Govt raises import duty on base metal items by 2.5%

The government on Wednesday increased the import duty on base metal items made of iron, steel, copper, nickel and aluminum by 2.5 percentage points, drawing praise from domestic producers but annoying end users such as engineering exporters. The move, announced by finance minister Arun Jaitley in Parliament, is aimed at checking cheap shipments from China, South Korea and Japan.

"The hike in import duty would be effective immediately," Jaitley said in Parliament.

While the move has come as a major booster for domestic steel producers who have been facing competition from abroad, the end users including the real estate sector will see a significant rise in their cost. This will also offset the potential gains for the end users in sectors such as construction, infrastructure, and engineering due to devaluation in the Chinese currency.

The basic customs duty on flat-rolled steel products was raised to 12.5 per cent from 10 per cent, whereas the ones on iron and non-alloy steel ingots, bars, rods, wires of stainless steel and semi-finished products of iron hiked to 10 per cent from 7.5 per cent.

The steel companies' shares saw a jump after the announcement. Those of Tata Steel closed 2.2 per cent higher, Steel Authority of India 0.1 per cent on the BSE. However, shares of JSW Steel rose 0.8 per cent during the day, but closed lower.

The increase in duty was essentially on items under Chapter 72, Under the Central Board of Excise and Customs, which included base metals made of iron and steel, copper, nickel, aluminium, lead, zinc, tin, tungsten (wolfram), molybdenum, etc.

"Given the lukewarm demand within China, there was the danger of low-priced steel threatening Indian manufacturers. With the growth in imports crossing 50 per cent between some months, the threat required urgent action. Therefore, this step is timely. The low demand - high capacity situation is likely to continue for a while making the threat of dumping imminent," said Kumar Kandaswami, senior director, Deloitte.

Expressing discontent over the duty hike, Engineering Export Promotion Council of India chairman Anupam Shah said: "The move is ill-advised as it would push up the cost of the manufacturing of the engineering products and make them more uncompetitive. Engineering exports will take a hit from China."

Two months ago, the government had raised basic customs duty on some long and flat steel products by 2.5 per cent. Import duty on flat steel products was raised to 10 per cent from 7.5 per cent, while for long steel products, it was raised from five per cent to 7.5 per cent. That month itself, the government imposed an anti-dumping duty of up to $316 a tonne on imports of certain steel products from three countries, including China, to protect domestic producers from below-cost inbound shipments.

Domestic aluminium producers have also been demanding an increase in import duty as they are facing stiff challenge from China, which is exporting aluminium products at cheaper rates.