Steel makers gain from government protection at the cost of SMEs: EEPC India

8 December 2015

Imposition of 20% safeguard duty has given a huge protection to domestic steel industry while dealing a severe blow to the small and medium enterprises (SMEs) and a host of user industries across automobile, construction equipment and fabrication sectors by raising the price of their basic raw material ---steel, EEPC India formerly (Engineering Exports Pormotion Council) has said in a S.O.S to the government.

User industries have been hit hard by the government's largesse to large steel makers who are availing the benefits of a crash in prices of key raw materials like iron ore and coal, while complaining about rise in imports. "It is up to the government to ensure that by helping a handful of large sized corporations, thousands of SMEs in the engineering industries do not face issues of survival. The impact of steel price hike resulting from imposition of 20% safeguard duty is being felt by units in automobile, construction equipment, fabrication activities like welding, machining, cutting, shearing besides the domestic appliances and water tanks," chairman of EEPC India, T S Bhasin said.

Incidentally, the cumulative value of engineering exports during April-October 2015-16 recorded a dip by over 12% to $35.31 billion from $40.14 billion the same period last year. "Is it fair that while steel giants are readily given the safety cushion of domestic market, user SME units are forced compete in hostile international markets losing their competitiveness in the bargain. If the same situation continues, engineering exports are bound to drop further in coming months, leading to large scale unemployment and displacement of jobs in the SMEs," Bhasin stated.

Further, since a safeguard duty does not entail a corresponding hike in drawback duty, the user engineering industry, which is mostly in the MSME segment is hit twice. First, because domestic prices will rise and secondly, because they will not get the benefit of drawback duty. Imposing further safeguard duty will restrain imports in the short run but will be detrimental to the growth of domestic user engineering industry and Indian engineering exports.

Major steel producers have announced a price hike on flat steel products, taking advantage of the safeguard duty on hot rolled (HR) coils, a move that has affected user industries. The country's largest state-run steel producer Steel Authority of India (SAIL) has raised prices of flat steel products like HR coils by Rs 700 per tonne. Essar Steel too has decided to raise prices by Rs 500 per tonne on its range of flat products. Similar moves are afoot by other private sector players, causing major concern among a section of steel users, EEPC India's note to the government said.