Steel Industry
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Budget provisions
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Excise on steel will now be levied on the at the ex factory price instead of the depot price (which includes the freight component). As a consequence of this move the incidence of the excise duty would marginally reduce, benefiting the sector.
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The decision to bring export earnings under the tax net is bound to affect the profitability of companies that are currently involved in exporting the metal.
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The steps initiated to boost housing construction activity will benefit the sector.
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Industry wish list
Tata Steel Limited says:
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Retain Customs duty at current levels
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Increase Customs Duty for / Ban - Waste/Waste, Seconds and Defectives
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Increase Import Duty on Ships for Breaking to 25% instead of 5%.
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Retain additional CVD of 4% for Imports as sales tax is not paid by importers.
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Zero import duty for mega power projects demand should only be allowed for steel not produced in India.
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Removal of excise duty on freight. Levying of Excise on the invoice value at the point of sale, implies a additional burden to producers as the high element of is a constraint to all India operations. It handicaps a major producer located in different parts of the country competing with a local manufacturer. It also handicaps a major indigenous player trying to compete with imports. An importer bringing materials from the Port of entry to a Warehouse in the hinterland and selling these materials ex-Warehouse, is not required to pay CVD on the freight between the Port of entry and the Warehouse.
Moreover, there has been a shift towards movement of steel through direct despatch instead of depots affecting the rural sector who have to bear higher costs.
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Investment in Infrastructure to increase. It is to be ensured that the Govt. achieves the target it has set for itself for development of Infrastructure. Developments with regard to Housing, Ports, Railways, Power plants need to be facilitated through incentives and active private participation.
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Key Positives |
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Domestic demand has bottomed out (demand for flat steel grew 13% in 1HFY00) on the back of a boom in user industries like automobiles and consumer products. The rise in demand from the infrastructure sector too has led to a rise in volume sales. As the economy gains momentum, domestic demand would continue to register growth.
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International steel prices have staged a smart recovery on the back of a rise in global demand. This has opened new markets that are being aggressively tapped by domestic manufacturers. Exports are also fetching domestic manufacturers better realisations (as compared to realisations in domestic markets). This has improved profitability even as domestic realisations continue to be sluggish.
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Key Negatives |
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The government policy regarding imports is uncertain. Although the rise in global prices has mitigated the fear of dumping, there is nonetheless a possibility in case global prices were to soften.
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Domestic manufacturers have been adversely affected by the imposition of dumping duties by USA, European Union and Canada. This could adversely affect the growth in exports.
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The domestic steel sector derives its competitive advantage from low employee costs and abundant supply of raw materials. However, low employee productivity and efficiency have diluted a part of these competitive advantages.
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