MUMBAI:The inclusion of steel in India’s Regional Comprehensive Economic Partnership (RCEP) negotiations that propose to extend free trade agreements to China will excessively harm the local steel industry by opening floodgates to Chinese imports from the largest steel producing nation.
Industry captains and experts have called on the government to “exercise caution” while finalising the multilateral trade agreement.
“Our plea is that even if RCEP negotiations are finalised, Indian steel industry which has suffered in the past even under the current FTA arrangements with 13 countries, should be excluded from its purview,” Seshagiri Rao, joint MD at JSW Steel, told ET.
The government is also reviewing the current India-Asean FTA that came into force in 2010.
“We sincerely hope the proposed review of India-Asean FTA would help in addressing the growing asymmetry in bilateral trade in goods between the two regions, ensure less violation of Rules of Origin (RoO) and enable better utilisation of the FTA by the Indian Industry,” said TV Narendran, MD at Tata Steel, adding that in the last 10 years, imports have grown faster than exports.
Exports in August grew 37% to 9.8 lakh tonnes since last year and have almost doubled since July, helping India to continue becoming a net exporter. It became a net exporter of steel last year for the first time in 14 years, a report said.
However, experts said the growth is on account of slowing domestic demand that grew only 1.7% in August against 6.4% in April this year and imports from other countries have dried up due to lack of demand in domestic user industries like auto as Japanese and Korean auto makers in India prefer to import from their home countries.
RCEP could increase the number of countries where India can export without duties. Some analysts said long term demand from India may be capped at around 150 million tonnes and in that case, regional peers could help with demand creation. Experts said there is little to gain for India as no other country generates as much demand as India.
Another factor is competitiveness. Cost of manufacturing steel in India is higher by at least $80 per tonne owing to high embedded costs like logistics and infrastructure, among others, which makes finished steel goods less competitive compared to Chinese goods.
“Even if the steel industry is included within the RCEP’s purview, it should come with certain safeguard mechanisms, a flashpoint that could check which countries are exceeding safe limits that do not threaten the domestic industry,” said Deependra Kashiva, executive director at Sponge Iron Manufacturers Association.
Analysts are divided on the issue. “The fear of imports from China is relatively unfounded and, if witnessed, can be better addressed by staying within the RCEP framework vis-a-vis staying out,” a report by ICICI Securities said.
However, Ritesh Shah, lead analyst for building materials at Investec Securities, said including China will be “inviting trouble.”