Union Cabinet on May 8 issued a notification approving the policy for providing preference to domestically manufactured steel in government buying and thus reinforcing its protectionist stance for the steel Industry. Steel minister Chaudhary Birender Singh was quoted as saying that tenders from central as well as state governments and state firms, where the project is worth more than INR 500 million, will give preference to domestic firms unless the quality or quantity is not locally available, or if there is a 15% value addition in India. However the Steel minister was also clear in stating that the preference was only to counter cheap imports and if foreign firms are willing to set up manufacturing in India on a technology sharing agreement, they would also be benefited equally by the new policy. The policy notification clearly states, “The policy is envisaged to promote growth and development of domestic steel Industry and reduce the inclination to use, low quality low cost imported steel in Government funded projects. It shall be the responsibility of every Government Agency to ensure implementation of the policy”.
According to official sources the estimated benefit to Domestic steel players is likely to be in several billion as they would not be competing with Chinese suppliers who have been pricing their products at an unrealistic rate. The policy along with Anti dumping measures are likely to play a major role in resurgence of the Indian steel industry. The government has been stressing on domestic production since the two years and has wielded its measures widely through major PSUs. It may be recalled here that GAIL in December 2016 was forced to cancel a USD 7 billion tender for hiring ships after the bidders did not agree to the Make in India terms.
Meanwhile, within a month since the notification was issued PSUs have shunned cheaper foreign imports for locally made steel products but only at the cost of increased project expenditure. The Government has remained cautious about unreasonable increase in prices. Experts believe these protectionist measures such as anti dumping and preferential procurement may grant an undue pricing power to domestic players, which may even lead to cartelization. The increased prices may also lead to a direct rise in cost of public projects thus affecting infrastructure development.
The Government has taken due stock of this possibility following which Joint Secretary of Ministry of Steel Syedain Abbasi recently hinted that unreasonable rise in prices of steel would compel GoI to withdraw its support for the domestic industry along with protectionist measures such as anti dumping and priority in government procurement. He stated that “While we are willing to give protection, it comes with a sense of responsibility so please be responsible, otherwise charges of cartelization become very difficult to fend off as prices start rising dramatically.” “It would become untenable for us to continue if you suddenly find that the prices in the next tender for GAIL pipeline have gone up by 30 per cent”, he further added. Abbasi stated that it is not in the government’s interest to buy steel at prices which are very high. It still remains to be seen what impact is the policy to have on project cost and tender value. Though the government has provided a permissible value addition of up to 15 per cent it is still not clear if the domestic bidders submit tenders at a higher rate or take a more responsible approach.
Source: Steel 360 Magazine Aug’17 Issue