Steel may be re-classified as essential commodity

Within a year of pulling it out of Essential Commodities Act, the government is considering reversing its decision if the steel producers do not hold the price line.

Although the steel majors have recently reduced prices by about Rs 2,000 a tonne, the producers may again hike prices in tune with international trend.

Thus, with inflation rate at 3-year high at 7 per cent, the steel ministry is keeping all options open to ensure steel prices were kept under check.

Steel Minister Ram Vilas Paswan has written a letter to Prime Minister Manmohan Singh suggesting various fiscal and non-fiscal measures, including putting steel back into the Essential Commodities Act. "In the three-month period since December 2007, steel prices have risen by 20-24 per cent.... Possibilities of setting up a regulatory mechanism for steel and its inputs, and re-classifying steel as an essential commodity may be considered," Paswan said in his letter.

The government has already withdrawn export incentives being offered to steelmakers in the form of Duty Entitlement Pass Book (DEPB) scheme, which would hit the bottomlines of major steel producers by about Rs 600 crore.

Besides, the minister also recommended setting up a regulator in the sector, which among other things would regularly monitor steel prices and take corrective steps.

The steel ministry has also suggested that the government could also abolish import duty on the alloy to facilitate imports of steel to bridge the demand-supply mismatch, which is hovering around 14 per cent.

In order to disincentivise steel exports Paswan also favoured 10 per cent export duty on the alloy, which would dissuade the producers from shipping their products abroad.

The manufacturers on their part have suggested lowering the excise duty on the alloy to 8 per cent to enable them lower prices and pass it on to the consumer.

"Indian steel prices are ruling at $800 a tonne, perhaps the lowest in the world, while international prices are over $1000. Any talk of regulating prices will tantamount to putting steel makers between the two prongs of a pincer," Indian Steel Alliance (ISA) President Moosa Raza said in a statement.

Many investors are acquiring land and machinery and are signing MoUs with the states for setting up their steel pants. Any wrong signal at this stage, will dampen the zeal of the investors and hamper the growth of the steel industry, he argued.

A regulator can at best regulate prices only at the producer level but how would it address those thousands of intermediaries who would be beyond its purview, Raza asked and pointed out that regulating price would only benefit them and encourage corruption among the inspecting agencies.

Arguing that recent spate of price rise in the steel sector is primarily due to soaring input costs, Raza pointed out that unrestrained export of iron ore was of grave concern to the industry and appeals to impose fiscal measures to contain the same have gone unheeded.