India Inc critical of Trump plan to levy import duty on steel and aluminium

US president Donald Trump’s plan to levy import duty on steel and aluminium imports in the US could not only trigger a global trade war but would also force corporate India to redraw its growth plans.

Exports and globalisation have been an integral part of the growth plans of India’s top companies for the last two decades. The latest protectionist move by the US – the world’s largest economy – and India’s top trading partner now raises a question mark over corporate India’s conventional growth model that relied on treating the entire globe as a common market.

Not surprisingly corporate India is not pleased with the latest move by the Trump administration. “This measure, if approved, will have serious repercussions on international steel trade. The exports of European countries to the US will be majorly impacted and this can affect India’s exports to Europe and other countries,” said H Shivram Krishnan, director - commercial, Essar Steel on the proposal to levy tariff on steel imports.

Forex revenue including exports accounted for nearly a fourth of BSE 500 companies (excluding financials and energy) standalone revenues during FY17 up from 23.5 per cent a year ago. The figure would be even bigger at consolidated level as many companies have extensive manufacturing operations in North America and the European Union.

There has been a steady rise in the share of trade (exports and imports) in India’s gross domestic product since the 1991 economic reforms. For example, exports of goods and services accounted for 19.3 per cent of India's GDP during 2016-17, up from 6.9 per cent in 1990-91.

Exports accounted for nearly a fifth of the country's incremental economic growth during the period allowing the economy and Indian companies to grow faster than they would have otherwise. In the same period, import share in GDP rose from 8.3 per cent of GDP in 1990-91 to 21 per cent last fiscal.

Exports are a big growth driver for many of the country’s top companies in sectors such as pharmaceuticals, automotive, agrochemicals, textiles, garments and engineering, besides information technology (IT) services.

According to another steel-maker, India will largely get impacted indirectly as major exporters to the US such as South Korea may be forced to divert their production to India. “A steel tariff in the US could force South Korean firms to dump their steel into India depressing prices and hurting our margins. With trade getting impacted, international steel prices could fall in turn hurting export realisations of domestic steel companies,” said a senior official with a leading steel maker in India.

Others say that they may not be impacted due to a global manufacturing footprint. Motherson Sumi, which produces auto parts like wiring harness and mirrors in the US said it sources raw materials locally. “There is hardly any import from Europe or even India. We have no cross currency exposure," said G N Gauba, Chief Financial Officer at Motherson Sumi. Overseas operations account for nearly 85 per cent of the company’s consolidated revenues.  

Murugappa Group’s Carborundum Universal doesn’t see any immediate impact on its global operations and sees the latest US move as a typical market protection strategy. “We compete on technology platforms and our products are typically outside the purview of any kind of tariff protection in any country. To that extent, we are not impacted by these things,” said K Srinivasan, managing director, Carborundum Universal.

He says that steel imports into India continue to have some level of tariff protection and to say the US should not have some kind of protection putting up is not appropriate. “I think government intervening on behalf of local industries is something we have to accept as a reality,” Srinivasan added.

Some corporate chiefs say India could also choose to protect its industry as other countries like the US take measures to encourage domestic industry. Anil Agarwal, Chairman, Vedanta, said the Indian aluminium industry has invested over $20 billion to build 4.5 million tonne capacity and jobs in India. “The country has surplus capacity, yet it imports over 50 per cent scrap and primary aluminium, losing $3.5 billion per annum and jobs to other countries. A uniform import duty of 10 per cent on both scrap and primary aluminium should be levied to support the domestic industry and to discourage dumping,” Agarwal added.

The proposed plan of the US administration to levy tariff across the board on steel products is not compliant with World Trade Organization regulations, said Essar’s Krishnan. “Invoking Section 232 is far-fetched,” he added. Section 232 of the Trade Expansion Act allows a president to act unilaterally if national security is at stake.

(With inputs from T E Narasimhan & Ajay Modi contributed to this story)