The steel sector at present faces an inverted duty structure which needs to be addressed according to NITI Aayog Member VK Saraswat.
Customs duties levied on key raw materials such as coking coal iron ore and metal scrap are higher than those on the end product he said adding: “Most steel exporting countries don’t impose import duties on raw materials.”
Saraswat was speaking here on Tuesday after releasing a report of the National Council of Applied Economic Research on the reforms required for the domestic steel industry.
While the Centre has not given any indication that it believes an inverted duty structure exists in the steel sector it has provided some relief to the industry from cheaper imports. There have been two rounds of duty increase on steel imports which have raised the levy on certain categories of steel to 10 per cent.
To protect the industry from imports from countries with which India has a free trade agreement such as South Korea and Japan the Finance Ministry last month imposed a safeguard duty of 20 per cent for 200 days on flat steel products.
Saraswat said Japanese and Korean imports of steel products were 3.94 million tonnes in 2014-15 while India’s export was much lesser than 1 million tonne.
On the free trade agreements and the ongoing negotiations for the Regional Comprehensive Economic Partnership Saraswat said both NITI Aayog and the Steel Ministry have asked the Commerce Ministry to keep steel products in the negative list.
“Major strategic planning is needed for the steel sector. We have to tune our policies to make sure our domestic industry is not affected” he added.
The government’s strategy of auctioning mineral resources to ensure transparency in the allocation process would bring exploration activities in the country “to a halt” while adversely impacting the ‘Make in India’ programme the National Council of Applied Economic Research (NCAER) has said in a report. Instead the Centre must focus on incentivising mineral exploration and the ‘auction only’ system should be replaced with a mechanism that encourages mining and promises exploring firms of seamless concessions on mineral discovery the report said.
Suggesting that the system of bidding out mineral resources should be supplemented with the ‘first come first served’ (FCFS) system that is prevalent worldwide the report blamed the new auction process along with the decline in global iron ore prices for the raw material crunch in the country which is “likely to push up costs of both coal and iron ore”. “The FCFS system yields less spectacular revenues but the government needs to take a policy decision whether the goal is revenue maximisation or scientific development of the sector. Auctioning everything just to have a ‘non-discretionary’ way of allocating resources is a sub-optimal methodology that will lead to far more waste and loss than any other system” the report titled ‘Indian Steel Industry: Key Reforms for a Brighter Future’ said.
India is also losing export competitiveness due to factors like high unit cost of labour lack of capital poor logistics it added.
While fully prospected mineral deposits should be bid out the auctions should be based on sealed bids rather than e-auctions. The reserve price should be based on independent credible third party evaluations using the Valmin Code or an equivalent the report says. Valmin Code is a mechanism used by Australian geoscientists for technical assessment and valuation of mineral assets.
NCAER study on The Indian Steel Industry: Key Reforms for a Brighter Future was released on 6 October 2015. Know more
As public servants get ready to enjoy the New Year’s blessing that the Seventh Pay Commission is expected to bestow it may be a time for the rest of us to look this gift horse in the mouth. The Fourteenth Finance Commission estimates the cost of the Sixth Pay Commission at over Rs. 90000 crore annually since pay and allowances of Union government employees more than doubled between 2007-08 and 2011-12. Compare this to the estimates in the economic survey for the year 2011-12 about Rs. 70000 crore each for food subsidy fertilizer and petroleum subsidy and less than Rs. 40000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act. Simply put the additional Central government expenditure due to the implementation of the Sixth Pay Commission was over 40 per cent of the major subsidies. If we take into account the costs to the State governments the tab for Sixth Pay Commission largesse is probably equivalent to all the subsidies provided by the Central government.
As we brace for another Pay Commission-mandated salary hike the question to ask is not whether the government can afford it but if it is the best use of government resources. Government employees receive Dearness Allowance (DA) annually to compensate for inflation; they also receive an annual performance appraisal for promotions which brings with it salary increases. So the decadal salary increases under the Central Pay Commission (CPC) are meant to address inequities in salaries across different parts of the government across ranks as well as between the public sector and private sector. It is the latter that has provided the greatest justification for salary increases granted under CPC in the past.
False premise
Dizzying salary packages reported for new Indian Institute of Management graduates or Indian Institute of Technology graduates funnel a sense of discontent among public sector employees since it is hard to imagine any 25-year-old government servant receiving a package of Rs. 40 lakh per annum. This smoke and mirrors strategy masks several observations made by the Sixth Pay Commission. First it noted that the contention of vast disparities between private sector and government employees was not borne out by data. The CPC found that compensation to Group C and D employees in government was higher than that in the private sector; for Group B it was similar and only for Group A was it lower. Group A employees form less than 5 per cent of the total Central government workforce; Group C and D are about 90 per cent. Second it noted that a government job offers many other benefits not available in the private sector and the fear of flight away from public service towards the private sector is overblown.
In spite of these observations the ultimate recommendations of the Sixth CPC led to substantial increases in the salary and allowance of all public servants first in the Central service and later on in State governments. A comparison of incomes between private sector employees and government employees using data from India Human Development Surveys (IHDS) of 2004-05 and 2011-12 is instructive in understanding the consequences of the last CPC. These surveys of over 40000 households were jointly organised by the National Council of Applied Economic Research and the University of Maryland. The graphic shows monthly salaries for men aged 25-59 in 2011-12. Many women work part time as anganwadi workers and ASHA workers and hence are excluded from this comparison but their inclusion will not change the fundamental results.
The results show that at every single level of education government workers are paid more than private sector workers and more importantly the public service advantage has increased rather than decreased after the implementation of the Sixth Pay Commission recommendations. A driver in government service earns far more than one in private service but so does an engineer. This comparison does not include the other benefits government service provides including PF contributions housing benefits health insurance and frequently admission of children to coveted Kendriya Vidyalayas.
One might say that the problem is not global but is concentrated in highly skilled positions. Individuals who are highly skilled may be more likely to choose the private sector. Here only the Union Public Service Commission can tell us if the qualification of the entering cohort of the Indian Administrative Service officers is declining but at a slightly lower stratospheric level we see no such evidence. The IHDS shows that among college graduates with a first class degree government service still seems to be preferred. In 2004-05 among the male college graduates employed in public service 37 per cent had a first division; this proportion had increased to 39 per cent by 2011-12. This is not to say that skill upgradation is not taking place in the private sector where the proportion of first class degree holders among graduates has increased from 28 per cent to 35 per cent but these figures do not suggest that government services are suffering on an average; just that the more qualified individuals are seeking salaried work and moving away from farming and small businesses benefitting both government service and the private sector.
That salary increases will be bestowed by the Seventh CPC is a given. Whether it will address the real challenge lower wages for Group A officers compared to the private sector and recognise the public service advantage for the rest of the employees remains questionable. Let us hope that the Seventh CPC will address the challenge of government salaries with a scalpel rather than an axe.
Sonalde Desai is senior fellow at the National Council of Applied Economic Research and Professor of Sociology at the University of Maryland. Views are personal.
Even as it sees no possibility of India achieving its 300 MT production target for steel by 2025 economic think-tank National Council of Applied Economic Research (NCAER) on Tuesday said the industry needs to create at least 450 MT capacity by 2050.
“Our baseline estimate of demand for additional steel production capacity by 2050 is 600 MT. Even if we allow for a variation of 25% around the base the capacity expansion needed is at least 450 MT a potential unmatched by any other country” NCAER said in a report.
India is currently the third largest producer of steel in the world behind China and Japan. The country produced 91 MT steel last year but currently has around 100 MT installed capacity.
Apart from spotting 11 problems that are coming in the way for realising India’s potential in the sector the report said if the industry’s stellar performance between 2003 and 2007 can be replicated for the next 35 years the aspirational goal of the country could be achieved.
Proposing a reform programme in each of 11 identified problem areas it said there was a need to adopt an appropriately aggressive exchange rate policy and trade policy to protect the domestic steel industry from unfair competition from abroad.
NCAER study on The Indian Steel Industry: Key Reforms for a Brighter Future was released on 6 October 2015. Know more
NEW DELHI OCT 6: A case of inverted duty structure can be argued for the steel sector said V K Saraswat Member NITI Aayog on Tuesday.
Saraswat was releasing a report of the National Council of Applied Economic Research (NCAER) on the reforms required for the domestic steel industry. He said customs duties levied on key raw materials such as coking coal iron ore and metal scrap is higher than the import duties on the end-product.
“Most steel exporting countries don’t impose import duties on raw materials” Saraswat added.
He said NITI Aayog has made some suggestions on the duty structure to the Finance Ministry. However he did not elaborate further.
On the free trade agreements and the ongoing negotiations for the Regional Comprehensive Economic Partnership Saraswat said both NITI Aayog and the Ministry of Steel have asked the Ministry of Commerce to keep steel products in the negative list.
“Major strategic planning is needed for the steel sector. We have to tune our policies to make sure our domestic industry is not affected. While 300-million tonne production target is a good number it is just a number. We must look after the competitiveness of the domestic industry” he added.
Asked whether the interests of the users of steel should be overlooked Saraswat said for manufacturing to be a success market forces cannot decide whether or not India produces steel.
“If it is up to market forces then manufacturing will move to China. Steel industry is a major pillar of the Indian economy” he said.
NCAER study on The Indian Steel Industry: Key Reforms for a Brighter Future was released on 6 October 2015. Know more
