NEW DELHI: The impending ban on export of steel scheduled to be taken up by the Cabinet Committee on Prices (CCP) on Tuesday - has triggered concerns in the commerce department. With the export of non-basmati rice and cement already banned, officials of the department feel that India’s reputation as a reliable supplier would be hit if the trend persists. While the official line is that taming inflation was the top priority, it is felt that exports are becoming a victim of the government’s strategy to bring down prices.

“In the case of agri exports, the primary concern over the years was the ‘today-off tomorrow’ policy which has led to lack of stability. Now, the same trend is creeping into other sectors. This is not good for India’s exports,” a senior official said. The flip-flop policy has prevented India from emerging as a major player in agri exports despite a huge production base, they added. Wheat, rice, sugar, onion and pulses are among items that faced export ban during recent years.

The concern in the case of steel is more since India exported close to 5 million tonnes of value-added steel (including colour-coated sheets and galvanised pipes) valued at around $4 billion during the first three quarters of 2007-08.
India also imported 5.7 million tonnes of steel during this period.

The government should consider ‘voluntary restraint’ by the steel industry rather than banning exports, officials of the commerce department feel. However, steel ministry is understood to be pushing for a ban and the final decision wrests with CCP. Moreover, there is an opinion that it is not necessary to bar export of all types of steel. Long products, for example, are the ones that are used for construction and prices of this variety have been shooting up. On the other hand, there are items like flats that have only 0.3% weightage in the wholesale price index.

Banning exports would also hamper fulfilment of export obligation, officials feel. Many exporters have to fulfil their obligation through exports for importing raw material free of duty under various schemes or machinery at concessional rates under the export promotion capital goods (EPCG) scheme. Failure to export attracts penalty as the exporter would be declared a defaulter.

The industry has informed the commerce department that companies with long-term contracts would suffer if export of steel is banned. They can keep off spot deals, but scrapping long-term contracts affects business not only now but also in the long term, officials said. Another apprehension is that the demand for ban on export of steel would be extended to export of iron ore too.

If export of steel is banned while ore continues to be expanded, it will lead to an ‘inverted’ policy where export of raw material is not restrained, but export of a value-added product is not allowed.

It is understood that the Indian Steel Alliance has written to the Prime Minster’s Office (PMO), opposing the proposed ban on steel exports. “It would be an anomalous situation where an important raw material like iron ore is allowed to be exported freely, with a nominal export tax, and the end product namely, steel, is banned from export. Normally raw material and inputs are conserved for domestic use and value-added items are exported so as to benefit the domestic economy,” the industry is said to have argued.