Steel Industry
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Budget Measures
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Higher spending on infrastructure.
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Steel purchased for Gujarat relief work to be exempt from Excise duty.
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The dividend tax has been reduced by 10% to 10%
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The surcharge of customs duty has been reduced.
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Reduction of surcharge on corporate tax.
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Budget Impact
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The rise in spending on infrastructure, including roads, will benefit the sector in terms of a better demand environment.
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The Gujarat earthquake is likely to trigger large-scale construction activity. The exemption from excise duty for steel procured for reconstruction purposes will only help lift demand as steel becomes more affordable.
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The reduction in the dividend tax will benefit companies, as the tax outgo will reduce. This will add to cash flows, or alternatively, could result in higher dividend payouts.
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The reduction in the effective import duty will impact the steel industry adversely as imports become relatively more affordable. Coupled with the hike in freight rates announced in the railway budget, steel companies could face some pressure on margins.
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On the other hand, an increase in the import duty on HR coils defectives and seconds will give the sector some protection.
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The reduction in the surcharge on corporate tax will benefit companies as it would have the effect of reducing their tax outgo.
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Industry wish list
R C Nandrajog, VP Finance, Tisco:
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Indian steel industry should be able to meet a fair degree of competition on a level playing field. But if any country starts dumping of steel into India, at a price below the price existing in their domestic markets then the government should not hesitate to quickly implement a floor price mechanism.
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Although the USA is putting restrictions on imports, it is expected that the world steel consumption will cross 800 million tonnes for the first time. The increased demand is likely to come from Southeast Asia, Middle East and China. This should relieve some pressure on excess steel availability. Further, we do hope that government spending on infrastructure will increase and as a result domestic consumption of steel will increase.
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While the slowdown in the auto sector is a cause of concern, easing of crude oil prices to US$ 25 – 26 per barrel has given some relief. As far as Tata Steel is concerned, we hardly use any petro products, except in transport vehicles, and thus to some extent we are not seriously affected by oil price increase.
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Key Positives |
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It is estimated that infrastructure spending in the country will touch US$ 200 bn over the next five years. The biggest beneficiary of this spending will be the core sectors, which includes steel.
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Indian steel companies have benefited from the rise in international demand for steel. International steel prices have remained firm for most of Year 2000, giving a boost to profitability in the sector.
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Key Negatives |
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The biggest threat to the steel sector continues to be from dumping by international companies. With the US economy slowing down (as a result of which global economic growth too is anticipated to slow down), companies with surplus stock will once again be looking for markets to dump their products. In such a scenario, Indian companies stand to lose.
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The slowing down of the US economy has adversely affected the prospects of the domestic steel companies in two other ways. First, growth in a lucrative export market has begun to slow down. Secondly, countries are facing pressure from domestic steel companies to impose anti-dumping duties on imports. This has resulted in the US imposing such duties on select Indian exports. If the trend were to persist, Indian steel companies would be adversely affected.
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The rising oil prices have impacted the steel sector in more ways than one. On the one hand costs of production have increased. On the other, with demand for vehicles slowing down, demand for steel from the automotive sector has been hurt.
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How was this sector impacted by Budget 2001?
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