Infrastructure spend seen offsetting India duty reductions

Posted on 09 February 2021

Indian import duty reductions could put a dampener on domestic steelmakers in the near term, but this will be offset by a sharp increase in infrastructure spending in the government’s 2021/2022 budget, ICRA says.

The duty reduction on steel scrap and planned doubling of shipbreaking capacity by the fiscal year through March 2024 should result in improved feedstock availability and lower input costs, the credit rating agency observes.

Indian authorities have suspended certain anti-dumping and countervailing duties on steel imports, as well as reduced customs duties on all semi-finished, flat and long products, and suspended the customs duty on scrap until 2022 (see Kallanish passim). This is to protect the interests of domestic end users and will make imports more competitive.

However, steelmakers will benefit from the INR 2.87-lakh crore ($39.3 billion) crore allocation to the Jal Jeevan Mission (Urban) scheme and the addition of 100 more districts to the city gas distribution network, ICRA says.

The government’s strengthening of metro rail infrastructure in multiple cities and launch of a new scheme to bolster public bus transport services at a cost of INR 18,000 crore also bodes well for domestic steel players, it adds.

All in all, India plans a 35% on-year increase in capital outlay towards infrastructure projects in the fiscal year through March 2022.

The scrap duty suspension should help steel producers – especially in the secondary sector – in securing alternate raw materials and support steelmakers’ costs amid ongoing domestic iron ore supply-side constraints, says compatriot credit rating agency India Ratings & Research (Ind-Ra).

However, any extension of lower import duties could increase credit risks for the sector. The return of China to the export market could pose an import glut risk for India, resulting in margin pressures for domestic producers, Ind-Ra concludes.

Source : Kallanish