Steel firms want excise duty on steel used for ship-building to go

An excise duty of eight per cent levied on ship-building grade steel produced by Indian companies has put them at a disadvantage compared to foreign producers.

Currently, high-strength ship-building steel AH32/36, DH32/36 and EH32/36 is imported duty free at about $700 (Rs 37,100) a tonne It comes in largely from China, Indonesia, Germany and other European Union countries.

An import duty of 7.5 per cent is levied on all flat-rolled steel, except ship-building steel grade.

“We are not asking for any special incentive even though our cost of production is higher compared with foreign companies. What we want is a level playing field,” said a steel company official.

India has a ship-building grade steel production capacity of five million tonnes per annum.

Major firms

Major Indian companies such as L&T, ABG Shipyard, Pipavav Shipyard, Bharati Shipyard are vying to bag ship-building orders. Since ship-building activities happen near the shore, companies prefer to import steel rather than pay the excise duty, said an industry expert.

India accounts for about one per cent of the global shipbuilding industry worth about Rs 7.3 lakh crore, but is growing at a compounded annual growth rate (CAGR) of about 8 per cent. Globally, this industry is growing at a CAGR of about 24 per cent and is likely to reach Rs 14 lakh crore by 2015 owing to rising global sea borne trade, according to a recent Assocham study. The overall cargo traffic at major Indian ports is about 600 million tonnes and is likely to reach 1,230 million tonnes by 2015 and 3,000 million tonnes by 2020.

Indian steel companies are focusing on production of niche and value-added products with intense competition and slowing demand from traditional sectors such as real estate, automobile and white good makers.

Vikram Amin, Executive Director (Strategy and Business Development), Essar Steel, said companies with steel manufacturing plants near a port base can tap the ship-building sector more efficiently, as transporting the five meter wide plates becomes much easier. The Essar Steel plant in Gujarat has a production capacity of 1.5 mtpa.

Leading nations

China, South Korea and Japan are leading shipbuilding nations and cater to over 80 per cent of the global shipbuilding industry. China alone accounts for over 35 per cent of this global industry. India and Vietnam are upcoming centres for global shipbuilding.

With a coastline of about 8,000 km, 27 shipyards, 12 major ports and 200 ports under states' jurisdiction in India, there seems to be huge scope for both the shipping sector and steel companies.

> Suresh.iyengar@thehindu.co.in

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