The automobile industry in India has earned several superlatives in manufacturing over the year. It is the seventh largest maker of commercial vehicles, the largest for two-wheelers and recorded the fourth largest sales in the country on a year-on-year basis until 2017. Exports in automobile grew at 15.54 percent during April 2018-February 2019. Production increased by 9.84 percent with 26.26 million vehicle units being produced and expected to grow at a CAGR of 3.05 percent until 2026.
Steel is one of the major inputs in auto manufacture. India is the second largest producer of steel and do have indigenous supply. However there is still a deficit of high-end steel, which needs to be imported until one develops capacity by investments on international steel producers or through the path of joint ventures.
The biggest concern at this moment of time is the close down of auto manufacturing due to slash in demand in the world and also in India.
According to the World Steel Association, a typical car comprises around 900 kg of steel, 34 percent of which is used in the body structure and 23 percent in the engine block and gear mechanism.
On most estimates, more than 10 percent of UK steel is consumed by local car makers. In the US and Germany, the proportion is far higher at around 25 percent.
Almost 14 percent of ordinary carbon steel and 25 percent of special steel that Japan produces is destined for the country’s carmakers.
But prices of hot-rolled coil, the base steel product used in car manufacturing, have slumped in nearly all major markets. In the US, Midwest HRC prices have dropped to $570 per tonne, down 37 percent from a year earlier, according to S&P Global Platts. Prices are now well below where they were before the 25 percent import tariffs were imposed by the Trump administration in March last year.
There is a talk of enhancement of safeguard duties. The basic principle in imposing anti-dumping, safe-guard duties or import related duties, has to be what is not made in India at all or of desired quality or not in sufficient quantity should be encouraged to import with no additional cost. Any duty on same enhances the cost of value addition downstream and thus makes the consumer goods expensive.
At this time when auto sector is in doldrums, the enhanced input cost by imposing extra safeguard duties on high end steel will to the woes of the auto sector besides that of making steel pipes.
The 'Make in India' initiative got its boost by using India-made pipes for gas transport and for oil extraction work. But then, the requisite raw material price needed in sufficient quantity cannot be made expensive by adding additional duties. It will only enhance the cost to the end-user.
The principles to use for putting safeguard duty has to be of the thumb rule—that what is not made in India, is input for value addition, or not made in quantities or quality required should not be made more expensive by putting extra duties on the same.
India's manufacture sector is growing. Twin philosophy of adding to the capabilities of manufacturing, and till that time, ensuring downstream industry flourishes, makes the investments sustainable.
The recent budget has given boost to infrastructure sector. However, high-end steel, scrap and coking coal will require hand-holding in the duty structure. The thumb rule as to what we do not have in India, or manufacture in required quantities should not be made more expensive for value-addition by imposition of duty in any form i.e. safeguard duty, import or customs duty. Coking coal, stainless steel scrap, steel scrap, ferro-nickel, hot-roll coil for API grade steel, for solar panels, for auto have to be considered, and simultaneously, with scrap policy in place, encouraging expansion and new additions of steel plants including FDI will taper these advantages extended to achieve target of 'Make in India'.
Aruna Sharma is a former secretary at Ministry of Steel, Government of India. The views are personal.