The steel industry contributes to 2% of India's GDP and employs close to 25 lakh people. Over the last decade, India with its growing manufacturing capabilities has been striking a fine balance between meeting the domestic as well as export requirements. pandemic The Ukraine war, aftereffects of the pandemic, and inflationary pressures contributed to rising steel prices and consequent higher input costs for domestic manufacturers. In an attempt to reduce domestic steel prices and to increase domestic availability, the Ministry of Finance issued a notification9 [ Notification No. 28/2022- Customs and Notification No. 29/2022- Customs dated May 21, 2022 (w.e.f May 22, 2022)] to impose 15% export duty on steel products including flat steel and long steel, hot rolled and cold rolled coils, coated plates, rebars, angles and sections.

This abrupt move by the government to hike export duty on steel products has adversely impact the steel manufacturers who have been aiming to boost exports and widen their global market share. Steelmakers will now have to rejig their capacity utilization in the long run given the Indian Government's stance on export of steel products.

Steel manufacturers who already have confirmed export orders lined up find themselves in a predicament. The additional cost of export duty on steel products will be challenging to recover. In a competitive market such as steel exports, where India has managed to get a foot hold, pricing has traditionally been a core factor. Increasing export duties, will mean Indian manufacturers relinquishing their space to other aggressive global manufacturers.

Moreover, steel companies who have already imported various goods under Export Incentive Schemes with the pre-requisite condition of fulfillment of export obligation are likely to be severely impacted by immediate imposition of export duty in fulfilling their export obligations.

To soften this sharp increase in export duties, the Ministry has also provided some respite to the steel industry by reducing the import duty on raw materials including coking coal and ferronickel with the intent to lower manufacturing costs in steel. It remains to be seen however, whether this step would balance out the 15% hike.

The government seems to be sending mixed signals. On the one hand, while the PLI scheme is attempting to incentive domestic production and aid the industry, on the flip side, this step by the government has proved very detrimental to industry and does not fit in with the 'Make in India' narrative.

While steel companies have approached the Ministry to roll back the hike in export duty, no dispensation has been delivered till now. In the interim, steel manufactures in India must take urgent steps to recalibrate. This includes, re-negotiating contracts with overseas customers to recover export duty, exploring input price discounts from vendors, re-evaluating the optimization of benefits under the PLI scheme, seek appropriate relaxations and evaluating implications on the projections of export obligation and seeking suitable extensions, wherever required. The pressing priority of steel manufacturers is to also review the various benefits under customs/ foreign trade policy to pull through the high tide of export duty on steel products. Time is of the essence.

Originally Published by taxsutra

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