Finance Minister Nirmala Sitharaman used a ‘Made in India’ ‘tablet’ to deliver the paperless Union Budget, 2021-22 in Parliament on February 1, 2021. At the time of writing this report, finer details are awaited, but this Union Budget assumes greater significance as it comes amid the novel coronavirus pandemic, which has led to massive economic disruptions in India and globally.
While the country has witnessed strong economic recovery since lockdown restrictions were eased, there is still a long way to go. All eyes were on this Budget, with hopes that it would help revitalise the economy.
Finance Minister Sitharaman said the Budget preparation was undertaken under circumstances “like never before” and that the Centre is fully prepared to support and facilitate economic growth.
Here’s a round-up of key Budget announcements:
- FY22 capital expenditure target at INR 5.54 lakh crore vs. FY21’s INR 4.39 lakh crore;
- FY22 fiscal deficit pegged at 6.8% of GDP; FY21 fiscal deficit pegged at 9.5% of GDP;
- Government to launch new securities market code;
- FDI in insurance to be increased to 74%;
- FY22 divestment target set at INR 1.75 lakh crore;
- Allocation of INR 35,000 crore as additional funds for Covid-19 vaccines;
Exemption from filing tax returns for senior citizens over 75 years of age and having only pension and interest income; tax to be deducted by paying bank;
Time limit for re-opening cases reduced to three years from six years.
Importantly for the iron and steel industry, Finance Minister Sitharaman said, “MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices, therefore, we are reducing customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy and stainless steel”.
“To provide relief to metal recyclers mostly MSMEs, I am exempting duty on steel scrap for a period of up March 31, 2022. Further, I am also revoking ADD and CBD on certain steel products,” she added.
To provide relief to copper recyclers, she reduced the duty on copper scrap from 5% to 2.5%.
Reacting to the Budget, T. V. Narendran, CEO & MD, Tata Steel, said, “Exemption of duty on steel scrap and reduction of customs duty on steel products would benefit the MSME sector. However, the reduction of customs duty on steel products will have no significant impact on the steel industry as most of the steel imported into the country today comes from countries with whom we have an FTA and hence they enjoy zero import duty.”
ISSDA, in a release, said, “In an unprecedented move, an announcement in the Union Budget has facilitated opening of floodgates for imports of stainless steel flat products from Chinese companies located in mainland China and Indonesia.”
Prior to the tabling of the current Union Budget, two industry associations had presented a wish-list of their demands.
The apex steel industry body, Indian Steel Association (ISA), in its pre-Budget 2021-22 recommendations, suggested that the input tax credit (ITC) should be made available for natural gas, at least for core industrial sectors like steel, cement, power etc which generate more employment and revenue to the exchequer. A uniform GST from the current 6.2% to 15% by 2030 would also push the usage of environment-friendly natural gas in the energy basket, as desired by the government.
Furthermore, ISA has suggested that petroleum products and electricity may also be brought under GST at
an early date so as to allow input tax credit thereon without break in the chain of credit. The electricity duty may also be brought under GST so as to minimise the cascading effect of taxes, it suggested.
In addition, the ISA recommended reducing the
GST for steel products from the existing 18% to a suitable rate which should not be more than 12%.
Highlighting the slowdown and sectoral issues in steel and other ferrous products,
the Federation of Indian Chambers of Commerce and Industry (Ficci) suggested the following changes in the duty structure:
Pet Coke Import Duty Rollback
Ficci said petroleum coke (2% sulphur) is gaining importance as one of the key carbon-bearing inputs used by the steel industry, partly replacing costly and scarce coking coal and adding carbon value to the end-product, ie, metallurgical coke, by increasing the carbon content and yield of coke, in turn, reducing imports of costly metallurgical coke. Pet coke (2% sulphur grade) is a relatively cheaper substitute of met coke and should, therefore, be encouraged in the domestic industry to help save precious foreign exchange and make domestic steel mills more competitive by lowering their cost of production.
Recently, the Ministry of Environment and Forests (MoEF) issued guidelines for the regulation and monitoring of imported pet coke in India by eligible entities. Accordingly, pet coke (Ch 2713) is allowed to be imported by those units only which are adhering to environmental norms, and such eligible units are required to take consent from the concerned State Pollution Control Board (SPCB)/PCC for the permitted quantity to be imported and its use. Since pet coke imports are restricted only to eligible units, and with permitted quantity, Ficci recommended that duties on pet coke imports be restored to their original 2.5% as this will help refineries to reduce their utilities cost.
Customs Duty Reduction on Anthracite
Anthracite, coking coal, coke, pet coke, limestone and dolomite are vital inputs for the steel industry. Their availability in good volumes is declining in the country and the industry has to thus depend on regular imports of the same. The basic customs duty (BCD) on anthracite is 2.5%. Since the ferro alloys industry plays a vital role in the manufacture of steel, it is necessary to make available these reductants at internationally competitive prices so that Indian steel mills become more competitive. Thus, Ficci has recommended that the customs duty on anthracite (CTH 27011100) be reduced from 2.5% to nil.
Reduction in BCD on Met Coke
Met coke is one of the vital inputs for the steel industry. It has been attracting the lower and concessional rate of customs duty. However, the basic customs duty has been enhanced from 2.5% to 5% w.e.f. March 1, 2015. Additionally, an anti-dumping duty has also been imposed on its imports with effect from November 25, 2016. As a result, the cost of this vital input in steel manufacturing has gone up, necessitating an increase in the prices of steel which is acting as a deterrence to the competitiveness of domestic products in international markets vis-à-vis similar products of other countries like China.
Moreover, high inputs costs have led to an inverted duty structure in the domestic industry and are acting as a deterrent to the ‘Make in India’ initiative, as domestic producers have lesser incentives to import this raw
material and boost indigenous production. Rather, imports of finished steel goods are preferred. It is, therefore suggested that the basic customs duty on metallurgical coke be reduced from 5% to nil.
Nil Customs Duty on Coking Coal
In Budget 2014-15, the exemption available to coking coal was removed by the government by bringing it at par with other coals through the imposition of the 2.5% basic customs duty. This amendment adversely affected steel manufacturers and the ‘Make in India’ drive. Coking coal is one of the principal raw materials and is predominantly used in making coke for use in steel-making and thus forms a major part of the final price of the commodity. A levy of the 2.5% BCD and simultaneously fixing the import duty of 5% on coke adversely affected the costing of steel.
Ficci has thus requested restoring the exemption on coking coal without any technical definition of coking coal.
Nil Import Duty on Limestone & Dolomite
While cement grade limestone reserves are adequate, SMS, BF and chemical grade limestone (required by the steel industry) are not and occur in select areas only. An increase in steel production in the country has led to rising demand for SMS and BF grade limestone.
Therefore, limestone imports have been increasing consistently, as reserves within the country are scattered and there is a capacity limitation where the existing mines in various states are concerned. In Budget 2014-15, an exemption was granted to limestone (CTH 2521) and dolomite (CTH 2518) “for metallurgical use conforming to IS: 10345-2004 (limestone) and IS: 10346-2004 (dolomite)”. While there is no apparent issue in this regard, now all samples which were hitherto not being tested are being sent to Bangalore laboratories due to which finalisation of provisional assessments are getting unduly delayed. This substantially increases transaction costs and litigation, defeating the purpose of the benefit of the concessional duty. So, it is requested that the customs duty on all grades of limestone (CTH 2521) and dolomite (CTH 2518) be reduced from 2.5% to nil in line with similar imports from ASEAN countries, without any technical condition.
30% Export Duty on GE Exports
Graphite electrode (GE) is a major consumable in steel-making. The Indian producers are major suppliers in the international market. Almost 60% of the domestic production is exported, creating a shortage in the home market. Consequently, Indian steel producers have to resort to imports of the material. Such a high duty merely increases the cost burden. Hence, it is recommended that the BCD on graphite electrodes be reduced from the existing 7.5% to nil. On the other hand, imposition of a 30% export duty on graphite electrodes is recommended to increase its domestic availability.
Increase BCD on Certain Products
The trade discord between the US and China, protectionist measures by the EU, Canada, Turkey etc and global excess steel capacity are factors impacting the steel market. The resultant increase in steel imports into India and consequently an increase in the country’s current account deficit are a cause of serious concern for the steel industry. Imposition of the import duty will provide a much-needed correction. Therefore, it is recommended that the BCD be increased from 10% and 12.5% to 25% on the following steel imports:
- Hot rolled steel – SAE 1006, SAE 1008, SAE 1010, SS400, SPHT 270, any form of IS 10748 and IS 2062.
- Cold rolled steel – CQ, DQ.
- Galvanised steel – defective/secondary.
- Colour coated steel – JISG3312 ASTM, RAL 5012.
- Wire rods – IS 7904 high carbon wire rods.
- Increase BCD on Alloy Steel Bars, Wire Rods
Increase BCD on Alloy Steel Bars, Wire Rods
A threat of dumping of steel in Indian markets is looming post-imposition of protective tariffs by the US and European Union. When major steel consuming regions like the US or EU have restricted imports in their territories, countries like South Korea, Japan etc which are majorly hit due to such protective measures may divert this surplus steel to other lucrative markets like India. This is evident from the fact that imports of AS wire rods have increased considerably over the last one year. Hence, it is recommended that the BCD on alloy steel bars and wire rods (HS codes: 7213, 7214, 7227 & 7228) be increased from the existing 10% to 15%. Moreover, the provisional safeguard duty on steel products needs to be imposed with immediate effect for a stipulated time to protect mills from escalating protectionist measures from other countries.
Reduction in Import Duty on Moly Oxide
Moly oxide is a critical input for production of ferro molybdenum. However, a negligible volume of 1,500 tonnes of moly oxides is available in South East Asia against the domestic requirement of 10,000 tonnes. Also, only imports of the same from South East Asia are duty-free. There is a 0.5% duty on moly oxides imported from Chile and 2.5% on imports from Europe, China, US and Iran. Therefore, Ficci recommends reduction in the import duty on moly oxide to nil from the current 2.5%.