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    HomeBusinessInput duty cuts will spur demand, say real estate, auto, plastic units

    Input duty cuts will spur demand, say real estate, auto, plastic units

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    The tax reliefs, aimed at curbing inflation, would pep up demand for their goods, they said.

    Rajesh Kurup, Nayan Dave, Varun Singh & Mithun Dasgupta

    A broad spectrum of user industries — ranging from automakers, cement companies, players in the petrochemicals-to-plastics value chain, manufacturers of engineering goods, and the real estate sector — on Sunday welcomed tax cuts on their inputs, and said the relief would largely be passed on to consumers. The tax reliefs, aimed at curbing inflation, would pep up demand for their goods, they said.

    However, steel industry players opposed the export tax on outputs and warned of production cuts. They also said investments under the production-linked incentive scheme for speciality steel might take a hit as a result of the measures taken by the government on Saturday.

    Harsh Vardhan Patodia, president of private real estate developers’ body Credai, hailed the move to lower prices of steel and cement, and said the cut in fuel duty would bring down transportation costs of raw materials. At the same time, he hoped that manufacturers would pass on the price cuts to end users. “[If that happens] it will help real estate developers negate increased construction costs over the last two years, which will only help prospective homebuyers,” Patodia said.

    Mahesh Desai, chairman of the engineering exporters body EEPC India, said steel prices coming down “will reduce the manufacturing costs of engineering exporters, especially MSMEs, and improve their competitiveness in the global market”. At almost $109 billion, engineering goods made up over a fourth of India’s total merchandise exports in FY22.

    Vishal Kanodia, managing director at Kanodia Cement, said: “The scrapping of import duty on pet coke and semi coke definitely helps cement manufacturers. It will help reduce the power and fuel costs for manufacturing clinker and cement.”
    Similarly, the increase in export duty on steel would give a boost to the infrastructure sector, especially road construction, while cement and steel sectors would benefit from the reduction of logistic costs, he said.

    Many players in the steel industry, however, think the 15% export duty on steel would lead to cut in domestic steel production “as around 18 million tonne exported annually from the country cannot be consumed locally”. Steel prices were already correcting globally, they said, adding that potentially, this would lead to a fall in domestic prices as well.

    The Indian Steel Alliance (ISA) said export duty on steel products would send a negative signal to investors and adversely impact capacity expansion projects under the PLI scheme. The export tax, it said, will help other countries increase their share in the global market, which India will now vacate. “Rebuilding the lost ground may take a very long time, as the supply chain will be disrupted, while India’s credibility as a reliable exporter will take a hit,” it said.

    Seshagiri Rao, group CFO of JSW Steel, told FE, “Indian steel demand is expected to grow at 7-8% annually, which translates to 7-8 MTPA. The demand from export markets will go down with the export duty. We will have no choice but to cut production.”

    He also said the impact of the removal of the 2.5% import duty on coking coal on steel manufacturing cost “would be minimal given the six-fold increase in prices”. Rao said the increase in export duty on iron ore from 30% to 50% would be of “no use” when there was no drop in iron ore prices in the domestic market in line with international prices. “Availability is the issue that needs to be resolved,” he said.

    The steel manufacturers’ association will make a representation to the finance ministry against the steps, Rao said.
    Dilip Oommen, CEO of ArcelorMittal Nippon Steel, said, “The investments in the steel sector are very high and there is bound to be a lull given the restrictions. The government should ensure that contracts that were already signed are not affected.”
    He said barring a few high-value-added products, production will have to be cut. The company exports around 15% of its products. “The timing of the decision is not correct since prices have already corrected by 10%. Although steel prices are high compared to last year, prices of crude, coking coal and iron ore prices too have firmed up on year,” Oommen said.

    According to SK Sharma, secretary general of the Federation of Indian Mineral Industries, the increase in export duty on iron ore would benefit countries like Australia and Brazil, which are sitting on huge inventory, as they will be able to take advantage of a surge in Chinese demand for ore.

    Suraj Ghosh, director-mobility, S&P Global, said, the decision to cut import duty on steel inputs and plastics “will be a huge relief” to the automotive industry and help stabilise their costs. “There are several customers holding on to or delaying their car purchase decisions due to high prices, so if the automakers choose to pass on the cost reduction benefit to customers, it could unlock that block of sales as well,” Ghosh said.

    Rajat Mahajan, partner at Deloitte India, said, “Given that plastics are approx 10-12% and sheet metal is around 15-18% of the total vehicle cost, this reduction will provide some relief to the OEMs. Whether the OEMs pass these benefits to the consumer or cover their fixed costs is to be seen.”

    The government’s decision has led to calls for similar measures to cut input prices for the labour-intensive garment industry. A Sakthivel, president of the apex exporters’ body FIEO, urged the government to impose an export duty on cotton and allow tax-free import of cotton yarn. Cotton prices have more than doubled in the past one year to cross 1,00,000 per candy of 356 kg. Ravi Sam, chairman of the Southern India Mills Association, welcomed the removal of anti-dumping duty on elastomeric filament yarn, used in various dress material including denim, and said it would help increase exports. Shailesh Patel, former president of the Gujarat State Plastic Manufacturers Association, said the import duty cut on inputs would reduce production cost for plastic makers. “Besides, reduction in petrol and diesel prices has also provided much-needed relief to more than 75,000 plastic processing units,” he said. Reliance Industries and state-run IOC, IOC, GAIL, OPAL and BPCL are the main suppliers for plastic processing units. “If they pass on this benefit to us, plastic processing units will also reduce prices proportionately,” Patel said. Since the outbreak of Covid-19, the plastic industry has seen a surge in raw material costs, ranging from 50-200%. Around 60 steel re-rolling mills in Gujarat have also decided to reduce prices of their finished product, thermo mechanical Treated (TMT) bars, by2,000 per tonne. Till Saturday, prices of TMT bars manufactured at Sihor, near Bhavnagar, were around 70,000 per tonne said Harish Patel, president of Sihor Re-rolling Mills Association. “After the reduction in import duty on key raw materials and increased duty on iron ore, prices of TMT bars have fallen to68,000 per tonne.”

    Sushil Mohta, president, Credai, West Bengal, said the government’s decisions might bring some control on constantly rising prices of raw material in the construction sector. Mohta, chairman of Merlin Group, said the waiver of customs duty on the import of some raw materials used by the steel industry will also help the construction industry.
    (With inputs from Vikas Srivastava in Mumbai, Banikinkar Pattanayak in New Delhi)

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