The maiden budget of the Narendra Modi government was a mixed bag for the mining and steel industry. While announcement of 100 smart cities, increase in stainless steel custom duty and a proposal for changes in MMRD Act were welcomed by both these sectors, an increase in royalty and custom duty of coking coal were disappointing.
Finance minister Arun Jaitley announced several infrastructure boosting measures which are likely to revive the subdued steel demand in the country. "The renewed focus on infrastructure viz development of smart cities, ports, Pradhan Mantri Gram Sadak Yojna, power plants, plan for doubling pipeline grid, metro for tier 2 cities, industrial corridor, incentives for housing, and revival of SEZ, etc will go a long way to further consolidate growth and giving fillip to the steel sector, which has faced stagnant demand of late," CS Verma, chairman of Steel Authority of India said.
TV Narendran, managing director of Tata Steel India, said, "The government's emphasis on developing 100 smart cities and assigning a sum of Rs7,060 crore towards the development in the current fiscal indicates a significant opportunity for the domestic industry."
Jaitley also increased the basic customs duty on imported flat-rolled products of stainless steel from 5% to 7.5%.
NC Mathur, president, Indian Stainless Steel Development Association, said that the government should have also reduced the duty on input raw materials like SS scrap and nickel, both of which are not domestically available.
"Other measures such as reduction in customs duty for steel grade limestone and dolomite, as well as ships for breaking should also help the industry," Verma said. Jaitley reduced basic custom duty on steel grade limestone and steel grade dolomite to 2.5% from 5% and on imported ship for breaking (steel scrap), to 2.5% from 5%.
The steel and mining industry also appreciated the government's commitment to expeditiously resolve the current impasse in mining sector, especially iron ore mining, and its willingness to carry out necessary changes in the MMDR Act, 1957 to facilitate this.
However, the steel and mining companies were disappointed with the proposal to increase royalty on minerals from the existing 10%. "We are disappointed with the expected increase in the rate of royalties for minerals. It will lead to an additional cost burden on an already capital intensive industry," Narendran said.
Basant Poddar, vice president of Federation Indian Mineral Industries, however, stressed that this was expected by the mining industry. "While it will increase pressure on the players, it can't be called unfair as the royalties have not been increased since 2009. We just hope that this additional amount will be utilised by state governments for improving the general health of the district."
The rate of royalty can be revised after a period of three years and the last revision took place in August, 2009. Prakash Duvvuri, research head at OreTeam, said that the royalty increase would mainly hurt low grade iron ore miners of Goa, because they are getting a very low sale price and are already contributing to Goa development fund.
Another negative aspect for the steel sector is the increase in custom duty of coking coal, which is one of the key raw materials. Industry participants demanded that in view of shortage of domestic coal for both steel and power sector, an increase in basic customs duty for coking coal from NIL to 2.5% and for steam and bituminous coal from 2% to 2.5% should be reconsidered.