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Steel makers want solid support to break shackles of slowdown

Monday, 30 June 2014 - 6:30am IST | Place: Mumbai | Agency: dna

Industry seeks conducive policy, input security, faster green clearances, infra status

Indian steel industry is seeing tumultuous times since the past few years due to slowdown in key steel consuming sectors including construction and automobile.

Iron ore mining ban in various states and long delays in several greenfield projects due to slow regulatory and environmental clearances have compounded the woes.

The previous UPA government had set up a target of achieving 300 million tonne (mt) of step production capacity by 2025. Most industry players believe that in order to achieve this target, there is an immediate need for a conducive policy regime, easy access to funds, raw material linkages and faster clearances for greenfield projects.

Steel is one of the sectors that has been on the radar of Narendra Modi even before he became PM. His criticism of iron ore exports and steel imports had instilled hope in the battered sector for better times. The industry mainly wants finance minister Arun Jaitley to ensure raw material security for the sector and complete removal of the current 2.5% import duty on iron ore.

There has been severe ore shortage in the country after the Supreme Court-appointed Shah panel revealed rampant illegal mining in Karnataka, Odisha and Goa, leading to a mining ban in these three states.
"Duties on import of all raw materials should be made nil, so as to benefit end-user industries." Dilip Oommen, managing director and chief executive officer of Essar Steel, said.

Ashima Tyagi, researcher at Infraline Research, believes that the government should prioritise allotment of resources, especially iron ore. "An iron ore utilisation policy at the central level – on the lines of the gas policy – will go a long way," she said.

Industry also expects that export duty of 30% on iron ore lumps and fines would be maintained. Associated Chambers of Commerce and Industry of India (Assocham) has even requested the commerce ministry to impose 30% duty on iron ore pellet exports, arguing that such exports are draining India's mineral wealth.

However, most industry participants dna spoke to vehemently opposed this move.

"The existing 5% export duty for pellets itself is not justified as it involves value-addition. The country currently has nearly 62 mt of pellet capacity and only 30 mt is operating. It is a myth that steel industry is demanding such increase in export duty of pellets," Oommen said.

Worried over growing imports from Japan and Korea with whom India has free trade agreements (FTAs), industry members demanded that steel products should come under negative list so as to protect the interest of local firms.

"While iron ore prices are increasing domestically, they are going down globally. With FTAs imports coming at much faster rate, this is not a level-playing field. The government needs to revisit FTA scheme. For Japan and Korea, interest costs are much cheaper and their raw material cost is also going down," Oommen said.

Easier access to finance is another immediate requirement of the sector.

"From the industry point of view, the entire industrial sector should be provided proper loans by Indian banks and govt itself which would stop them from going abroad in search of cheaper and heavier loans," Prakash Duvvuri, head of research at Ore Team, said. Instead of incentivising the products or services, the loans structure should be eased to fit into the pockets of the industrialists, he said.

"Steel is a capital-intensive business. So we propose the government to set up financial institution on the lines of Power Finance Corp that will provide fund for steel projects at lower interest rates and for longer tenures," Oommen said.

Land acquisition and environmental clearances has been a key impediment for steel manufacturers for almost a decade now.

"Environmental clearance must be given in time-bound manner, and there needs to be enough justification for any denial," RK Goyal, managing director of Kalyani Steels, said. Concurring with him, Oommen said there was an immediate need for streamlining project approvals.

"Single window clearance can be implemented for time-bound clearance of files," he said.

One of the best ways to improve steel demand in the country which is currently way behind global standards of per capita consumption is to push infrastructure growth in the country. Fast tracking the processing of big projects like high-speed railway, freight corridor, new cities and towns, rural development, etc could go long way in fueling steel demand.

Goyal said the government could promote low-cost housing projects through budget, which would not only aim at homeless people but would also spur domestic steel consumption.

"The sector needs to be given an infrastructure sector status as it is a key for faster development of the nation," Oommen said.

Apart from this, steel exports need to be encouraged especially while global demand is slowly picking up. "The government can give focused market and product benefit. Today only 2% of exports are through focused exports. The government can provide duty drawback for specific products like flat products to enhance market for focused products," Oommen said.

GST implementation, zero-import duty for plant and machinery are some of the key demands of steel sector.

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