There are other aspects to holding prices across the board. Prices vary from item to item and customer to customer. Prices for those on long-term contracts are not affected. The promise to cut prices relates to list prices, whereas varying rebates are given to customers depending on how important they are and what they consume. Also, the past experience of the industry in cutting prices in response to government requests suggests that the action usually does not cover all items. The steel ministry is of course aware of all this. So there is an element of playing to the gallery every time the government asks the industry to hold prices and the industry agrees under protest.
This is not to say that global steel and raw material prices are not sky high. They are, and no attempt to break an inflationary spiral can succeed unless the prices of a key item like steel are held for some time. Fortunately there is some leeway as Indian steel prices are somewhat behind global prices. This is the reason why the government has announced, though not yet notified, varying export duties on different steel items.
In return for agreeing to hold domestic prices, the industry has requested the government not to impose the export duties. This makes sense as, in a globalised situation, an industry which has a competitive advantage should be allowed to benefit from international price changes. This creates a surplus, which improves the health of the industry and enables it to invest in technology to raise efficiency. India's steel industry deserves support as it has kept improving its competitiveness. Till not so long ago it was getting higher domestic prices behind a tariff barrier which has slowly disappeared. The best and largest Indian players are among the most globally competitive and the regulatory environment should help them remain so. One way to do this is to work with the railways to lower domestic freight costs. Another, and most important, is to facilitate the process of prospecting and exploring for new mineral reserves and making the awarding of mining leases transparent and through competitive bidding. Any attempt to hold prices to dampen inflationary spirals can only be temporary and sooner or later prices have to be guided by the demand-supply balance and efficiency gains. And so, sooner rather than later, the government should go back to allowing markets to work, unhindered.
