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Govt may cut duty on exports of steel and iron ore as prices cool

According to two officials, the government may reduce duties on iron ore exports and steel intermediates as higher levies have adversely impacted the country's overall mercantile exports. High duties on these inputs are no longer required because their prices have sobered now, and supplies have outstripped demand, they added.

As global demand for these items slumps, concerns for their domestic availability have eased. Data is being analyzed, and a decision on reducing export duties on these items is under process along with calibrations in duties on other products, the officials said, asking not to be named. The finance ministry on May 22 imposed export duties ranging from 15 percent to 45 percent on inputs for iron and steel to increase their availability for domestic manufacturers.

"Calibration of customs duties is one of the instruments to ensure supplies of essential commodities, raw materials, intermediaries and inputs to domestic consumers, particularly MSMEs [micro, small and medium enterprises] at reasonable rates, and also to keep inflationary pressures under check. The government is constantly revising duties based on inputs it gets from the ground," one of the officials said.

Union ministries for finance and commerce did not respond to an email query on this matter.

Commenting on a marginal increase in consumer price index-based inflation on September 12, the finance ministry said in a tweet: "Prices of major inputs like iron ore and steel have sobered in the global markets." According to the ministry, the headline inflation recorded "a moderate increase" to 7 percent in August from 6.71 percent in July this year, which is "attributable both to an adverse base effect and an increase in food and fuel prices, the transient components" of the CPI inflation.

A second official with direct knowledge of the matter said there is a sequential dip in India's export growth, and some items, such as iron ore and steel, have faced problems due to high export duties. "The government will item-wise assess reasons for the fall in exports and take appropriate measures at the right time," he said.

According to provisional official data, there has been a year-on-year drop in export growth for the last two consecutive months – July and August 2022. Data released on August 12 showed India's mercantile exports posted 2.14 percent year-on-year growth at $36.27 billion, which was substantially lower than the previous month, when exports saw over 23.5 percent y-o-y growth at $40,13 billion (in June 2022). The growth further dipped to 1.62 percent in August 2022 at $33.92 billion, the latest official data released on September 14 said.

The latest available data shows that iron ore exports fell by 69.14 percent to $642.56 million in April-July 2022 compared to $2,082.12 million ($2.08 billion) in the same period the previous year. Similarly, base exports of iron and steel also fell by 21.33 percent to about $6.1 billion in the first five months of the current financial year compared to over $7.7 billion in the same period last year. On the other hand, imports of iron and steel have surged by around 37.8 percent to $4.84 billion in April-July 2022 compared to $3.51 billion in April-July 2021.

"While exports have gone down, there is a rapid growth in imports of iron and steel (commodity group), which is a matter of concern and needs remedial action," an industry expert said, citing the latest data. According to the official data released on September 14, the commodity group – iron and steel – showed over 32 percent import growth at $1.76 billion.

Ajay Sahai, director general and chief executive of the Federation of Indian Export Organisations (FIEO), said: "There is a need to review duty structures of commodities like iron ore and steel intermediaries. High export duties were imposed to ensure their domestic availability. Global demands have slumped due to geopolitical reasons; hence, a review is needed to boost Indian exports."

A finance ministry report issued on Saturday said exports play an essential role in India's economic growth. "Indian economy becomes a global one as the share of exports in GDP [gross domestic product] increased by more than three times since independence, from 6.4 percent in 1950-51 to 21.5 percent in 2021-22," it said in the latest edition of Monthly Economic Review for August.

"The impact of geopolitical tensions on India's trade volumes manifests in sequential decline in exports arising from a slowdown in advanced economies. However, on the import side, trade flows continue to be robust following the country's unabated level of economic activity. However, a still-elevated level of commodity prices has increased India's merchandise trade deficit to USD 27.9 billion in August 2022," it added.