NEW DELHI: The steel industry has finally got what it has been waiting for a long time. The government on Friday notified withdrawal of recently imposed export cess on a host of steel items as was agreed earlier during a meeting of steel producers with the Prime Minister.
It went a step further by imposing a uniform 15% ad valorem export duty (duty based on value of a product) on iron ore under an additional resource mobilisation programme (ARM). The new duty structure would be implemented with immediate effect.
As per the notification, the government has withdrawn 5-15% export cess imposed on variety of steel products including hot and cold rolled coils, steel pipes and tubes and galvanised sheets. It has, however, increased export cess on long steel products such as bars and rods; angles, shapes and sections and wire from present 10% to 15% to improve their availability in the domestic market. Rising price of long products has directly impacted consumers with higher cost of construction.
It is understood that 15% export cess on pig iron has also been maintained at the same level to discourage its exports and make available the material for value addition by domestic companies.
However, the levy of 15% ad valorem duty on iron ore is significant as it has been uniformly across all categories of ore irrespective of iron content. This likely to swell government’s resources substantially as country exports roughly 100 million tonne of ore annually mainly to spot markets in China where prices have been spiralling.
Government sources said net impact of export cess withdrawal and imposition of price linked duty on ore would be a gain of Rs 2000 crore for the exchequer.
The duty changes were earlier approved by a Committee of Secretaries (CoS). The CoS was asked to arrive at solution to check the rising price of steel through a mix of fiscal and administrative measures. The proposal to levy export cess on iron ore, however, divided inter-ministerial consultation earlier with mining and commerce ministries opposing the levy while steel and finance supporting.
The cess on iron ore is a expected to act as a big disincentive for exporters of ore (mainly mining companies). “There’s no shortage of iron ore in the domestic market currently. The government’s move would only have an adverse impact on the exports of iron ore as freight and other transportation costs are already very high. The decision would also aggravate the trade deficit between India and China,” Federation of Indian Mineral Industries (FIMI) secretary general R K Sharma said.
At present export duty on a fixed rate of Rs 300 per tonne is imposed on ore with 62% of higher iron content and Rs 50 on lower grade ore.
Finance minister P Chidambaram had announced imposition of 15% export duty on hot rolled steel products, 10% on cold rolled steel products, pipes and tubes and 5% on galvanised sheets to disincentivise exports and contain the domestic demand-supply gap. The steel ministry, however, favoured its withdrawal. Steel prices have risen by about over 60% in last one year.
Essar Steel Holding CEO J Mehra, “We appreciate the government’s decision to roll back export duty on steel products as it was required to maintain long term commitments to export value added items to overseas buyers. The move will provide free market access to the industry without affecting the domestic market.”
While steel firms are maintaining a voluntary moratorium on prices, the new measures are aimed at bringing stability for a longer period.
14 Jun, 2008, 0015 hrs IST, ET Bureau