NEW DELHI, JULY 26: Just a few months after he rejected the steel ministry's demand to retain a floor price on steel imports, Commerce Minister Ramakrishna Hegde has made a complete volte face. On April 24, Commerce Secretary P P Prabhu wrote to his counterpart in the steel ministry, A K Basu, saying that the ministry of commerce was in favour of withdrawing last December's notification fixing a minimum import price for Hot Rolled Coils. And just last week, the same Prabhu has written to the Prime Minister's Office (PMO) saying that Hegde and his counterpart in the steel ministry, Naveen Patnaik, have met and decided that this is not the appropriate time to scrap the floor price!The issue of what is to be done on the issue - whether the floor price will be scrapped or not - will now be addressed by the PMO. N K Singh, secretary in the PMO will be meeting officials from both ministries on Wednesday, to decide on the matter.What makes matter even more curious, is that Prabhu's letter to the PMO comesafter the PMO-appointed Ashok Lahiri committee clearly said that floor prices on prime quality steel items should be scrapped immediately. Hegde's joining hands with Patnaik over the issue is all the more surprising since the Director General of Foreign Trade N L Lakhanpal has said that he is in favour of scrapping the floor prices since they are clearly violative of the GATT and constitute unwarranted intervention in the free play of market forces - at a time when global prices of HR coils were around $200 a tonne, the government had issued a notification disallowing imports of HR coils if they were priced below $302 a tonne. The move was aimed at protecting the larger steel producers who got a huge price advantage.After receiving the Lahiri report last month, Lakhanpal pointed out that ``the ministry of commerce has been consistently taking the stand that fixation of minimum import price for any item is GATT inconsistent . However, we have been falling in line with the Ministry of Steel . DrLahiri's recommendation is more or less in line with our thinking on the subject.''But with public opinion clearly tilting against the floor price and the huge benefits it confers on the local steel producers - given the current capacity of the industry and the $100 per tonne advantage they had, this translates to a potential benefit of Rs 5,000 crore annually - both Hegde and Patnaik have now changed their strategy. They have now decided to recommend a lower floor price of $264, to sort of lessen the blow. It is still not clear though as to how this price is justified since it is still higher than the current global price of around $230 to 245 a tonne - interestingly, with global prices hardening, international costs are around that recommended by the Anti-Dumping Directorate last year.Interestingly, at one point, the commerce ministry was also looking at the possibility of getting the Election Code of conduct to work in their favour, to prevent the scrapping of the floor price. One of Prabhu'snotes to Hegde, also asks whether the scrapping of the floor price will amount to a major policy (and therefore violative of the Election Commission's code of conduct)! Hegde was of the view that the EC did not have to be consulted, and so Prabhu did not mention this in his letter to the PMO.
