Scheme replacement can lead to 2% per tonne loss for industry.
The government's decision to block the online system for the Merchandise Exports from India Scheme (MEIS) has come as a blow to ferro alloys producers who ship out close to 50% of the country's annual ferro alloys production in the form of exports.
Competitive Disadvantage
Manish Sarda, Chairman of the Indian Ferro Alloy Producers' Association (IFAPA), told Steel360 that the tax incentives that producers get to avail of under the scheme are factored into the product's cost structure and the government's decision to severely limit the scheme will further dull the competitive edge of Indian producers who have to wrestle for market share with the likes of China and Malaysia – countries that enjoy considerable cost advantage.
Nudged by the Directorate General of Foreign Trade (DGFT), the Department of Revenue has limited the benefits under MEIS at INR 9,000 crore for April- December, 2020 citing the fact that allocation for MEIS funds jumped from INR 15,000 crore in financial year 2015-16 (FY15-16) to approximately INR 50,000 crore in FY19-20, but exports haven't grown proportionately.
The provisional certificates given by the government under this scheme can be used by exporters to offset infrastructure and export-related costs. IFAPA is of the view that if the entire system is scrapped, or replaced,producers would be rendered uncompetitive as it would lead to significant loss per tonne of production.
Indian ore is high in phosphorus but low in manganese content. For export grade products, players are dependent on manganese ore imports from SA, Australia and Gabon. An import duty of 2.5% is an additional burden.
Responding to our query as to how big a blow it would be for ferro alloys producers if all incentive schemes were to be eventually blocked, Sarda said: “If the MEIS is replaced by some other scheme for specific industries it will be a 2% loss per tonne for the ferro alloys industry.”
“The government has to recognize the fact that the major ferro alloys producing nations have cheap and subsidised electricity such as Malaysia where power is billed at 2.20 paise/kWh. In Norway and Australia,power is very cheap and in South Africa they have a special tariff for ferro alloy smelters,” Sarda said.
“In such a scenario the Indian ferro alloys industry will be burdened in terms of competitive pricing and will lose its global market share,” he maintained.
Arguing that a rise in prices is inevitable, Sarda said: “I think the industry will have to increase its rates per tonne which may lead to competitive pricing for Indian producers in the export market. The government has to recognize this fact, especially since India is the largest seaborne exporter of silico manganese in the world.”
Rising Exports
As per data maintained with SteelMint, India exported 1.7 million tonnes (MnT) of ferro alloys in FY20 – down from 1.92 MnT in the two preceding fiscals. However, the growth trajectory in exports is clearly discernible: exports have increased to the present level from 1.32 MnT recorded in FY16. Ferro chrome and silico manganese exports in FY20 were at 0.73 MnT and 0.68 MnT respectively. Silico manganese exports have remained majorly stable at close to 700,000 tonnes per annum since FY16.
On the domestic front, prices of manganese alloys remain supported on reviving demand from domestic steel mills, especially after mills raised capacity utilisation after the total lockdown. Most mills are now operating at pre-pandemic levels and demand for ferro alloys is on the upswing.
Asked about the Ministry of Finance's contention that MEIS has failed to boost exports, Sarda contended: “MEIS benefits may have failed to boost exports in a significant way but, at the same time, if it's withdrawn without considering the competitiveness of the domestic ferro alloys industry,or without regard to its interests, it will be a big mistake which could further shrink the presence of Indian players in the global market.”
Duty Drawback
However, the Ministry of Finance and the Ministry of Commerce are yet to come to a conclusion on the subject of a World Trade Organisation(WTO)-compliant export incentives scheme. The Remission of Duties or Taxes on Export Products (RoDTEP) is likely to replace MEIS but the government is yet to provide details on the new scheme.
Voicing the concerns of the domestic ferro alloys industry, Sarda said: “We are handicapped due to non-availability of good quality manganese ore. Indian ore is high on phosphorus with low manganese content.For export grade products, we are totally dependent on manganese ore imports from South Africa, Australia and Gabon. We are at a disadvantageous position in this respect too as there is an import duty of 2.5%. The least the government can do is remove all duties on basic raw materials imports to nullify the impact of scrapping the MEIS.”
IFAPA will take up the issue with the government at all levels “to vent the concerns of the domestic industry,” he informed.
Source: STEEL360INDIA
Dated: SEPTEMBER 2020
