Impact of GST on steel industry

1) Introduction

Contribution of Indian Steel Industries

• Contributes nearly two per cent of the country’s Gross Domestic Product (GDP) and
• Employs over 600,000 people.
• The per capita consumption of total finished steel in the country has risen from 51 Kg in 2009-10 to about 61.9 Kg in 2015-16.
• World’s third-largest producer of crude steel and is expected to become the second-largest producer by 2016.

The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labor. Total steel production in the country is expected to increase by 7 per cent in 2016.The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous and modernization up-gradation of older plants and higher energy efficiency level.

2) Current position of steel industry

Currently, the domestic steel sector, is bleeding heavily by massive imports . Government tried to revitalized the steel sector with the introduction of 525 Scheme ( where loans were extended to 25 years with a condition that interest rates would be reset after every five) but it didn’t help much because people were still not paying their loans.

The gross non-performing assets in the steel sector are expected to rise 4% in a year to nearly 12% by March 2017.The steel industry is the highest leveraged sector in India and banks are not in a position to extend fresh loans.

3) Steel industry – Post GST

i) Reduction of logistics cost and time

Presently if a truck passes thru different states there are number of indirect cost attributed to the product and this increase the price of the product. Each time it crosses a state there are number of check post which delay the supply of goods to the customer. In the post GST regime there will 40 to 45 % saving in time.

ii) Generation of employment in un developed states:

Implementation of GST will reduce corruption in highly corrupt states of Orissa, Jharkhand, Karnataka and Chhattisgarh, because of transparency in the post GST regime. Middleman will be eliminated from the system. In the post GST regime more and more person will have to follow the line of business and that will generate the employment and in turn will improve the GDP

iii) Ulitization of natural resources:

GST will give more money to Under-developed states for their resources. By proper auctions and elimination of the middleman the state govt will be able to fetch the proper value and price of their resources .

iv) Protection to domestic industry:

Steel industry plaguing with a rising threat of imports, GST rates on imports should be at the same level as for domestic supply.

v) Reduction in production cost:

The likely rate of GST may be within 12-% against the current average rate of indirect tax at 20%. It would, therefore, reduce production cost.

4) Government Initiatives

Recent government initiatives in this sector are as follows:

• The Central Board of Excise and Customs (CBEC) has issued a notification announcing zero export duty on iron ore pellets, which will help the domestic industry to become more competitive in the international market.
• Steel Research and Technology Mission of India (SRTMI) was established with an initial capital of Rs 200 Crs by the government to spearhead Research & Development (R&D) activities of national importance in collaboration with the steel industry.
• Ministry of Steel has signed a Memorandum of Understanding (MoU) with Ministry of Skill Development and Entrepreneurship to facilitate skill development through Central Public Sector Enterprises (CPSE) of the Ministry.
• Government has introduced the National Mineral Exploration Trust (NMET) to enhance mineral exploration in the country.
• Government has planned Special Purpose Vehicles (SPVs) with four iron ore rich states i.e., Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants having capacity between 3 to 6 MTPA.
• A Project Monitoring Group (PMG) has been constituted under the Cabinet Secretariat to fast track various clearances/resolution of issues related to investments of Rs 1,000 Crs
• To increase domestic value addition and improve iron ore availability for domestic steel industry, duty on export of iron ore has been increased to 30 per cent will help to reduce cost of production
• Making domestic steel procurement mandatory for smart cities.
  

5) Conclusion: With the rolling of GST and with the above mentioned positive initiatives of Government of India

• India is expected to become the world’s second largest producer of crude steel in the next 10 years, moving up from the third position
• Capacity is projected to increase to about 300 MT by 2025.
• Low per capita steel consumption is expected to rise due to increased infrastructure construction and the thriving automobile and railways sectors.
• Steel industry will be an employment generating sector post GST.