The Hindu Business Line : Pricing by persuasion

Moral pressure has brought about price cuts in steel, but for the long term, more capacity is needed and, for that, enabling legislation must be put in place.

Steel producers have agreed to reduce the prices of primary steel products by up to Rs 4,000 per tonne, but wiser counsel would suggest that the gains of an appeal from the Prime Minister himself may have a limited run because the forces that influence the spikes in steel and cement prices have not been confronted headlong. This is not the first time moral suasion has been used, and it will certainly not be the last. This year alone, steel producers twice agreed to cut pr ices, first in February and then in April. Within days, some firms lifted the lid, blaming high input costs, and in April imposed a raw material surcharge. This time the participants at the Prime Minister’s meeting agreed to a reduction and, in return, have demanded the government hold the proposed export duty on steel products and reduce input costs.

Will the arrangement and the price cuts hold this time around? Much will depend on the government taking a balanced view about cement and steel inflation. Just a while ago, its panic at the rise almost led policy-makers to revive an old provision in the archaic Industrial Development (Regulation) Act of 1951 following North Block’s threats of dire action if high prices persisted. Now that moral suasion has worked, the policy-makers must make sure prices stay easy; and what better way to ensure that than curbing raw material costs at one end, and reducing excise duty at the other end of the production spectrum? Clearly, moral pressure will not work every time. The problem lies in a demand-supply mismatch and the solution is at hand in the legislation now languishing in Parliament, namely the amended Mines and Minerals (Development and Regulation) Act that promises to galvanise domestic mineral production through private sector investments on long mine leases allotted through competitive bidding.

With Parliament prematurely adjourned, an opportunity to formalise the Bill this session has been lost. It is ironic that a government keen to bring down steel prices should delay the passage of a piece of legislation that would attack the inflationary problem at its root. As it stands, the amended provisions of the Mining Act will have to wait for the monsoon session, like the critical Land Acquisition (Amendment) Act and the Resettlement and Rehabilitation Bill, on which so much of core sector development rests. Policy-makers have never tired of reminding the nation that the current inflation is a result of supply shortages. Global fuel shortages are beyond its control; not iron ore and other inputs that add materially to high product prices.

Related Stories:
Steel firms answer Govt’s call, slash prices by up to Rs 4,000/t
Global steel prices see steady rise