In response to a global commodities glut, the Board of Safeguards will take a final call on Monday over recommending extension of up to 20 per cent levy on certain steel products to protect domestic sector. The board, an inter-ministerial panel chaired by Commerce Secretary Rita Teaotia, with representation from the steel and heavy industries ministries, will decide whether to extend safeguard duties on hot-rolled steel products till March 2018. Based on the board's recommendation, Finance Minister Arun Jaitley will decide within a week, according to sources.
The Directorate General of Safeguards has recommended continuation of the 20 per cent safeguard duty (minus anti-dumping duty) till September 13 and a reduction to 18 per cent in the next six months (till March 2017), and to 15 per cent during the six months after that. A 10 per cent safeguard duty has been recommended for six months from September 14, 2017 till March 13, 2018.
The decision will be taken amid stiff resistance from free-trade agreement (FTA) partner- countries such as South Korea and Japan, which have argued the move will severely impact their investments in India, considering most imports were for captive use. The two countries have said action should have been taken under the FTA provisions rather than the general safeguards route.
Multinational companies, including Posco, Maruti Suzuki, Hyundai and ArcelorMittal Brasil, beside the Indian end-user industry, have made a strong pitch against imposition of safeguard levy. They argued the move will be counter-productive to the government's Make in India campaign and impact investments into India.
For instance, Posco has been hit by the safeguard duty as it was importing products from its domestic manufacturing facility in South Korea for processing.
India had imposed a 20 per cent provisional safeguard duty on hot-rolled steel in September 2015 for 200 days as cheaper steel import from China, South Korea and Japan posed a threat to the domestic industry. Beside, import duty has been raised by five per cent on all categories of steel. The protectionist measures are being taken for a few primary steel producers, on the ground that they are over-leveraged and their bank loans could become non-performing assets (NPAs).
Japan, South Korea and China accounted for about half of iron and steel imports into India in the first six months of the financial year, worth about $3 billion. In February, the government imposed a minimum import price on 173 steel products, ranging from $341 to $752 a tonne.
The asset quality of banks deteriorated in the third quarter of the current financial year on account of higher provisioning requirement for NPAs. Gross NPAs of all banks rose to $69.2 billion in December 2015 from $53.8 billion in September 2015, owing to stress from sectors such as steel, power and textiles.
The range of protectionist measures over the past several months have led to a decline in steel imports. These fell 8.7 per cent in January and 9.3 per cent in February, year-on-year. Steel imports had grown 20.5 per cent in April-February, compared to 71 per cent growth in 2014-15. JSW Steel, Essar Steel and Steel Authority of India had petitioned for a safeguard duty.
According to the FTA with South Korea, the import duty imposed by India is only 0.85 per cent on majority of steel products. India's comprehensive free-trade pact with Korea came into effect from 2010 and with Japan in 2011. India agreed to eliminate duties on 75 per cent of products imported from South Korea on a custom-value basis during the eight years from 2010. South Korea agreed to remove duties on 93 per cent of its products from India during the period.
Safeguard duty is a World Trade Organization (WTO)-compatible temporary measure, brought for a certain timeframe to avert damage to a country's domestic industry from cheap imports. However, the country concerned has to prove injury to domestic industry from cheaper imports.
Chief Economic Advisor Arvind Subramanian in the Economic Survey argued India should resist seeking recourse in protectionist action and instead opt for WTO-compliant procedures to deal with perceived threats.
The commerce department had earlier attributed the impact on domestic manufacturers to global factors. It argued 85 per cent of steel demand was being met domestically, and that Indian steel companies were operating at nearly 80 per cent capacity compared to 70 per cent globally. India's peak steel import in the current financial year has been 15 per cent of total domestic steel consumption, compared to nine per cent in previous years.
Source: Business Standard