MSME raises alarm over steel import duty hikes amidst call for more protection

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Last Updated09/09/2024

As large steel producers push for protectionist measures citing a rise in Chinese steel imports, number of micro, small & medium enterprises (MSMEs) have flagged concerns over any hike in duties on steel inputs,

As large steel producers in India push for protectionist measures against rising Chinese steel imports, the micro, small, and medium enterprises (MSMEs) sector is raising alarms over potential hikes in steel input duties.
MSMEs warn that such increases could escalate their input costs and possibly drive them out of business.

In recent events organized by the Indian Steel Association (ISA), key ministers including Minister of Heavy Industries HD Kumaraswamy and Commerce and Industry Minister Piyush Goyal indicated government plans to safeguard the domestic steel industry.
- Kumaraswamy suggested raising the import duty on steel from 7.5% to 10-12%.
- Goyal proposed a Border Adjustment Tax (BAT) to offset the perceived advantages of cheaper imported steel, which is often sold at predatory prices.

MSMEs have voiced their concerns about sourcing steel locally. Large steel producers often prioritize export markets where incentives are more favorable, leaving MSMEs to depend on steel imports from countries like China and Vietnam. MSME representatives highlight several key points:
- Preference for exports: Large steel producers focus on bulk international orders, neglecting smaller domestic orders that MSMEs require, typically ranging from 2 to 4 tonnes.
- Rising input costs: Increasing duties on steel imports would raise MSMEs’ input costs by 10-20%, making it difficult for them to remain competitive.

MSMEs, like Newcom Technologies, have expressed concerns that the additional duties would give large steel manufacturers a monopoly on the market. Without affordable import options, MSMEs fear they may have no choice but to shut down operations.

Trade expert and GTRI founder Ajay Srivastava explained that BAT aims to address the disparity between taxes paid by Indian steel producers (on electricity, iron ore, and coal) and cheaper imported steel.
However, implementing BAT could lead to a general price rise across industries dependent on steel, a crucial building block of the economy.
Srivastava also cautioned that protectionist measures may encourage local steel firms to raise prices, potentially worsening the situation for small businesses.

The MSME sector has also criticized past efforts to introduce Quality Control Orders (QCOs) as non-tariff barriers.
- Munish Agarwal, MD of Jayco, argued that such measures, proposed in 2019, would hurt small industries without adequately considering their needs.
- MSMEs have urged the government to engage in grassroots consultations rather than relying solely on discussions with large enterprises.

India’s steel trade has undergone significant changes. According to a Crisil report, the country became a net importer of steel in FY24, with a trade deficit of 1.1 million tonnes. China, South Korea, Japan, and Vietnam are the top exporters to India.
- Recently, the Ministry of Commerce and Industry launched an anti-dumping investigation into steel imports from Vietnam, in response to calls from the ISA.