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Government slashes steel import floor prices - Views on News from Equitymaster
 
 
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  • Nov 3, 1999

    Government slashes steel import floor prices

    According to newspaper reports, the government has reduced the minimum import price of seven steel items. The decline in international steel prices has led the government to take this measure. In a related move, the authorities have also announced that the practice of imposing floor rates on the import of steel primes will be discontinued after 31st December 1999.

    The new floor rates are mentioned below:

    The government's decision is likely to evoke a mixed response from the industry. As mentioned in a related report on the 1st of November 1999, the user industries (automobiles and consumer durables) are likely to be the main beneficiaries, as they would benefit from lower raw material costs. Even the cold rolled product manufacturers will have something to cheer about as the cost of its raw material, hot rolled coils, has been reduced. However, the reduction in floor rates for the import of cold rolled coils will increase competition for them.

    The decision to do away with floor rates will increase the competitive pressures on Indian steel producers, especially when global steel prices are weak. Although, the steel manufacturers will oppose this move tooth and nail, it is pertinent to understand that often the Indian economy as a whole has to pay for the inefficiencies that are breeding in this sector. For example, if steel rates were to be artificially supported at higher levels, the competitiveness of India's exports of automobiles and consumer durables in the international markets would definitely reduce. These costs would also percolate down to the domestic consumer. If such prices were sustained over a period of time, the user industries could suffer serious setbacks in the domestic and export markets. There is also a fear of retaliatory action by other countries or trade blocs that could hurt overall foreign trade.

    The decision to reduce floor rates and set a time frame for its removal should be cautiously welcomed. The government should, however, gear up to prevent dumping in local markets so that a level playing field can be provided for producers in the domestic markets.

     

     

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