Withdrawal of export duty on steel sought

Thu 22 May 2008

In a representation to the Union Finance Minister, P. Chidambaram, the Federation of Indian Chambers of Commerce and Industry (FICCI) has sought withdrawal of export duty notified on steel and steel products, in the interest of investments of over Rs. 1 lakh crore that have been announced by different companies in the steel sector recently. “Of serious concern was the export duty on value-added products of steel such as pipes and tubes,” FICCI emphasised in its representation.

On May 10, the Government had notified export duty on 15 steel and steel products ranging from 5 per cent to 15 per cent.

The apex chamber said that the export duty and voluntary price reduction by the steel industry would significantly impact the margins of the sector that could affect their future investment plans.

It also notes that already the performance of the steel sector has shown some signs of a slowdown, with the production of finished steel growing by mere 5.1 per cent in April-March 2007-08 compared to an increase of 13.1 per cent in April-March 2006-07. Also, the chamber observed that the Reserve Bank of India (RBI) in its survey found that gross profit margin ratios of 105 iron and steel companies declined in the second quarter of 2007-08 vis-À-vis first quarter. The ratio was 18.6 per cent in Q1 and declined to 17.9 per cent in Q2. The interest burden of steel companies increased from 19.5 per cent in Q1 of 2007-08 to 21.4 per cent in Q2, the chamber pointed out.

Regarding value-added products of steel, FICCI said that significant amount of value addition was taking place in the production of steel pipes and tubes. In the case of black pipes, the value addition was $100 a tonne and in galvanised pipes it was as high as $250 a tonne, it said.

In such a scenario, FICCI said that imposing stringent measures on exports would not be in the interest of the steel industry that had developed strength in the last few years in the world market and for which exports had become an integral part of the business strategy. The chamber said that building up export capabilities was strategically important in the long-run.

Export markets provide flexibility to the industry in terms of an extra window of demand when domestic demand slackens and as an additional source of domestic supply when domestic demand rises fast in future. Such measures would also discourage substantive value addition taking place in the country, FICCI said.

India was a net exporter of steel for the last few years, but now has become net importer, it said. In such a situation, where exports have already witnessed a decline due to several reasons, to impose such stringent measures on exports would further affect the revenues of the companies significantly, the chamber said.

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