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India: Export tax rollback on the cards?

Even as steel mills continue to reel under the impact of the export levy that was imposed in May 2022, prices have dropped sharply since then (SteelMint’s composite...

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8 Sep 2022, 19:40 IST
India: Export tax rollback on the cards?

Even as steel mills continue to reel under the impact of the export levy that was imposed in May 2022, prices have dropped sharply since then (SteelMint's composite steel index dropped 15% since the export duty was imposed). This decline carries enough merit for a possible roll-back of the levy, SteelMint understands.

Wait-and-watch
Reliable industry sources indicated that there have been hectic parleys within government circles on the 15% export levy. And the price decline has also been noted within the commerce ministry which had imposed the tax. But then the monsoon is always a season of weak demand which pushes down prices in any case. Thus, at present, it is a little tricky to say that the price drop was on account of the levy and not the monsoons or the overall drop in global demand, said sources.

SteelMint data reveals that benchmark trade-level hot rolled coil (HRC) prices have eroded 25% from their peak levels of INR 76,000/t in April 2022 to current INR 57,200/t levels. The prices are ex-Mumbai and excluding 18% GST. Similarly, BF-grade rebar (12-32mm, IS 1786 Fe 500D) prices (ex-Mumbai and minus GST) have lost 22% from their peak of INR 72,900/t in April to INR 56,800/t.

But, highly-placed sources indicated that the government is waiting for more clarity on the reasons behind the price fall before arriving at a decision to remove the tax.

"The duty will be rolled back, no doubt, but when is the question at present," said a source in the know of things.

"Unless and until there is strong evidence that the duty resulted in the price drop and it was not exactly due to the usual lack of demand during monsoon, the tax will remain implemented," the source reminded.

CAD impact
It may be mentioned that the export levy will impact the current account deficit (CAD). With the drop in exports, the government is of course losing some amount of foreign exchange. Questions are being raised in industry circles as to why the export tax levy decision remained implemented during a season that in any case sees a drop in domestic demand and overseas sales help to restore the demand balance.

India's finished and semi-finished (billets) exports in April-July 2022 are provisionally down 46% to 4.50 mnt against 8.28 mnt in the same period of the previous financial year, as per SteelMint's data.

Outlook
SteelMint understands that end-September or early-October there is a possibility of some update on the export tax status.

 

8 Sep 2022, 19:40 IST

 

 

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