The Indian government’s recent moves to impose a safeguard duty of up to 25% on steel imports have sparked debates across industries.
Spearheaded by Commerce Minister Piyush Goyal, this proposal aims to protect domestic steelmakers from an influx of cheaper Chinese steel.
While the initiative has gained momentum, its potential impact on small-scale industries, particularly Micro, Small, and Medium Enterprises (MSMEs), remains contentious.
Why the Safeguard Duty?
India’s steel industry, the second-largest globally in crude steel production, has faced growing pressure from imported steel, particularly from China.
Despite producing 144.3 million tonnes of crude steel in FY24, India was a net importer of finished steel, with imports rising to 8.32 million tonnes in 2023-24 compared to 4.67 million tonnes in 2021-22.
This imbalance has led policymakers to consider measures to curb the flood of cheap imports.
Key highlights:
- Import Surge: Steel imports from China surged by 80% between January and July this year, compared to the same period last year.
- Value Concerns: Imported steel’s low prices, driven by China’s export strategies, have hurt Indian steelmakers.
- Government’s Stand: The Directorate General of Trade Remedies (DGTR) is investigating the impact of these imports on the domestic steel industry. The safeguard duty is likely to be implemented after the investigation concludes within a month.
How Will This Impact MSMEs?
While the safeguard duty seeks to empower domestic steelmakers, small-scale industries fear it might increase their operational costs.
Challenges for MSMEs:
- Dependence on Affordable Steel: Over 10,000 small rolling mills and engineering exporters rely on cost-effective imports to stay competitive. Higher raw material costs could force many to shrink operations or shut down entirely.
- Export Hurdles: Rising input costs may impact the global competitiveness of value-added steel products, a significant export segment for India.
- Liquidity Strains: MSMEs are already grappling with liquidity challenges. Federation of Indian Export Organisations (FIEO) and Hand Tool Association leaders warn that the additional duty could exacerbate these issues.
Government’s Mitigation Plans:
To address these concerns, the government has proposed measures:
- Fair Pricing for MSMEs: Large steelmakers have agreed to supply steel at reduced prices to ensure affordability.
- Raw Material Relief: Plans to offer raw materials at Free on-board (FOB) export prices could lower costs by about 20%.
- Quality Controls: The Quality Control Order (QCO) mandates that imported steel meet Bureau of Indian Standards (BIS) norms, ensuring quality while balancing the interests of MSMEs.
A Closer Look: Risks and Opportunities
Opportunities:
- Boost to Domestic Steelmakers:
- Increased protection could enhance profitability and capacity utilization for large steel companies.
- Encourages investments in advanced steel production technologies.
- Self-Reliance in Steel:
- Aligns with India’s ‘Atmanirbhar Bharat’ vision by reducing dependence on imports.
Risks:
- MSME Margins Under Pressure:
- High input costs could erode profits, affecting the entire supply chain.
- Market Consolidation:
- Smaller players might exit, leaving the market dominated by a few large steel producers.
- Trade Relations Impact:
- Import restrictions might strain trade relations with Free Trade Agreement (FTA) partners, who currently enjoy zero-duty privileges.
The Bigger Picture
The safeguard duty proposal comes amidst a larger context of India’s evolving trade and industrial policies. While the government’s intentions to protect domestic industries are clear, balancing these with the needs of smaller businesses and exporters is critical.
Experts like Ajay Srivastava of the Global Trade Research Initiative (GTRI) caution against blanket measures. Instead, they advocate for targeted protections, focusing on primary steel production rather than low-value-added processes.
Srivastava highlights that rolling slabs into Hot Rolled (HR) and Cold Rolled (CR) coils adds only 8-10% value, whereas primary steelmaking adds nearly 100% value.
Key Takeaways
- India’s Safeguard Duty Proposal: Aims to impose up to 25% duty on imported steel, primarily targeting Chinese imports.
- Potential Benefits: Supports large domestic steelmakers, aligns with self-reliance goals, and ensures quality standards.
- Major Concerns: Risks to MSMEs, higher input costs, and potential market consolidation.
- Government’s Role: Striking a balance through fair pricing mechanisms, FOB reliefs, and effective BIS norms enforcement.
Conclusion
India’s safeguard duty on steel imports represents a pivotal moment for the country’s industrial landscape.
While it offers an opportunity to bolster domestic steelmakers and reduce import dependence, addressing MSME challenges and ensuring equitable growth will be crucial.
Policymakers must navigate these complexities carefully, ensuring long-term sustainability and competitiveness for all stakeholders.
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