Budget For Steel Industry 2018: Some Expectation Met, Some Not So Much

The Indian Stainless Steel industry is the second largest in the world, next to China. It expects to grow at around 8-9% to achieve production of about 5.5 MTPA by 2022 from the present level of about 3.5 MTPA.

 

Though positive policy support from ‘Make in India’ and ‘Smart Cities Mission’ is expected to provide the much needed impetus to the sector, the industry argues that custom duty on key raw materials is hindering its growth. The industry has been pushing the government for a level playing field.

 

As Finance Minister Arun Jaitley gears up to present the Union Budget 2018 on February 1, the stainless steel industry has demanded that the government should remove import duty on ferro-nickel and stainless steel scrap – key raw materials used in the production of stainless steel.

 

In a pre-budget statement issued to the media, president of the Indian Stainless Steel Development Association (ISSDA), apex industry body of stainless steel sector, KK Pahuja said, “It is absolutely necessary to preserve competitiveness of Indian Stainless Steel Industry at a time when government is building new trade relations with other countries and we appeal to the Finance Ministry to remove basic custom duty on both Ferro-Nickel and Stainless Steel Scrap.”

 

ISSDA’s demand also finds resonance in the All India Induction Furnaces Association (AIIFA), the secondary steel industry body which also urged the government to remove 2.5% import duty on steel melting scrap in the upcoming budget. 

 

FERRO-NICKEL

 

Nickel and ferro-nickel are among the main raw material to produce stainless steel. Since nickel is practically unavailable in India, the metal is imported, either in pure ingot or scrap form, from Indonesia and China. According to an estimate, India imports around 30,000-35,000 tonnes of nickel, in both the categories, annually.

 

On April 1, 2017, government had abolished the import duty on nickel. However, ferro nickel, which attracts 2.5% tax, was not exempted.

 

According to Pahuja, removal of custom duty on pure nickel did not help the industry much as most of the metal used by stainless steel makers is in the form of Ferro-Nickel.

 

Nickel is used by the stainless steel industry to manufacture industrial and utensil grade materials. The cost of stainless steel production in India is directly proportional to the nickel prices and the amount of its use.

 

STAINLESS STEEL SCRAP

 

As per a Steel Ministry data, of the total 52 million tonnes (MT) steel produced through electric route in the financial year 2015-16, around 28 MT steel was produced from scrap. According to a media report, India imports around 7 MT of scrap which leaves with a need to internally generate over 23 MT of steel scrap annually.

 

Against this backdrop, the ISSDA budget wish list released to the media states, “Since all stainless steel is produced through electric furnaces, stainless steel scrap is the main raw material which also provides cost effective source of alloying elements like Chrome and Nickel. The scrap is also not available in the country and has to be imported. Therefore, the custom duty for stainless steel scrap should also be made zero from current 2.5%.”

 

DEMAND STIMULATION

 

In spite of being the second largest producer globally, India is still a net importer of stainless steel and alloy steel used in high-end applications. Also, as per an ISSDA statement, the per capita consumption of stainless steel in India is 2 kg against the world average of 6 kg. Therefore, there is a huge potential for growth in this sector.

 

According to Draft National Steel Policy 2017, the demand of steel, including the stainless form, will grow threefold in the next 15 years to reach a demand of 230 MT- 240 MT by 2030-31. However, stimulation of domestic demand will require adequate policy measures by the government and active participation by the steel industry.

 

Construction and manufacturing sectors such as rural development, urban infrastructure, Railways and Roads and Highways are the key focus areas for stainless steel demand growth. As such, usage of steel in all buildings and structures needs to be encouraged and the overall cement : steel ratio in construction of buildings in the country needs to be reduced. 

 

The first step in this regard, experts say, would be to mandate greater use of stainless steel in government projects. 

 

According to a FICCI report on steel industry, to spike domestic demand, the government needs to increase steel usage in making railway station, foot over bridges, rail coaches, construction of steel based railway colony buildings especially in earthquake prone areas, construction of dedicated freight corridors and superfast rail corridors and construction of more steel bridges. It will not only boost domestic demand, but also save time and capital expenditure.

 

Low steel consumption in rural areas is also an area of concern. According to the FICCI report, the current per capita steel consumption in rural areas is only 10 kg as compared to India’s overall per capita steel consumption of 61 kg.

 

So there is a large scope for increment in steel usage in rural areas. According to industry experts, government needs to take special steps to sensitize the rural population about advantages of using steel in construction and create necessary infrastructure to ensure steel products reach them.