A safeguard duty is a financial tool used by governments’ world over, to protect their domestic industries from cheap imported products. Generally, these apply to imports from all countries without exceptions.

The government seems to have realized that low cost steel imports are causing enough financial damage to local steel manufactures for it to intervene financially. The DG of Safeguards has recommended a provisional 20% Safeguard Duty, which will remain in force for a period of 200 days on the hot rolled steel coils (HRC). This move is expected to impact the imports from countries like China, Korea and Japan and has been welcomed by the local steel industry.
 
A safeguard duty is a financial tool used by governments’ world over, to protect their domestic industries from cheap imported products. Generally, these apply to imports from all countries without exceptions.
 
But this is not the first time that Indian government is helping out the domestic steel manufacturers. In June this year, anti-dumping duty was imposed on import of certain industrial-grade steel from China and other south Asian countries. Then last month, the ministry increased import duty on various steel products from 10% to 12.5%.
 
The reason for going in for a 20% duty this time, is based on the intention to provide domestic manufacturers with reasonable rates of return, on cost of sales when compared with the landed price of the imported steel.
 
But even though these duties are expected to benefit the domestic steel manufacturers, the government has been quite vocal that cheaper imported steel has economic benefits, as it cuts the costs of critical infrastructure projects. Adding duties will eventually hike the landed cost of imported steel and will increase input cost of raw materials for local buyers. These buyers will then pass on these costs to final consumers. Hence government decision will be based on whether these benefits of safeguard duty outweigh the higher costs or not.
 
It is common knowledge that steel prices have been falling all across the world and India is one of the few large markets where demand has not slowed down. Hence it is natural for foreign players to export to India, when domestic prices are higher than that of imported steel. But if this trend of falling steel prices continues further, these regular increases in duties will not benefit the local players for very long. On the contrary, if the domestic steel customers cut back on their purchases because of higher costs, it could prove disastrous for other sectors of the economy too.

Sep 11, 2015
Source: IndiaInfoLine