Fearing backlash at the World Trade Organization (WTO), India has ruled out any import duty hikes for commodities such as aluminium, iron ore, and copper, in the short term.
As the trade war between the United States and China has drastically altered global supply lines, domestic metal manufacturers as well as user industries have sent repeated requests to the commerce department to secure their businesses, often accompanied by threats of job losses across sectors.
“Imports have risen year on year for iron, steel, aluminium and copper for a variety of reasons. While specific investigations on forcible dumping will continue, we are not in a position to impose import duties at the moment,” a senior official said.
The government has raised duties on inbound goods and placed import restrictions seven times in the current financial year (2018-19), on more than 350 separate categories.
India is battling charges of protectionism at the global body, something that is bound to come up during the US-India Commercial Dialogue starting on Thursday, with US President Donald Trump attacking the higher cost of selling motorcycles and wines to India.
Among metals, iron and steel has continued to account for the highest imports. After seeing robust growth in 2017-18, domestic producers have argued that cheaper Chinese steel has flooded the market after sanctions imposed by the Trump administration chipped away at China's market share in the US.
“While the steel ministry had suggested raising import duties on some products to 15 per cent, it has been decided to hold off on it for now. The current rates range from 5 per cent to 12.5 per cent,” another official said.
In 2018-19, imports of iron and steel are set to breach the $14.63 billion as total imports reached $11.76 billion within the first eight months of the year, buoyed by an inbound deluge of scrap metals and hot rolled products.
Domestic crude steel production fell by 3.84 per cent to 8.9 million tonnes (MT) in January 2019, according to the Joint Plant Committee (JPC). The latest fall came close on the heels India replacing Japan as the second-largest steel producer, according to the World Steel Association.
However, higher prices charged by domestic steel producers have hit the manufacturing capabilities of user industries. Indian steelmakers have had to lower prices of prime steel in world markets but the same didn't happen in the domestic market, EEPC Chairman Ravi Sehgal said.
While engineering exports had totaled $92 billion in 2017-18, these raked in $64.92 billion in April-December, 2018-19. At this rate, these exports should be worth about $86.56 billion for FY19, according to estimates from the Engineering Export Promotion Council (EEPC) and the government.
While as of mid-2018, India has completely removed minimum import prices on as many as 173 products and safeguard duties on 37 products, the government had again put anti dumping duties on certain varieties of Chinese steel in October, 2018.
The decision to not pursue any change in duties for key commodities will also affect the steel industry in other ways. Separate suggestions to both raise and lower tariffs on iron ores may also be put in the back burner.
The Federation of Indian Mineral Industries has urged the government to raise tariffs on iron ore and its pellets to 30 per cent. “The currently low import duty of 2.5 per cent encourages steel players to go for import rather than utilising the local ore,” it had said in a letter to the government.
“On the other hand, restrictions on the export of iron ore is hampering business as foreign units require lower quality ores, something India has in abundance, but the market is taken by China,” said a senior executive of JSW Steel.
However, more vocal has been the response from the aluminum industry, which has called for an immediate hike on imports of the metal. In a letter to Commerce Mister Suresh Prabhu, reviewed by Business Standard, the Aluminium Association of India has called for immediately stamping out unnecessary imports given “India has sufficient capacity of 4.1 million tonnes, against demand of 3.6 million tonnes”.
A duty differential between scrap imports and primary aluminium, coupled with successive clampdowns by both the Trump administration and China on imports, have led to dumping in India which inflated the import bill for the metal by more than a quarter in the current financial year.
“Restricting aluminium imports will result in saving $5 billion forex outgo,” the AAI has said bluntly.
On the other hand, the court-mandated closure of a single copper smelting plant in Thoothukodi, Tamil Nadu, has brought down copper exports by more than $2.5-3 billion, according to industry estimates. The facility, owned by Sterlite Copper, a business unit of global mining and metals major Vedanta Group, had faced local opposition for long, owing to charges of irrevocably polluting the environment as well as causing a range of health problems.
Since Sterlite used to produce about 30,000 tonnes of copper every month at the plant supplying nearly 36 per cent of the domestic copper requirement, its closure has led to a 150 per cent jump in copper imports since May 2018, according to official statistics.
The unit serviced 52 per cent of Indias exports in 2017-18 while supplying more than a third of total national copper demand.