The Comprehensive Economic Partnership Agreement (Cepa) with Korea and Japan is turning out to be a curse in disguise for the Indian steel industry, which is already saddled with serious problems, such as mining and land acquisition, some industry experts here noted.
They said the cheap imports from the two countries will seriously affect the local steel industry as the market now is weak and act as a disincentive for foreign direct investment (FDI).
Data revealed that imports of hot rolled coil (HRC), a benchmark product, from South Korea surged 125 percent and 72 percent from Japan in 2011-12 over the previous year and the inflow is likely to continue.
A number of Japanese companies,including Kobe, JFE, Sumitomo and Nippon, are in one way or another connected with the Indian steel industry.
Experts said the entry of Korean steel giant Posco, India's largest source of FDI,will pose an even greater threat to the domestic steel industry.
These companies, granted with various sops to sell their products, will flood the Indian market, and serve as a disincentive for these global steel giants to invest in India.
"The trade pacts are not helping India, while affecting the industry adversely. Production and employment are taking place in those countries. We should encourage FDI instead," said Jayant Acharya, director of commercial & marketing of JSW Steel.
For example, Car maker, Maruti Suzuki India Ltd (MSIL) has been importing steel from Japan and Korea long before the bilateral agreement came into existence. But it would stand to lose significantly if steel is put on the sensitive list for exclusion under the Cepa, as is demanded by the steel companies.
S. Maitra, MSIL's chief operating officer said, "We have imported over 190,000 tonnes in 2010-11 and over 200,000 tonnes in 2011-12, which are about 29 percent and 28 percent of our total requirements. Import quantity is dependent on demand changes and not on the bilateral agreement."
Steel industry representatives feel the onslaught of imports could lead to job losses in India. They noted that it might lead to idling of steel capacity as most of the plants without captive iron ore are operating at much less than full capacity.
In the last budget, the central government had increased the import duty on most steel products from 5 percent to 7 percent, in view of the pressure the industry is facing.
However, that does not affect the imports from Korea and Japan. Under the provisions of Cepa, the rate is subsidized at 3.125 percent for Korea, and 3.3 percent for Japan in 2012-13.
"I don't understand why these countries should enjoy concessional rates," said Nittin Johri, director of finance with Bhushan Steel.
His views were shared by Essar Steel Executive Director Vikram Amin."There is a definite case to exclude steel products from the ambit of the Free Trade Agreement (FTA) with Korea and Japan. Considering the high value addition in the steel industry and employment generation potential, it makes immense sense to export steel rather than exporting iron ore and importing steel," Amin said.
Steel industry representatives have lobbied with the Federation of Indian Chambers of Commerce and Industry (FICCI) which has already taken up the matter with the Indian government.
According to Acharya, it should be a level playing field. While production cost in India is more or less at par with Korea or Japan, the financing cost is more conducive in those countries.
