Imports and export :

The following are the key features of the policies governing import and export of iron and steel:
1. Iron & Steel are freely importable as per the extant policy.
2. Iron & Steel are freely exportable.
3. Advance Licensing Scheme allows duty free import of raw materials for exports.
Although India started exporting steel way back in 1964, exports were not regulated and
depended largely on domestic surpluses. However, in the years following economic
liberalisation, export of steel recorded a quantum jump. It may be noted, between growth in
domestic demand and relative movements in imports and exports (i.e., net exports), it shows that
the Indian steel industry has geared itself fully to operate in an open economy where exports and
imports are seen to respond to increases or decreases in domestic demand driven by primarily
market signals (i.e., relative domestic and international price and relative realization on domestic
versus international sales) and appropriate fiscal adjustments (i.e., changes in tax rate). The
observed relative movements in exports and imports underpin the following important
developments in the Indian steel industry:
a) Over the past 15 years the Indian steel industry has developed significant competitive strength,
which enabled it to sell in the world market and to hold its own against imports in the domestic
market.
b) Exports have become an integral part of the business strategy of the Indian steel producers,
especially of the private players. It also implies that the level of exports in the globally integrated
steel sector will be determined at the margin by relative realization of the producers in the
domestic market vis--vis that in export destinations. While the PSUs are still committed to
catering to the domestic market first, the private producers have utilized the opportunity offered
by the opening up of the steel markets, export reimbursements etc.) in a free market
environment.
The experience of the last three Five Year Plans also underscores some important changes and
new decision parameters in the evolving structure of the Indian steel industry that needs to be
taken note of:
Firstly, decline in net export levels can be seen as a signal for the need to add to domestic supply
through better capacity utilization and/or expansion of domestic capacity to meet rising domestic
demand. For example, the sudden rise in imports accompanied by static export levels in the last 2
years had taken place not because of a fall in competitiveness of Indian steel but to fill the supply
demand gap in the domestic market. In fact, exports of value-added products have increased in
the last few years.
Secondly, the related movements in net exports and domestic consumption also underscore the
strategic importance of building up export capabilities in the long run because such a strategy
provides an important flexibility to the industry in terms of an extra window of demand when
domestic demand is slack and as an additional source of domestic supply when domestic demand
rises fast. Building up an export presence is of strategic importance to this industry where
investments are lumpy.
The other important outcome of globalization has been the parallel movement in international
and domestic prices the margin between the two being determined by the external value of the
Rupee and the import duty rates. In other words, domestic prices are now being determined at the
margin by international prices as is expected in a free and open market situation. Progressive
reduction in custom duty rates has over the years reduced the margin between the landed cost of
imports and the domestic market prices. Under the current policy circumstances, vulnerability of
the domestic suppliers from competing imports increases if the value of the Rupee appreciates or
international prices fall sharply and vice versa.
As it is not viable (technologically or economically on scale considerations) for any country at a
given time period to produce domestically all the different grades of steel required by the
downstream industries, some imports are bound to take place. However, under the current trade
regime of low import duties and no physical controls, there is every possibility of imports taking
place not only to bridge the gap between domestic availability and demand but also on price
considerations as a substitute for dearer domestic supplies. Hence vulnerability of Indian
domestic industry to cheap imports has increased manifold.
Domestic and international price movements:
The other important outcome of globalization has been the parallel movement in international
and domestic prices the margin between the two being determined by the external value of the
Rupee and the import duty rates. In other words, domestic prices are now being determined at the
margin by international prices as is expected in a free and open market situation. Progressive
reduction in custom duty rates has over the years reduced the margin between the landed cost of
imports and the domestic market prices. Under the current policy circumstances, vulnerability of
the domestic suppliers from competing imports increases if the value of the Rupee appreciates or
international prices fall sharply and vice versa. Currently, world steel prices have become more
volatile with sharp fluctuations within short time gaps. The differences between the contracted
price and spot prices have also widened in the recent years. This is more apparent in the case of
flat products, especially Hot Rolled flat products, as against the long products. This volatility has
been reflected in the globalised Indian steel market as domestic prices in the de-regulated market
tend to move in tandem with international prices. In reflection of the global situation, in the last
three years, prices of both finished steel and those of its inputs such as iron ore and coal have
also risen at a much faster rate and with a lot of volatility compared to the pre- deregulated era.
Overall, the net result of the changes in the prices of finished steel and its inputs has been quite
positive for the financial health of the Indian steel industry. The restructuring efforts of the
Government of India after opening up of the economy, i.e. between 1998 and 2001) and the
favourable current domestic and international markets have gone a long way in restoring the
health of the Indian steel industry. The return on capital invested has improved significantly for
both Public Sector and Private Sector players. Currently, the Indian steel industry has both the
potential and the creditworthiness to fund future plans of expansion through generation of
internal resources and by directly raising capital from the market.