Acknowledging the steel industry’s ongoing problems, primarily caused by external factors, and their impact on the domestic economy, finance minister Arun Jaitley on Saturday asked the industry to enhance its competitiveness and stand on its own feet, rather than look for ‘band-aid’ solutions.
The FM’s comments assume significance, particularly when the domestic steel industry, the single-largest contributor to the banking sector’s NPAs, was hoping for more tariff and non-tariff barriers in the face of burgeoning imports from surplus nations such as China, Japan, Korea and Russia. The finance ministry had recently raised import duty in two tranches, 2.5% each, but given India’s free trade pacts with major steel-exporting countries like Japan and Korea, the tax increase hasn’t really helped to curb imports. Industry captains were tight-lipped when asked to comment on the FM’s “stand-on-your-own-feet” observation.
“One has to address the root cause, because band-aid solutions to deal with such (external) problems won’t work. You have to address the root cause and take into account various factors and make your own domestic industry competitive. And when you become competitive, the external factors’ ability to adversely affect you is also reduced,” Jaitley said at a steel industry event in Delhi.
Reeling under severe stress on account of higher imports, subdued demand and price of the alloy, domestic steelmakers were looking for safeguard and anti-dumping duty to protect the home turf from the flood of imports that zoomed over 58% during the April-July period of the current fiscal at 3.5 MT. The higher imports have also impacted prices, which have come down by around 25% in the past one year.
“In the eventual race, hand-holding can take place up to a point; beyond that one has to stand on his strength and run the industry on your own strength,” Jaitley told the industry. He, however, admitted that if there is one domestic industry that has been impacted by global transient trends today, it is steel.
The finance minister added that there was no fix in the hands of the government as well, as too much of protectionism as a defensive policy has the potential to have a spiral impact on the user industries. “So the policy makers will have to do a balancing act,” he said.
The FM, however, indicated at some silver lining in the clouds, saying that steel consumption in India is bound to increase, as the country aspires to grow at a rapid pace in the coming years. He said the external factors causing trouble are ‘transient’ in nature and surmountable, provided the economy is sitting on a strong foundation. “Our approach in India today is that our own fundamentals become stronger and stronger so that our ability to withstand these transient trends in an globally integrated economy increase… (and) we acquire certain kind of immunity to withstand those trends,” he said.