Apr 13, 2016

Rethinking barriers on steel imports into India

India has taken various measures to curb cheap steel imports into India during the last one and half years. They chiefly include:

  • Anti-dumping duties on some steel items
  • Safeguard duties on few, and,
  • Making Minimum Import Price (MIP) mandatory on some steel items

The intention behind the above is to protect domestic steel industry. To that extent, the measures are succeeding. The local steel industry led by leading capitalists of the country is surviving if not thriving. The above measures were the result of effective lobbying by the steel industry. The same has repeated across many countries, like USA, in the recent past. UK too is now feeling the heat with Tata Steel pulling out of steel sector there due to cheap Chinese imports.

Why is steel so important? The argument in general policy circles goes this way. One, steel sector is a strategic sector. Defence and infrastructure depend on it. Two, it generates big employment. Three, the sector has unionised labor. Government needs to appear to do something to help the ones that are running by not letting them close down. It is not unique to India, even UK is facing the same puzzle.

The above policy circle argument needs re-examination. A globally traded commodity like steel cannot be strategic in 21st century. That was so during world wars. Indian steel is especially not so, given the poor quality of most of the mills (we import most of high grade stuff). The employment argument needs rephrasing. Supporting one job in steel mill might be costing two in the downstream engineering sector that uses steel. Downstream engineering sector is losing competitiveness/export potential due to costly steel, and it has already started hurting.

China's steel dumplings - from Economic times
The policymaker is put in a tricky situation due to global scenario. China has excess capacity in manufacturing steel which will continue for some time, till production in China falls, or their local demand picks up. There is a glut in global market due to this. The trade defence measures such as anti-dumping, safeguards, minimum import price etc are the measures at hand. One may impose one or several of them. The cost is the downstream sector and consumers. No one eats steel. It goes into infra, engineering, and goods. The question is about balancing the interests. While the policymaking-bureaucrat might play with data and study the export/competitiveness loss in downstream sector and so on, the actual decision is made at political levels which may not be influenced by such inputs, and is rather influenced by the heft of the lobbies. That is so everywhere.

I feel that these times should be used to re-invent the steel sector. Rather than continuing the way it always did by hiding behind artificial barriers, the steel sector should look at reinventing business model. As TATA is selling out in UK, the steel sector there is thinking on those lines; splitting into smaller units specialising in specific high quality steels, using scrap as inputs and so on. The mammoth integrated steel plants in India produce soviet era steel at un-competitive price point.

Policymakers should see how steel sector can be supported through better infrastructure, cheaper and reliable electricity (thus obviating investment in captive power plants), cheaper inputs, incentives for high quality and specialized steel and such measures. And they should let the rotten parts of the steel sector to totter.