Under the above notification the Government has revised the DEPB rates applicable on export of various steel items. This was expected with the dropping of customs duty on steel from 25% to 5% during the past 8 months. It may be recalled that DEPB on steel was temporarily suspended from 27th March'04 for a period of three months due to steep rise in global steel prices and the necessity of meeting the domestic demand. Global steel prices particularly for flat category are still high. The drop in DEPB rates would make this marginally more attractive compared to benefits under Duty Free Replenishment Certificate (DFRC).

Revised DEPB rates

The above public notice makes a change in the Handbook of Procedures (vol.1) of the Export-Import Policy 2004-09 in the import procedures for Metallic Waste, Scrap and Seconds and Defectives. As per this, the import of this category is permitted in shredded and compacted form only. However this input in unshredded and uncompacted form would only be permitted through major ports and ICD at Tughlakabad, New Delhi. The Customs Authorities would allow the import of this variety after 100% inspection.

The above step has been undertaken after the discovery of live shells and cartridges in the unshredded scrap import consignments transported via inland transport and the tragic incident costing human lives in one of the major rolling mills at Ghaziabad. It is likely to lead to increase in the cost of melting scrap and thereby pencil ingots. Correspondingly the prices of finished rolled products would also rise in the coming months.

With this the customs duty on steel in India is now quite comparable with those in other countries and in some categories they are even lower than the rates applicable in some of the ASEAN countries. Zero duty on melting scrap would bring down the cost of production of semis and may put a downward pressure on domestic sponge iron prices The imposition of CVD on import of ships has removed an anomaly However the present high prices of ships may neutralize the positive impact of duty cut.

The above Public Notice has temporarily suspended the facility of DEPB benefits to all steel items under Engineering Product Group. The suspension would come into effect from 27th of March, 2004. The suspension is applicable for the following items.

It has been subsequently clarified by the Ministry of Commerce that the suspension is withdrawn with prospective effect and not with retrospective effect. It implies that all exports of iron and steel materials during 27/3/2004 to 12/7/2004 would not avail any export benefits in terms of DEPB rates. To recapitulate, the following DEPB rates are currently in vogue for the major iron and steel items: -

It may be mentioned here that DEPB rates for iron and steel items had been reduced vide Public Notification No.47/2002-07 dt.9.2.2004 due to reduction of peak customs duty from 25% to 20% as well as withdrawal of 4% SAD. In addition, the value addition in standard inputs/outputs norms was also raised to standard 50% from 33%. Subsequently, the peak rate of customs duty has been further brought down from 20% to 15% and to 10% in the budget announcement for 2004-05. In all likelihood this would necessitate a further reduction of DEPB rates to the extent of an average of 5% to 7% of FOB value of exports.

The reduction in DEPB rates consequent upon bringing down of peak customs duty has affected partially the Indian exporters of iron and steel items as FOB value of exports of almost all iron and steel items had observed a near rising trend during the period. The rising prices in U.S market and withdrawal of import restrictions under Section 2001 have enabled Indian exporters to obtain a higher benefit out of exports of galvanized and cold rolled coils.

It is understood that the Ministry of Commerce is considering merger of DEPB with Duty Drawback Scheme, which is WTO compatible. This is likely to happen in the next one year.

One-month time for complete suspension has been given to enable the exporters to complete the orders booked under the erstwhile DEPB benefits. The basic objective of temporary suspension is to discourage exports of all steel items in an attempt to enhance domestic availability, which has been cited as one of the reasons for the current steel price hike.

Changes in the duty rates of the first three items would go a long way to reduce the cost of production of steel making. Imports of low ash coking coal are currently of the order of around 8 million tonnes. The import of other coal (CDI/ Non Coking coal) has gone up in the recent period by both BF/EAF route based steel manufacturers. Pig Iron is not being imported. However the current hike in domestic prices particularly of the foundry grades to a level of around Rs.20500/per tonne ex-works has made it imperative to make the import duty as nil. The current global price of Pig at approx.$340 per tonne may put some downward pressure on the domestic prices.

The above notification has brought down the excise duty rates on all steel and pig iron items falling under the excise category 72 from the current level of 16% to 8%. This would indeed bring down the prices of steel products. The major impact would be felt in the prices of non-modvatable items like constructional steel. At the current price level, prices of long products (mostly non-vatable) would be down by an average Rs.1200/- to Rs.1600/- per tonne and the prices of flat products by an average Rs.1800/- to Rs.2400/-per tonne. The prices of processed items using steel are to come down provided the manufacturers decide to pass on the full benefits of excise duty reduction to the customers.This would also imply a reduction of Countervailing Excise Duty on imported steel. It is to be seen if this step leads to a rise in import of steel into India. The exclusion of Railway materials (Rails, Wheels/Axles) and Pipes (ERW/ SW/Longitudinal) under chapter 73/86 would make no impact on the prices of these products on account of excise reduction.

Public Notification No.47/2002-07 dtd.09.02.04

19-02-2004

The above Public Notice has brought down the DEPB rates on various Engineering (including steel) and other export items. The reduction in DEPB for steel items are as follows:-

The bringing down of the rates has been necessitated primarily to account for the peak customs duty reduction from 25 to 20 percent as well as withdrawal of 4 percent Special Additional Duty announced in the Interim Budget. A part of the reduction of DEPB was also due to the enhancement of value addition in the Standard Input Output norms from 33 percent to a standard 50 percent. For the exporters the announcement has not created a ripple for two reasons. First, simultaneous with duty reduction and modification in value addition norms this was already expected and second, the rise in FOB value of exports has more than compensated the DEPB reduction. A simple table would show this.

It is seen that increased FOB export prices have made up comprehensively the drop in duty entitlement. In Galvanised products the cap on FOB at Rs.25500/- per tonne has deprived the galvanisers the full benefit of DEPB linked with enhanced price. But the rise in export price in GP should have no cause for complaint.

The Commerce Ministry has already decided to merge DEPB with Duty Drawback Scheme which is WTO compatible. The pressure on the proposed merger is lessened with the dilution of WTO negotiation process in the post Cancun scenario. However with further duty drop on the anvil in the coming two years, the duty entitlement benefit under DEPB would see a continuous fall.