The Hindu Business Line : A good Budget, but not for us, say steel majors — 'Investments will come down, end-user will pay more'

THE reduction in customs duty on non-alloy steel from 15 per cent to 10 per cent and the increase in the excise duty on steel from 8 per cent to 12 per cent as proposed by the Union Finance Minister, Mr P. Chidambaram, in his budget proposals for 2004-05 have come as a disappointment for the domestic steel industry.

The Indian Steel Alliance, which comprises Steel Authority of India Ltd (SAIL), Tata Steel, Essar Steel, Bhushan Steel and Ispat Industries, has said that the increase in the excise duty would hinder investment in the industry. Besides, with steel producers wanting to pass on the impact of the excise hike to customers, the end-user would now have to pay more.

In a statement, the Chairman of SAIL, Mr V.S. Jain, has said that the reduction in customs duty and increase in the excise duty would put "some pressure" on margins. He commended the thrust the budget has provided to the social sectors and agriculture. The special packages for Bihar and the North East were likely to provide a boost to economic activity in these regions "which should have a positive spin-off for SAIL plants located in the eastern region," he has said.

Dr T. Mukherjee, Deputy Managing Director (Steel) of Tata Steel, said the budget did not provide any incentives for investment in the sector. The proposed reduction in customs duty and the upward revision of excise duty on steel would hinder the growth of the domestic steel industry. As a result, the country would not be able to take advantage of the availability of natural resources such as iron ore. However, Tata Steel would continue to invest in capacity expansion since decisions in this regard had been taken earlier.

Dr Mukherjee said that, otherwise, the budget was good as it laid emphasis on agriculture, education, food for the poor and infrastructure.

A statement released by Tata Steel stated that one of India's major strengths is its ability to make steel efficiently. Listing the reasons facilitating this, it stated that "the budget should have set the direction for India to become one of the major steel producing countries of the world. This is all the more so as the target is to achieve an 8 per cent rate of growth year after year. Without adequate growth of steel capacity, it can be expected that there will be difficulties in attaining this target."

Mr Vinod Mittal, Managing Director of Ispat Industries, has described the reduction in customs duty as a serious measure and said that it would make imports cheaper. "We should have a benchmarking price or floor price before reducing the customs duty on steel," he said and urged the Finance Minister, to consider increasing the customs duty to "at least 15 per cent if not 20 per cent".

Mr Mittal said the reduction in the customs duty and the increase in the excise duty were "threats" to the sector. "Any slump in consumption will further complicate the business scenario. The domestic steel sector is currently buoyant and further investment should be made to increase capacity instead of encouraging imports." He said that, otherwise, the budget was good with focus on growth, the rural economy and infrastrucure.

In a statement, the Managing Director of Essar Steel Ltd, Mr Prashant Ruia, described the reduction in the import duty as an "unfortunate step as this is the only core sector that has been singled out for such treatment." The increase in the excise duty would fuel an inflationary trend especially in projects and the construction segment, he has stated.

Mr Bipin Kumar Vohra, Chairman & Managing Director of the SPS Group - whose steel projects in West Bengal and Orissa are in advanced stages of completion - said the budget was bad for the industry. Prices would go up and the consumer would suffer, he said.