Indian steel industry has never encountered a more eventful period than the last two months. On hindsight this would remain to be an unforgettable phase when the government after twelve years of hands-off policy decides to directly intervene in the market-driven mechanism. This has also raised an interesting issue concerning the role of a regulator in an otherwise decontrolled market environment. But the recent experience has proved that a regulatory mechanism has to function independent of the emotions and sentiments of the powerful lobbies, most of which have short-term goals to achieve. And if these goals converge on politically convenient courses, the regulatory mechanism leads to suppression of free interplay of market forces that are likely to threaten the quietness in the marketing firmament in the coming months. The efficacy of this process of intervention would have been higher had globalisation not impacted the domestic input prices of steel making. This perception was evident only after the first policy intervention in steel made public in the announcement of Interim Budget in January'04.

The peak rate of customs duty on steel was brought down uniformly from 25 to 20 percent. The Special Additional Duty (SAD) of 4 percent that was imposed on all imports in 1996-97 budget to offset the impact of domestic sales tax incidence was withdrawn. While it reduced the cost of imported inputs, the landed cost of imported steel also went down. The net impact on the imported cost of, say, Hot Rolled Coils at January price was nearly Rs.2100/- per tonne. The upbeat in the global prices however continued unabated thereby completely neutralising the duty remission benefit. Meanwhile the upswing in the Scrap prices led to a continuous increase in the price of Pig Iron, particularly of the foundry grade. A further reduction of customs duty on Hot Rolled and Cold Rolled Coils from 20 to 15 percent was followed by a drop in duty on Pig Iron from 15 to 10 percent The duty cut was extended to rerollable scrap ( a basic input for ingot rolling), semifinished steel, bars and rods and Plates , the import components of which ( other than Plates) are marginal. The corresponding grades under Alloys and Stainless steel were also included. As the global prices continued its upward journey, the net duty benefit of Rs.1150/per tonne of HR Coils in February'04 was once again eaten away. .

The government was appreciative of the concern of the domestic steel manufacturers regarding the unprecedented rise in the prices of basic inputs of steel making like Iron Ore, Coking Coal, Melting Scrap and Coke. The booming steel demand in China forced it to cut down its export of Coke resulting in rise in spot prices of coal as well. The duty on non-coking coal was brought down from 15 percent to 5 percent. And the most important of all was the zero duty declaration on coking coal of ash content of less than 12% . The last step along with withdrawal of 4 percent SAD may benefit the domestic steel producers using imported coking coal to the tune of approx. Rs.350 crores on an annualised basis. But the ultimate benefit may be largely neutralised (to the extent of at least Rs.100 crores) by the upward movement of prices of both domestic and imported coking coal. The simultaneous cut in duty rates on Pig Iron from 10 to 5 percent within a gap of 4 days implied that the first one was introduced in a hurry. It may be noted that hardly any import of Pig Iron had taken place in the last couple of years.

The most significant intervention by the government that indeed served the basic objective of bringing down steel prices was an-across-the -board pegging of the excise duty on steel from 16 to 8 percent effective from the midnight of 28th February'04. Keeping in view the considerable loss in revenue for a uniform reduction on all steel categories by 8 percent, Indian steel industry, has in the past, clamoring for an excise cut on galvanised corrugated sheet and reinforced steel, mostly used as mass consumer item and for the rural areas. As these two products are non-modvatable, the cut in excise would have brought down the cost of steel for constructional purposes by a significant amount. The government must have felt the impracticability of use-based exemption on excise duties and has therefore, included all steel products, other than steel pipes and tubes, for reasons best known to itself. This single step has resulted in a drop in prices of the full excise-paid steel commodities by Rs.1200/- to Rs.2400/-per tonne. But the comprehensive impact that this step was intended to bring about was defeated as a large component of our steel transaction evades the payment of excise. It is not known if the most vocal of the user segments demands an equivalent reduction in prices of steel items procured from the markets and not directly from the major steel producers.

One of the major allegations of the steel user segment concerning steel price rise relates to shortage in availability arising out of exports of various steel items. India's steel exports have reached nearly 15-16 percent of the total saleable steel production and way behind the global average of more than 30 percent. The major export items from India are GP (1.7 MT), HR Coils(1.4 MT), Semis (0.5 MT), CR and Plates(0.5 MT) and Wire Rods (0.5 MT) A continuous rise in global prices of all these items along with the DEPB benefits ranging from 10 to 12 percent of the FOB export realisation was good enough reasons for the domestic steel producers to export a part of their production. The government has since suspended the DEPB benefits for all steel products ( mild, alloy and stainless) with effect from 27th March'04 in the hope that domestic availability would go up by export diversions. Here also substantial increase in global steel prices ($ 50 to $75 per tonne in the past one month) have compensated the negative impact of withdrawal of DEPB benefits.

The assurance given by the major steel producers to peg the ex-plant price of HR at Rs.25000/- per tonne ( $ 550 per tonne) with 8 percent excise has brought down the price by Rs 4000/- per tonne ( $ 88 per tonne). It is to be seen if the various user segment of cold rolled products ( auto components, passenger cars, cycles, household appliances etc) pass on the benefits of reduced cost of production on the end product price or blame the rising cost of other inputs ( power, labour, spare parts etc) as pleas for non-compliance of the obvious. In the past on numerous occasions the falling curve of steel prices have never benefited these ultimate consumers. The role of an interventionist government must not end with mere drawing of an arc of a complete circle. However this is too far-fetched to be accomplished in the next few months' time till the formation of the new government.

With all the above measures the price fluctuations in domestic steel prices have narrowed. The fact remains that global volatility in steel prices would continue to haunt Indian prices. It is expected that domestic demand growth would generate adequate opportunities for the domestic producers to look for domestic markets and here lies the litmus test for a successful interventionist.