Cheaper imports, dearer power hurt sector

IN FOCUS/ FERRO ALLOYS

The government should maintain the customs duty unchanged at the level of 15 per cent on import of ferro alloys imports and not bring down the import duty down to 10 per cent as has been proposed in the Union Budget of 2005, feels the Indian Ferro Alloys Association (IFAO).

If the import duty is brought down, many Indian producers would face severe financial difficulties as competing units overseas enjoy power and energy at a cost that is much lower than rates prevailing in India, IFAO said.

Unless the industry is offered power tariff at globally competitive tariffs, the industry is bound to collapse resulting in major job losses, it added.

A note on the subject issued by P Roy, chairman of IFAO, pointed out that the 2005-06 budget reduced the import duty on ferro alloys to 10 per cent as part of a process that had started 13 months ago.

At that time, the customs duty was cut to 15 per cent in the Budget for 2004-05 by the outgoing NDA government.

In earlier years, the duty had been cut in stages from 25 per cent to 20 per cent and thereafter to 15 per cent in June 2004. The industry believes the duty reduction has severe and also at too rapid a pace.

This will flood the country with imports and adversely affect the domestic industry in the states of Orissa, West Bengal and Chattisgarh.

Most ferro alloy units are located in these states.

The strengthening of the Indian rupee vis-à-vis the dollar will further help import of these products in large volumes, Roy of IFAO warned. Ferro alloy production is a very power intensive process and power constitutes anywhere between 40 per cent to 70 per cent of the cost of production.

The industry has been the government for a level playing field in the form of power at internationally comparable rates in line with the liberalisation policy.

On the contrary, the cost of power tariff has been rising in India every year and looks set to rise further, IFAO has pointed out.

Apart from power tariff, raw material prices particularly prices of manganese ore produced by the government steel ministry-owned MOIL, has increased by around 150 per cent since last year, IFAO said.

The hike in input prices supplied by the companies owned by central or state government and the simultaneous reduction of customs duty on ferro alloys will push the sector to bankruptcy, IFAO indicated.

IFAO warned that China was contemplating imposition of anti-dumping duty on ferro chrome imports into China which has jumped by 170 per cent in the last 12 months from 116,000 tonnes in 2003 to 313,502 tonnes in 2004.

If the Chinese market is closed to imports, India will become the top market for cheap ferro alloy imports from South Africa, where power is very cheap.

The Indian industry at present operates around 60-65 per cent capacity utilisation on installed base of over 2 million tonnes.

IFAO said ferro alloy exports can be raised substantially if units can get cheaper power.