'Steel industry should be given the status of infrastructure industry '

B Muthuraman

On sectors that need to be given priority in this budget

1. Power generation and distribution
2. Automobiles, specially four wheelers, commercial vehicles and bus-body building
3. Capital goods
4. Rural irrigation
5. SEZ
6. Cold storage
7. Storage of food grains
8. Village drinking water
9. Financial sector
10. Rural housing
11. Roads
12. Ports

 On expectations from the steel industry

Supply Side:

1. Increase in customs duty on HRC and CRC to the highest WTO levels of 40% and fixing a fresh floor price.
2. Increase in customs duty on seconds and rejected steel, which is same as that of prime steel. This is also leading to duty evasion as prime steel can be imported under the guise of rejected/seconds.
3. Project imports at Nil and concessional rate of Customs Duty are affecting domestic CG industry and thereby its supplier industries. These concessions should be withdrawn so that there are less of imports of CG.
4. Increase in import duty on ship-breaking scrap from 5% to 25% as most of it is being used for re-rolling and not for melting.

Demand side:

On Power sector: Fiscal incentives given to the power sector have not been able to draw major investment in the sector. Investments in power sector will pump prime capital goods sector, which is reeling under sustained recession. This will, in turn, increase demand for steel, reduce the cost of power – a major industrial input and will bring about all round industrial growth. Unrestricted availability of power will also help agriculture. Transmission and distribution should be brought on par with generation and the Electricity Act should be modified.

1. From housing sector

Long products and GP/GC sheets used in house construction should be exempted from ED or the ED should be reduced to 8%. Upto 74% FDI should be allowed in the housing sector.

2. From Auto industry

Import of second hand cars should be stopped. This will increase the manufacture of cars and consumption of steel.

3. From grain storage /cold storage industry

The finance minister had introduced tax holiday for grain storage and distribution industry. Since this industry does not get CENVAT credit, steel supplies to it should be free from excise duty.

4. Rural drinking water supply

Tubes used for hand pumps should be exempted from Excise to make hand-pumps cost effective.

 

1. Giving steel industry the status of infrastructure industry and make cheap funds available.
2. Presently, the rating agencies are insisting on Debt-Equity ratio of steel to be maintained at less than ‘one’ otherwise they threaten to lower the credit rating. Steel industry is highly capital intensive and needs large funds at competitive rates. A lower credit rating means higher cost of funds. The Debt- Equity ratio norm for steel industry from 1:1 to 1.5:1 will make adequate funds available to the deserving steel plants at reasonable cost.
3. Presently the excise duty is being levied on the steel manufactured by ISPs at ex-works price but this does not apply to despatches made from the premises of jobbers. This anomaly should be corrected.
4. MAT should be abolished or it should be allowed to be carried forward.
5. Proceeds from sell-off of PSUs should be used for development of infrastructure as was promised by the FM in his budget speech and should not be used to reduce fiscal deficit.
6. As mentioned earlier, strict punishment including imprisonment for those defaulting on repayment of loans or interest will reduce NPAs of FIs and reduce their cost of funds. This will enable them to lend at lower rates.
7. No increase to be allowed in the royalty of coal and minerals by the state governments.
8. Further simplification of rules for Mergers & Acquisitions, De-mergers Slump sale and re-structuring. Special courts/ benches may be constituted to approve the mergers instead of HCs, which are heavily loaded. Conditions of section 72 A of the Income Tax Act relating to continuation of business or 75% of assets needs to be withdrawn. In many cases, these may be a deterrent to re-structuring.
9. Presently, lump sum payments up to Rs 10 lakh are exempt in the hands of employee subject to certain conditions. However, deferred payments in the form of pension under VRS attract full tax in the hands of the employee. Such deferred payments should also be exempted from income tax in the hands of employee.
10. Liberalising terms for domestic sales for units in SEZ.
11. Extending income tax exemption for units in SEZ for full 10 years after these start production i.e. do not apply phasing out of sec 80 HHC.
12. Relaxation of rules for valuation of perks, which are very harsh. For example, the provision to treat perks provided to the household members of the employee is unreasonable and not in consonance with section 17(2). Free or concessional charge for the products manufactured by the employer has been brought within tax ambit. Further, the employer has been saddled with the phenomenal amount of documentation for maintaining records of transactions.
13. Relief from Consolidation of Accounts under Accounting Standard AS21 for 3 years after acquiring sick companies.

On effects of last budget

Union Budget 2001-02 did nothing specific for the steel industry or for the Capital Goods industry which is a large consumer of steel. However, the following measures taken in the last budget were expected to spur steel demand.

1. Reduction in excise duty on two wheelers and four wheelers.
2. Increase in depreciation on commercial vehicles to 50%.
3. Higher deduction towards interest on loans taken for purchase and construction of houses and other measures to promote investment in housing sector.
4. 10-year tax holiday for infrastructure projects, projects for storage and distribution of food grains and for SEZ.

These measures failed to generate the expected demand, mainly because of a general sluggishness in the economy. The most important driver of steel demand is the investment in infrastructure projects, specially hydroelectric and thermal power, ports and roads.

The finance minister had promised speedy reforms in the power sector and had assured that Rs 5,000 crore out of the disinvestment proceeds of Rs 12,000 crore would be channeled towards infrastructure sector. Concrete action in these two areas would have transformed the industrial scenario in the country.

To be fair to the finance minister, he was put under pressure first by the co-operative bank-share market scam, and thereafter, by the UTI debacle. Enron-MSEB stand-off made the matters worse. If the decisiveness demonstrated in the last 2 months in PSU disinvestment was shown in other areas and throughout the year, the state of economy and the steel industry would have been much better today.

On the flip side, customs duty on seconds and rejects was maintained at the same level as that of prime material, which has a potential of being misused. The duty on ship-breaking scrap was also kept at 5% as against 25% on re-rolling scrap. Further, the withdrawal of 10% surcharge on custom duty made imports cheaper. Project imports were allowed at free or concessional duty, which adversely affected the indigenous capital goods industry and affected demand for steel. We hope that in the forthcoming budget, the government will take the necessary steps to spur investment in power and infrastructure sector,

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