Government support must for competitive steel industry

By: |
July 23, 2019 1:25 AM

These trends have become inseparable engines of growth perspective of all the countries characterised by dominant share of manufacturing and industry.

US could also consider the importance of trading neighbours like Canada and Mexico with whom it has activated the revised provisions of USMCA.

In a deregulated economy, the commodities prices are based on interplay of demand and supply forces. In the present market structure indicating a veiled similarity of actions by the major players prompted by the market activities, the need for policy intervention by the government remains strong. Irrespective of the economic stages the country is passing through, public investment, popularly termed as stimulus measures have been and continue to be announced by the respective governments.

In some of the major steel producing countries, namely, China, USA, Japan, South Korea, Russia, Germany, Turkey, Vietnam, the state intervention is not only confined to providing budgetary support to the infrastructure binge being undertaken by these countries, these also include adopting suitable trade measures against surge in imports from countries abroad and announcement of other policy measures aimed to promote the domestic manufacturing capabilities.

These trends have become inseparable engines of growth perspective of all the countries characterised by dominant share of manufacturing and industry. The positive encouragements to the industry sector are guided by concern of employment and income growth, improvement in logistic chain culminating in balanced regional growth, the critical factor in eliminating income disparity.

India’s growth story has supported the above view of the government playing the role of a catalyst in a decontrolled economy. Public investment through budgetary support specifically in infrastructure sector has been the cornerstone of policy intervention, although the industry has all along been clamouring for more support. As a result the GFCF (the proxy for investment) as a percentage of GDP continues to hover around 29-32% ratio against 41-48% ratio in China (the comparison benchmark for countries in developing stage). Private corporate investment in the country had maintained a near stagnant rate in the past few years. The Budget announcement by the government of spending `100 lakh crore for the next 5 years at `20 lakh crore each year on infrastructure is an enormous amount. Specific strategies to make steel intensive technology to become an essential component of this expenditure would result in the biggest push to steel consumption in the country in the coming years.

Currently however, the global scenario of government intervention in various countries in changing the industrial landscape of these countries is reversing in favour of higher reliance on government support. US becomes a classic evidence of what government intervention can do to rejuvenate the health of steel industry. After promulgating unilateral 25% duty imposition on all steel imports and 10% on all aluminium imports to USA in March’18 to give relief to US steel industry suffering deeply from cheap imports from China, South Korea, EU, Turkey and other countries, it had encountered the initial retaliatory tariff measures from all these countries including India.

However, in the past 14 months, it is observed that trade measures under section 232 of US Trade Act, have actually effectively cut down import flows to USA, reduced unemployment rate from 6.7% in March’18 to 3.7% in July’19, improved CAD to (-) 2.4% of GDP currently, improved PMI in manufacturing at 56.3 in July’19. The job losses in steel industry have been reversed. A pragmatic bilateral trade policy has been drafted by USA to enter into quota-led tariff measures with EU, South Korea, Japan with imports under this scheme to be restricted to 70% of the average level of last 3 years. US could also consider the importance of trading neighbours like Canada and Mexico with whom it has activated the revised provisions of USMCA.

As this was not enough, USA on 15th July’19 has reiterated the provisions of Buy American, Hire American under Buy American Act 1933 (41 USC 8301-8305) to implement and enforce existing domestic procurement laws and to ensure that US steel industry remains competitive for all federal funded infrastructure projects. The new policy has amended Federal Acquisition Regulation (FAR) to the effect that iron and steel use in all federal funded infra projects be maximum that is consistent by law. The definition of goods of foreign origin that contains iron and steel items has been changed from > 50% cost of production of such materials to > 5% cost of production of such materials.

India has notified Domestically Manufactured Iron and Steel Products (DMI&SP) -revised order 2019 whereby domestic steel products and capital goods containing iron and steel with a minimum value additions ranging from 35-50% of the total sales value would be eligible to participate in all tenders, subject to satisfying all terms and conditions of the buyers with specified price preference.
While policy interventions by the government have indeed been forthcoming in greater numbers in the recent period in India compared to the previous years which have played the role of a true enabler or facilitator in supporting the causes of the steel industry, the industry has to adopt appropriate strategies to be competitive in terms of prices, delivery schedules, timely completion of projects and quality of its products, export orientation and be energy efficient and producers of value-added steel required by the critical sectors of the economy.

(Views expressed are personal)

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