GST 17’s impact on steel industry.

When the domestic steel sector, which was bleeding heavily by massive imports was on its deathbed, the 525 scheme (loans were extended to 25 years with a condition that interest rates would be reset after every five) was launched as CPR. At the time, it was a good solution and steel sector revitalised but it didn’t help much because people were still not paying their loans.

The gross non-performing assets in the steel sector are expected to rise 4% in a year to nearly 12% by March 2017.The steel industry is the highest leveraged sector in India and banks are not in a position to extend fresh loans.

So, what is the cure?

There are a number of things that government can and plans to do.

1. Setting up a funding agency for steel sector (like REC is for power)

2. A reduction in the import duty on iron ore and coking coal (Iron ore production in India declined from 218 Mn tonnes in FY10 to 125 Mn tonnes in FY15) is expected which will help to reduce cost of production

3. Making domestic steel procurement mandatory for smart cities,

but GST 2017 is hopefully the doctor this patient needs. GST is most likely to pass by March 2017. GST helps Steel industry many ways-

1. When a truck leaves Bengal for Orissa it pays a variety of taxes — VAT, excise duties and so on. Each source of tax collection is a source of confusion, corruption and delay and the cost would be that much higher, each time it crosses a state. By the time the truck arrives at Orissa in a couple of weeks, a huge amount of cost is indirectly added to the consumer. This cost will reduce.

2. Implementation of GST will tend to eliminate the middleman and reduce corruption in highly corrupt states of Orissa, Jharkhand, Karnataka and Chhattisgarh, who also happen to be the highest producers of steel in India.

3. GST will give more money to Under-developed states. GST makes the tax process so transparent that it is very easy to identify people who are evading tax. The Under-developed states again happen to be the some of the highest steel manufacturers. The problem is — lack of infrastructure. Governments in Orissa are not able to provide basic facilities such as electricity and water. This is because these states are not rich. Why are these states not rich? Because the tax collections are much less compared to other states.

But for steel industry plaguing with a rising threat of imports, GST rates on imports should be at the same level as for domestic supply.

GST seems to be a ray of hope for the domestic steel industry who is eagerly waiting for the bill to pass.

So, Steel industry, “May the GST be with you”

Originally published at www.ofbusiness.com.