1. Type of Steel required by SSI sector:
All types of steels products are used by the SSI sector. However , the two dominant types of steel products consumed by small scale industry are :
a. Pig iron
b. Flats (Sheets)

2. Price movement in the Steel products during last three years in India:
The variation in the figures floating around of prices in the media fed by the producers and the ones reported by our user members is extremely high. According to the feedback we have received the price increase in last 12 months have been :
a. Pig iron : 60 ~ 70% per M ton (depending upon location within India)
b. Flats
i. CR sheets : 40%
ii. HR sheet : 60%

3. Reasons of price difference in national and international market
a. One reason is the generous rates of DEPB.
b. The steel producers are knowingly selling at lower prices abroad while keeping their production constant to create artificial demand-supply constraint in the domestic market. The production strategy is set in consultation with Ministry of Steel and 'Indian Steel alliance'- an official cartel of primary steel producers such as SAIL, TISCO and ESSAR. The shortage of supply leads to spiraling of prices because imports have been thwarted by a combination of high tariff and Non-tariff barriers and then the steel companies sell steel in domestic market at considerably high prices. In a way they are partly subsidizing their exports from the high yield generated through artificial scarcity.
c. To illustrate the point, let us take the example of HR coils.
Export price being quoted by Indian companies: US$ 380 per M Ton
- (minus) Freight & Insurance 50 ,,
+ (plus) DEPB @19% 62.7 ,,
Therefore, the domestic sale price should be US$ 392.70 or Rs. 17,671.
But, the domestic price is approx. Rs. 20,000 per M Ton.

( The difference is the premium charged by the companies in the domestic markets. The figure is when we have not considered the cost of international marketing and inland haulage which is substantial )

4. Measures/ solution
Because much of the problems of SSI sector and the user industries arising out of shortage of steel and hike in prices of steel are due to direct intervention of the Ministry of Steel, it is surprising that why there is need for so much debate. They are well aware of the problem and also the reasons because they are the party to it; the questions is the will to reign in them.

For the immediate relief , the govt. should consider putting Quantitative Restrictions (QRs) on exports of steel to ensure availability of steel as per the demand. The demand could be estimated from the consumption of steel in 2001-2002 adding the requirement by the housing sector, infrastructure projects and increased demand due to buoyancy in domestic economy and exports.

The steel scrap should be allowed to be imported at '0' duty and seconds at 5%.

The non-tariff barriers from steel imports should be lifted with immediate effect:
- The floor price for seconds and defectives continues till date.
- Imports of seconds and defectives of steel are allowed only through three designated ports of Mumbai, Calcutta and Chennai.
- Mandatory pre inspection certificate by a reputed international agency for every import consignment of seconds and defectives.

The medium and long term solution lies in agreeing to a single rate of import duty at low level (5~8%) on all products. The single duty would discourage lobbying for greater protection for their produce by the large producers and the low duty would ensure that there is not irrational disparity between prices of steel in Indian and in international market. This is mandatory keeping in view of Free Trade Agreements India has entered into with Thailand, ASEAN, SAFTA etc or these would snow ball into a bigger crisis for the domestic industry due to irrationality in tariff structure.

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.

(24.01.2004)