Scrap the export duty on steel | The Financial Express

Scrap the export duty on steel

Coking coal prices, not steel exports, drove up domestic prices. That apart, India is bleeding market share in global steel exports as prices are cooling off

Scrap the export duty on steel
Its important trade partners are often riled by its unpredictable taxation and regulatory environment that throws surprises in the form of changes in tariffs and market access restrictions, in knee-jerk reactions to domestic crises.

By Aruna Sharma

The withdrawal of the irrational steel export duty is essential in a global market that is marked by falling prices, if only to maintain market share—exports from India fell by over 75% in July 2022 after the duty was imposed in May 2022, and competitors have swept in.

As India becomes a more significant player in the global economy, it must adopt the principle of predictability in business. Its important trade partners are often riled by its unpredictable taxation and regulatory environment that throws surprises in the form of changes in tariffs and market access restrictions, in knee-jerk reactions to domestic crises.

The levy on steel exports cannot be justified by economic reasons. India’s iron-ore exports are not at the cost of domestic supply. Moreover, a large part of India’s exports comprise iron ore with low iron content not used by local manufacturers. So, using them for exports or pellet making does not have a bearing on domestic availability of the commodity. There was already a 30% export duty on ore with high iron content to discourage exports. This has been enhanced to 50%, with the rate now also applicable to ore with low iron content. An export duty of 45% has been imposed on pellet.

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Around 90% of India’s steel output is consumed domestically, while just 8-12% is exported. India exported 156,000 tonnes of steel in July. India’s imports during the same month stood at 444,000 tonnes, making the country a net importer of the commodity after a gap of more than one-and-a-half years.

In May, exports declined by 36% and fell by 52% in June and 75% in July. In May, the exports were lower by around 588,000 tonnes compared with the same month last year. In June, the decline was of around 936,000 tonnes year-on-year. After the duty was imposed, exports of hot rolled coil (HRC) steel show a decline of around 37% in June 2022 over May. The overall impact of the duty on exports of flat products is a 45-50% erosion, while semis and finished steel exports fell by 52% in June 2022 and 75% in July 2022 year-on-year.

Indian mills had to carry high-cost raw materials procured before the imposition of the duty. The steel industry carries more than 60 days of raw material inventories, especially coking coal. This is crucial in a market marked by falling prices. The industry’s opportunity cost is high as it could have used the money paid as export duty to consume high-cost raw material and feed the exports markets.

The export duty has caused uncertainty among Indian steel manufacturers about future plans. The Steel Policy 2030 aims to raise steel exports to 15-20% when capacity increases to 300 MT. The government must urgently scrap the duty to regain the market already lost to China, Japan, and Vietnam. The stated objective of the 15% duty was to curb domestic prices, but the price of steel in India and abroad had already started to cool because of a fall in coking coal prices, clearly showing the domestic price-rise was caused by high coking coal prices and not exports.

The government offered some help to the steel industry by cutting the import duty on coking coal, ferro nickel and PCI. But, gains from this are too small to offset the industry’s losses because of the fall in exports, thanks to the imposition of export duty.

The country is losing forex because of the fall in exports at a time when rupee is on a decline against the dollar. India may be able to withstand the foreign exchange losses, but the loss of face in the global steel market is something India can ill afford.

The steel prices have already fallen by more than a quarter in the current financial year, and are expected to reflect the fall/rise in coking coal costs this year. The real estate crash in China may see that country’s steel industry dumping products in the international market. The government must reconsider and appreciate that it is coking coal that is main determinant of steel price and not exports. There is a strong case to reconsider and remove the export duty on steel and iron ore.

The author is Practitioner development economist, and former secretary (steel), GoI

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