Massive price protection to the mega steel corporations through 20 per cent safeguard duty has dealt a severe blow to a large number of small and medium enterprises in a host of user industries which are forced to pay much higher price for the basic raw material and have become un-competitive in a difficult global market for engineering products, EEPC India has said in an S.O.S to the government.
The user industries have been hit hard by the government’s largesse to large steel makers which are quietly and happily availing the benefits of crash in prices of raw material like iron ore and coal while cry wolf about imports . For instance, NMDC has continued to cut its iron ore prices in Q2 FY16, revising prices of fines by 15 per cent and lumps by three per cent in July 2015. It again cut prices in September of the lumps by three per cent. Moreover, in October 2015, prices of both lump and fines were again dropped by a steep 12 per cent.
“But it is up to the government to ensure that by helping a handful of large sized corporations, thousands of SMEs in the engineering industries do not face the survival issue. The impact of steel price hike resulting from imposition of 20 per cent safeguard duty is being felt by units in automobile, construction equipment, fabrication activities like welding, machining, cutting, shearing besides the domestic applicans and water tanks,” Chairman of the EEPC India (formerly Engineering Export Promotion Council), Mr T S Bhasin said.
Giving a big blow to the user industries, major steel producers have announced a price hike on flat steel products, taking advantage of the safeguard duty on hot rolled (HR) coils. The country’s largest state-run steel producer Steel Authority of India (SAIL) has raised prices of flat steel products like HR coils by Rs 700 per tonne. Essar Steel too has decided to raise prices by Rs 500 per tonne on its range of flat products. Similar moves afoot by other private sector players causing a major concern among a section of the steel users, the EEPC India note to the government said.
It said the steel makers which have the financial and marketing muscle to compete in the global markets do not want to face the headwinds outside the country since they are readily getting a well –protected domestic turf. “ As global prices are falling, the Indian steel majors want to divert from export to domestic market by raising domestic tariffs. However, safeguards are only for surges and not for price protection. The surge seemed to happen in 2012-13 not now,” the note said.
EEPC Chairman asked, “How is it fair that while the steel giants are readily given the safety cushion of the domestic market whereas the user SME units are forced to carry their burden and then compete in a hostile international markets losing competitiveness in the bargain. If the scenario continues, engineering exports are bound to drop further in the coming months, leading to large scale unemployment and displacement of jobs in the SMEs, just to save the big corporates”.
Further, since a safeguard duty does not entail a corresponding hike in Drawback Duty,the user engineering industry, which is mostly in the MSME segment is hit twice: first because domestic prices will rise and secondly, because they will not get the benefit of Drawback Duty.
Imposing more safeguard duty will restrain imports in the short run but will at the same time become detrimental to the growth of the domestic user engineering industry and Indian engineering exports.
The cumulative value of engineering exports during April-October 2015-16 recorded a dip by over 12 percent to USD 35.31 billion from USD 40.14 billion the same period last year
Image Courtesy : eepcindia
