Forging industry flays new import duty

CHENNAI, INDIA: The Association of Indian Forging Industry has expressed its disappointment with the imposition of five percent import duty on iron and steel products and had demanded its immediate withdrawal.

The imposition of the duty will keep steel prices at high levels and further fuel the inflation. Instead the government should make efforts to reduce steel prices to international levels or even lower so that Indian auto component manufacturers can regain export competitiveness and survive. The move will also make the Indian economy bounce back on export lead growth, said Vidyashankar Krishnan, President, The Association of Indian Forging Industry (AIFI).

The association president noted that while the finance minister has called for price cuts from the industry to stoke up demand he is creating tariff barriers that would only lead to increase in prices of steel, which contributes up to one third of the inflation (say about 300 basis points). The governments move is only sending confusing signals and adding to the general negative sentiment.

The government's altering the levy structure to suit the steel industry, is a move that is missing out on about 300 to 500 basis points of deflation potential so critical to infuse funds and liquidity into the financial system. Conversely, if steel prices are allowed to seek real levels, not only would the inflationary trend be halted, but even reversed.

In fact, it would contribute to a slight deflation, even negating other factors contributing to inflation. As an impact the prices of goods, commodities and services for the common man would come down. This would provide greater leeway to the finance ministry and RBI in resorting to pump priming which is very essential to lift out an economy in the throes of recession, Krishnan observed.

"It is surprising that the steel lobby that had cited market forces earlier till September 2008 for getting their increases through has turned around and is now against the very same market principles that they were quoting. Perhaps, they want to continue to cash in by re-structuring markets to their convenience by asking for even higher import duty on steel", the association president said.