benefit the steel market. Apart from substantially raising the target of NHDP to 8,800 kms of roadways for which additional allocation of funds (14% more) has been made, ECB has been permitted to cover capital expenditures in road maintenance of toll systems, civil aviation and low cost affordable housing projects.
A few critical machineries and equipment have been given import duty benefits in mining, fertiliser, and track up gradation for high speed trains, road construction and tunnel boring machines. The duty relief must encourage flow of investment in these sectors.
Thus, an attempt has been made to encourage infrastructure investment which is slated to go up to R50 lakh crore during 12th plan commencing next year and also to initiate measures to tackle the frequent bottlenecks in areas like private investment, long term funding and additional flow via ECBs. As regards steel prices, excise hike of around R750-900/tonne
on an average would enhance prices of constructional steel.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal