The hike in steel prices in India did not come as a surprise to anyone familiar with the industry globally.
However, the quantum of the increase or may be the timing of it, may not have gone down very well with the government, which has responded with a promise of a review through an institutional mechanism set up recently outside the framework of pricing control. Formal price controls are gone a long time ago.
If steel is deregulated and the market is allowed to play its role, the government should be bothered about a specific instance of price increase and plead the industry not to do so. If the government is concerned about high steel prices and its implications on the rest of the economy, it has several instruments it can use effectively to either mitigate the impact of a price hike or force the steel makers to reduce the same.
The government can waive import duty on steel. It need not calculate revenue losses, even if there is any. It can impose an export tax (mentioned only as a theoretical possibility but not recommended at all in this column) or take many measures to ensure drop in the costs of raw materials and energy such as reduction in their import duty rates.
If the steel makers are responding to a global rise in steel prices in a globally integrated market, it is part of the market dynamics.
However, what the government needs to look at is if such actions of the industry are derived from cartelisation within the industry and whether the policy framework provides scope for unfair trade violating the basic competition issues.
High steel prices in the first place indicate shortages. Supply response to steel demand in India (as also worldwide) has been lethargic. The current trends in the steel market make investment in this country extremely attractive. There is rush for it. The list of projects seems to have no end. Yet, those who have managed to put up a respectable show in terms of progress are a small lot.
The government has a major role to play here. This is known to all and it is definitely playing a role.
What is important here is, however, to play that role correctly and in a way that shows results. The problems are well known. It is not important to list them out, but, to see what can be done to take care of them.
India needs steel – huge quantities of them. If the domestic industry is not in a position to supply them, let imports be welcome till the time it adds sufficient capacity. One should feel happy if one finds China exporting more steel rather than get into a panic and rush for protection. Forget anti-dumping.
Steel is not an essential commodity any more, but, is important to the economy, especially at this stage, where the country needs massive infrastructure development and housing for the people. At current prices of steel, many of these infrastructure projects will be unduly delayed, scrapped or wait for a long time to complete with time and cost overruns. The cost to the nation will be pretty high.
It is not time to plead for concessions. It is time to act effectively and decisively.
?The author is Strategy Consultant: Steel, Minerals, and Coal