I. Hike in Export Duty on Iron and Steel Commodities

On 21st May, 2022, Finance Minister made some announcements about changing the rates of custom duties on iron and Steel related products. She announced to increase the duty on the export of Iron Ore. The changes become effective from 22nd May, 2022. Further, she announced a waiver of customs duty on imports of certain raw materials, including Coking Coal and Ferronickel used by the Steel Industry.

Vide notification dated 21st May, 2022, the tax on the export of Iron Ores and Concentrates has been hiked to 50 per cent, from 30 per cent, while on Iron Pellets a 45 per cent duty has been imposed. The import duty on Ferronickel, Coking coal, PCI coal has been cut from 2.5 per cent to ‘NIL’, while the duty on coke and semi-coke has been slashed from 5 per cent to ‘NIL’.

Duty on Pig Iron and Spiegeleisen in Pigs, Blocks, or other primary formats; Flat-rolled products of Iron or Non-alloy Steel, of a width of 600 mm or more, hot-rolled, not clad, plated or coated; Flat-rolled products of iron or non-alloy Steel, of a width of 600 mm or more, cold-rolled (cold-reduced), not clad, plated or coated; Flat-rolled products of iron or non-alloy Steel, of a width of 600 mm or more, clad, plated or coated have been hiked to 15 per cent from ‘Nil’ currently.

Summary of Duty Rates Before and After Notification

Rationale Behind the Hike in Duty

The imposition of export duty on steel and steelmaking raw materials by the Indian government is aimed at curbing inflation and increasing supply in India’s domestic market. The government has taken such a decision to facilitate greater domestic availability of Steel products, a move which will lower the cost for the domestic industry and reduce the prices. Focusing on the initiative of ‘Atmanirbhar Bharat’ (Self-Reliant India), this move will ensure that domestic demands are fulfilled first and domestic Industries that require Steel can buy it at lower prices.

Earlier in the year, authorities such as The Indian Foundry Industry (IFA) demanded temporary but immediate suspension of the export of pig iron and iron ore to protect the foundry sector of the country from the current crisis of volatility in the price of raw materials. Unless export duty on both these items was raised quite high, not only the Foundry Industry, but the government also loses earnings through value added products like steel and metal castings.

Due to the Russia-Ukraine War, there was a sudden increase in the prices of global commodities across the globe including Steel. Indian Companies were taking the benefits of the same by exporting Steel in place of fulfilling domestic requirements. That caused a major concern for the government where it was seen that the country’s domestic requirements remain unattended which causes an increase in prices of Steel dependent products due to a shortage of supply.

Such a decision helped Automobile Sector as well which is in low pace growth currently. The necessary Steel required for the manufacturing of Vehicles can be purchased by domestic Automobile manufacturers at lower prices which in turn can cause a decline in prices of Vehicles ultimately leading to higher demand.

Industry’s Comment on Government’s Action

“Imposition of Export duties on Steel products will send a negative signal to investors and adversely impact capacity expansion projects under PLI scheme, India may lose the export opportunities now and this decision may also impact the overall economic activity in the country”, the Indian Steel Association (ISA) said after the release of government notification. “The imposition of export duty will help other countries to increase their share in the global market, which India will vacate. Rebuilding the lost ground may take a very long time, as the supply chain will be disrupted, while India’s credibility as a reliable exporter will take a hit”, the ISA noted.

India’s Steel export came down by 40 per cent to 12 million tonnes in the ongoing fiscal year, as a result of the government’s move to hike the export duty on the raw material of Steel products according to CRISIL. The export of Finished Steel reached a record high of 13.5 million tonnes in the FY 2021-22 and the prices were at their all time high.

Statistical Overview: India’s Finished Steel Exports Over Last 10 Years

From the last 4 years, we can see that exports have increased at an increasing rate and crossed 10 million tonnes in 2021 which was just double of what it was 5 years back.

CRISIL further added that the duty-driven price correction will improve the availability of Steel in the domestic market as finished Steel exports will fall. This will impact India’s export volume in the current year. Steelmakers will attempt to skirt the duties by bumping up exports of alloyed Steel and billets, but that is unlikely to compensate for the loss of finished Steel exports. Imposition of higher export tax on Iron Ore and various intermediate products like pellets will raise costs for Steel mills. The latest policy will dampen fresh investments.

Assessment of Impact on Iron and Steel Sector

Indian Companies involved in the Mining of Iron Ore were major ones hard hitted by the Hike in export Duty. Their market narrowed down to domestic only and they are bound to sell the Iron and steel products to only domestic players. The increase in export taxes on Iron Ore, will lead to large surpluses at home, and mainly hit producers of low grade ores that depend on overseas markets. Further, companies who were involved in the production of Pig Iron and thereafter Finished Steel will had to bear a major impact because of the notification.

II. Export Taxes in Petrol, Diesel and Windfall Tax on Crude Oil

In another announcement, Central Government on 1st July, 2022 imposed taxes on the export of Petrol, Diesel and windfall tax on the export of Crude Oil:

The government has also slapped a ₹23,250 per tonne additional tax on domestically produced Crude Oil to take away windfall gains accruing to producers from high international oil prices. But, small producers, whose annual production of crude oil in the preceding financial year is less than 2 million barrels were exempt from this additional tax. The notification came after UK Government also imposed a windfall tax on Oil and Gas producer’s profit at 25% amid rising energy bills in Britain.

The speculations of imposing such taxes were going on since May this year when the UK government announced a windfall tax on profits of oil and gas companies with crude jumped over 50% in 2022 so far.

Why Such Measures Were Taken

The government has taken such a move because of the following reported reasons:

• The world is grappling with tight gasoline and diesel supplies as Western sanctions have reduced exports from Russia while demand has surged in a post-pandemic recovery.
• The tax on exports follows oil refiners, particularly the private sector, reaping huge gains from exporting fuel to markets such as Europe and the US.
• Fuel Pumps in several states like Madhya Pradesh, Rajasthan and Gujarat ran dry due to a shortage of Petrol and Diesel.

Impact on the Energy Industry

• Compulsory Domestic Supplies: Will raise availability within the country.
• Impact on Private Refiners: Private Companies to see a fall in profits as not been able to take the benefit of increased export prices. It has been reported that some companies shall see a $40 per barrel hit.

Crude Oil Prices Variation (In $ per Barrel, 2014 to 2022)

Conclusion

Firstly, the COVID pandemic and thereafter Russia Ukraine War, both of these events had a devastating impact on the global economy. Sanctions imposed by the west on Russia has caused a shortage in the supply of essential commodities and an increase in its prices because of which we can observe inflation in the prices across the globe. The Indian Government through imposing export taxes has taken industry-specific steps to tackle inflation which we hope would be for the short term. Looking at the economic scenario, such a step is taken by the government to increase domestic availability. We can expect that such duty will be removed by the government in near future and again will promote the export of commodities.

References

• www.steel.gov.in
• www.steelmint.com
• www.indsteel.org
• www.cbic.gov.in
• www.crisil.com
• www.icai.org
• www.financialservices.gov.in
• www.mopng.gov.in
• www.macrotrends.net
• www.gov.uk

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Author may be reached at: hussainshakruwala@gmail.com and eboard@icai.in