Impact of Import of Steel on India’s Fiscal Health

Introduction

Finance Minister Nirmala Sitharaman had announced earlier this year during her budget for 2021 presentation that customs duty on numerous steel products would be reduced till March 2022. There were a lot of speculations, there still are, only by 2022 can we know for sure how it turned out for India, its fiscal health, and small-scale businesses. Let us analyze a few of them briefly here.

Reduction in Customs Duty

The reason why this is relevant here is that the reduction in customs duty will increase imports and how an increase in imports will impact India, in the long run, is what we’re trying to find.

It is feared that the reduction in customs duty, countervailing duties on some products, and waiver of anti-dumping will impact the domestic steel industry adversely. Right now, after suffering from the pandemic for so long, this might as well be the last thing we need.

But there’s a silver lining to it, as per Aastha Minmet India, one of the leading companies in this business. There are broadly two reasons why we were able to conclude that this decision won’t impact India’s fiscal health negatively, let’s understand them both.

Reason 1: Domestic Prices

Surprisingly, India's domestic prices were already and since long lower than the international rates, therefore, reducing import duty wouldn't change the equation as feared.

In other words, unless international prices also fall, that too as low as ours, there's no harm in allowing imports as the domestic market still has an edge.

Reason 2: FTA Business

Another major reason is that around 60% of imports are done from the already existing FTA countries (those countries with whom we have a Free Trade Agreement which means they enjoy 0% of import duty). Therefore, it would not make any significant difference with the rest 40%, it's simple math, says Mr. Mohit Singhal Aastha.

Conclusion

The problem with poorly informed speculations is that it creates a feeling of distrust amongst the common people and that turns out to be dangerous because how else will the benefits reach the working class if everything is perceived negatively right from the start? The fact that politics is mixed with economics in this country is the root of all problems. So far, this combined with other pro-development steps taken by the government seem promising and positive, rest only time can tell.