The rapidly growing Indian steel industry has been nursing fears of the local market getting swamped by low-priced imported material, leaving it with idle capacity. No less damaging for local steel mills will be the way such imports, often backed by hidden and not so concealed subsidies, could deny them real price realisation for their products. Fortunately, the industry has managed to get finance minister Pranab Mukherjee’s ear. This is much in evidence in quite a few proposals in the Budget which should go a long way in improving the outlook for steel here.
SAIL chairman Chandra Shekhar Verma says the finance minister has gone far beyond recommending a basic customs duty rise on non-alloy flat rolled steel like hot-rolled and cold-rolled coils and middling grades of cold-rolled grain oriented silicon steel. Such products inviting duty of 7.5 per cent instead of five per cent levied on other kinds of steel will be a disincentive for their import. The industry wanted the duty to be increased to 10 per cent. But that would have gone against the grain of long-standing government policy, of making steel mills here globally competitive through productivity improvement, modernisation and market development.
The country remains a net importer of steel. In the first 10 months of this financial year, imports amounted to 5.59 million tonnes (mt). This happened when local demand for the metal grew tepidly at 5.5 per cent, to 57.24 mt. We have come to believe that steel or for that matter some non-ferrous metal demand growth will be a couple of percentage points ahead of the gross domestic product (GDP) growth rate. GDP this year is to grow by 6.9 per cent, a marked fall from 8.4 per cent in the preceding two years. Disturbingly, steel demand growth this time is trailing the GDP growth rate. Hopefully, this will change for the better next year. Verma believes launch of the 12th Plan next month, wherein an infrastructure investment of Rs 50 lakh crore is proposed, will result in a major incremental demand for steel.
Tata Steel Managing Director Hemant M Nerurkar says policy clarity in public-private partnerships, bringing more sectors under viability gap funding for PPP infrastructure projects, doubling of tax free bonds for 2012-13 and raising the FII investment limit in corporate bonds will help strengthen the nation’s infrastructure. In fact, the steel industry, which needs to move four tonnes of raw material for making one tonne of metal and then evacuate semi-finished and finished products, is itself crying for better road and rail linkages and higher port capacity for its seamless growth.
Verma makes the point that Budget reading will not be complete unless note is taken of long-term benefits to accrue to steelmakers and the mineral sector from the proposal to cut by half the duty on import of plant and machinery for beneficiation and pelletisation of iron ore. The concession is the result of Mukherjee’s belief that mountains of fines generated in the process of iron ore mining and also slime created during wet processing of ore, all potential environment hazard, need to be beneficiated and pelletised. In the last Budget, the government exempted pellets from export duty to incentivise the local of use of fines and low grade ore.
Over decades, the country has exercised the soft option of digging out high grades of ore and exporting fines, mainly to China. The time is now to go for, as Mukherjee suggests, “enrichment of low grade iron ore, of which we have huge reserves.” The trick involved in widening our iron ore reserve is to progressively bring down the cut off point of Fe (iron) content of ore. China remains a shining example of beneficiating ore, with Fe in it of less than 30 per cent for making pellets. At some point, India will also have to travel that path.
Verma is drawing attention to the proposal designed to give a thrust to “surveying and prospecting for minerals.” In view of the national ambition to achieve steelmaking capacity of 200 mt by 2020, it is essential that we have in our basket a lot more iron ore, chromite and manganese ore. Reserves of chromite and manganese ore, raw materials for ferro alloys used in the making of stainless and carbon steel, are fast depleting in the absence of any new discoveries. Hopefully, the scene will improve with import duty on surveying and prospecting machinery getting pegged at 2.5 per cent from 10 per cent or 7.5 per cent. The change in chromite export duty from Rs 3,000 a tonne to 30 per cent ad valorem is an ideal resource conservation move.
As steel capacity grows, skill deficit is staring in the face of the industry. Nerurkar is, therefore, pleased with the proposed “weighted deduction of 150 per cent of expenditure incurred on skill development in the manufacturing sector.” R&D in steel needs scaling up for product development, as with applications in supercritical thermal and nuclear power plants, economy in fuel and raw material use, and tighter recycling of waste matters. The proposal to extend a deduction of 200 per cent for R&D expenditure on in-house facilities for five years beyond this month will be a major incentive for industry leaders.