Over the past three years, Indian steel industry has been reeling under immense pressure of cheaper steel imports, especially from China, Japan, Korea, and Russia. The scenario is such that the country’s steel biggies are suffering from huge losses with monstrous unpaid debts sitting on their balance sheets. Many smaller players have either shut shops or are on the verge of it.
India’s majority of steel imports come from Korea and Japan followed by China.
It can be seen from the above table that percentage share of India’s total steel imports increased from 24% in FY15 to 29% in FY16. Imports from Japan increased from 19% in FY15 to 21% in FY16. In the year 2015, Chinese imports were levied an import duty of 7.5% in the first half of 2015 and then with the increased duty of 12.5% in the later half, whereas Japanese and Korean imports were levied a duty of 0.8% and 1.25% respectively. This was because of India’s FTA (Free Trade Agreement) signed with Japan and Korea.
FTA: A Major Concern for Steel Industry
Although last year, government took restrictive measures like increasing import duty on steel from 7.5% to 12.5%, the key concern remains India’s FTAs with Japan and Korea.
In Jan’10 and Aug’11, India had signed Comprehensive Economic Partnership Agreement (CEPA) with Korea and Japan respectively. CEPA is a free trade agreement under which duty on most of the products (including steel) traded between India- Korea and India- Japan are either eliminated or reduced to zero in time span of five years. FTAs involve cooperation between at least two countries to reduce trade barriers – import quotas and tariffs, and to increase trade of goods and services with each other.
It can be observed from the above table that import duty on steel imported from Japan, has been reduced to zero since Apr’16.
The above table shows that import duty on steel imports from Korea has been reduced to 0.63% in 2015. The revision and assessment of FTA between the two countries was due in June’16.
Demand for Removal of Steel from FTA
The review of FTA with Korea was due on 19 June’16. In the review meeting held, market sources have informed that the Indian government plans to include few more products under the domain of FTA in order to boost the country’s exports. However, assessments on the same are still going on and final decision will come out shortly.
Indian government imposed a trade barrier on steel imports in the form of Minimum Import Price (MIP) in Sep’15; it is going to expire in Aug’16. With this, entry of cheaper steel imports in to India may resume once again. Thus, Indian steel companies are demanding removal of steel under the purview of FTA.
In 2012 also, Indian steel players had demanded removal of steel from the FTA domain. However, at that time, the plea for the same was rejected by the then government citing reasons that presence of cheaper steel will motivate Indian players to adopt latest technology, improve operational efficiency of the steel plants and lower their production cost to become more competitive. However, in the industry, whether the government will once again reject this plea or accept it is to be seen.
Source: Steel 360 Magazine July’16 Issue