Why the problem today :
-Prior to 1991, the markets were closed. There were Quantitative Restrictions (QRs) on import of most of the items and there was a very high tariff wall. In that scenario if prices of raw material were increased, the user industry could also increase the prices of their produce as their products also were protected from imports.
§ Post 1991, QRs removed and import duties are down, most of the products of user group small industries can be imported free. But, Steel one cannot import freely.

Reasons of the shortages and high prices of steel
-Facilitated by Ministry of Steel, large steel producer formed a cartel ( Indian Steel Alliance) and influenced the following decisions:
-The cartel created artificial scarcity of steel by agreeing to produce less than the demand so that prices move up.
-To ward off imports of steel they have ensured that there is :
- Highest rate of import duty : 20% ( even if the duty on the capital goods sector is 10%)
- Even higher duties on Steel Seconds (25%) and Scrap (40%)
- 16% Excise duties on ship breaking industry which catered to the needs of re-rolling mills leading to elimination of the ship breaking sector

Impact on user industry :
-During last 12 months there has been a price increase in steel every month and prices have moved by 40 to 60% for different basic steel products.
-The Small user groups who were supplying goods under contracts whether for exports or to large domestic buyers were badly hit.
-All user industries were affected as they could not increase the prices of their produce because their produce could be freely imported unlike steel. The problem is going to be compounded by India's sighing of Free Trade Agreements as with ASEAN, Thailand, SARRC countries etc.

Solution and request for intervention
-The solution has to be market based to be sustainable. Quotas for SSIs e.g. would not work.
-There has to be single rate of import duty at low level (5~8%) : The single duty would discourage lobbying for greater protection for their produce and low duty would ensure that there is not irrational disparity between prices of steel in Indian and in international market.
-The steel scrap should be allowed to be imported at '0' duty and seconds at 5%.
-Companies could still form cartels and create shortages. To pre-empt such moves the Competition Commission (which has replaced the MRTP Commission) needs to be made functional as soon as possible and strengthened.
-International cartels are also present in the steel sector. All developing countries are affected by their maneuverings. To address the problems, the Ministry of Commerce needs to take up the issue at the appropriate levels e.g. WTO. ***