Steel firms get a rap on the knuckles

The Union Budget 2004-05 has brought about major changes in the excise and customs duty on steel. While excise duty on steel has been increa...

The Union Budget 2004-05 has brought about major changes in the excise and customs duty on steel. While excise duty on steel has been increased from 8 per cent to 12 per cent, which would ensure that the countervailing duty would also be applicable to imports, customs duty on non-ally steel has been reduced from 15 per cent to 10 per cent.

Though the steel scrips showed a knee jerk reaction to the excise duty hike and plunged, industry experts feel that the move would not have major impact on the steel firms. However, the excise duty hike would put pressure on the steel prices.

According to Arvind Parakh, director (finance) of Jindal Stainless Ltd, “the major steel firms all go for Modvat. Hence, the excise duty hike of 4 per cent is unlikely to affect the bottomline of the steel firms. However, steel prices would go up and the end user would land up paying more for the steel inputs”, Parakh added.

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Officials in SAIL pointed that all in all the sector would balance out since the budget has announced a cut of 5 per cent in the customs duty while they have hiked the excise duty by 4 per cent.

However, in those cases where steel would be used as end product and not as input, the steel firms might have to bear the burden of excise duty hike.

Industry experts agreed that the hike in the excise duty could have been avoided given the fact that steel prices are on the rise. However, the silver lining to the cloud is that since the Budget has laid stress on infrastructure and has called for additional government expenditure on rural infrastructure, steel demand is expected to perk up further.

According to Indian Steel Alliance, the increase in the excise duty would lead to an increase in the price of steel by around Rs 1000. “The combination of reduction in customs duty and increase in excise duty will dampen the enthusiasm of enterpreneurs to invest in the industry in the long run”.