Union Budget 2022-23: Customs exemption extension on steel scrap will bring temporary relief

It would have been good to see the Centre taking concrete steps to improve domestic scrap availability

By Parth Kumar
Published: Tuesday 01 February 2022

Steel is an essential product that is consumed largely in infrastructure (construction and real estate) development and industrial manufacturing. The share of the steel sector contributes around 2 per cent to India’s gross domestic product (GDP). It provides around two million jobs and so, the growth in this sector affects the economy of India. 

India’s steel prices have almost doubled over the last year and there are several reasons behind this. The rising cost and shortage of raw materials like iron ore and coking coal is one of the major reasons. 

Along with this, recently, China has also been cutting down its steel production. It has been removing rebates and imposing export taxes to discourage exports (to meet its domestic demand more effectively) and reduce its carbon emissions. All this led to a substantial rise in steel prices globally and in India. 

Due to the high prices of raw material, the steel consumption also dropped last year,  impacting the country’s economy. Keeping that in mind, the Government of India decided to extend the exemption of custom duty on import of scrap in the Union Budget 2022-23.

This decision can be seen as a smart step which will not only benefit the sector in economic terms but also in terms of having a lower carbon footprint. 

Steel scrap is an alternative raw material in steel manufacturing, partially in blast furnace — basic oxygen furnace route — and fully in electric arc furnace or induction furnace route. It can, thus, help steel companies (especially micro, small and medium enterprises) in bringing down that manufacturing cost as well as their carbon footprint. 

A tonne of steel scrap can save 1.1 tonne of iron ore, 630 kilogram of coking coal and 55 kg of limestone. The use of steel scrap in both major manufacturing routes (BF-BOF & DRI-EAF/IF) can substantially lower the carbon emission in the process. 

The Steel Scrap Recycling Policy mentions the role of steel scraps in reducing greenhouse gas emissions by 58 per cent. 

A discussion on this decision would be incomplete without discussing the availability of steel scrap in India and its alignment with the target and vision set by the Government of India. 

In the Steel Scrap Recycling Policy 2019, the Ministry of Steel stated that as of 2019, the current supply of steel scrap is 25 million tonnes from the domestic market and 7 MT from imports. The aim of the scrap policy is to be able to harness this 7 MT from the domestic market itself to reduce dependence on imports. This would make India’s steel markets less vulnerable to global events in the sector. 

The policy mentions opening 70 scrap processing centres with 300 collection and dismantling centres to fill up the gap of 7 MT. India also aims to generate steel production of about 255 MT by 2030 (according to the National Steel Policy 2017).

By that time, it is estimated that the demand for steel scrap may rise up to 70-80 MT. To meet this, India may require up to 700 scrap processing centres (shredders) that shall be fed by 2800-3000 collection and dismantling centres spread all over the country. 

Even with a target-defined policy in place, it’s a very common feedback from the ground that the availability of scrap is still a big issue. This lack of steel scrap has pushed a major chunk of the Indian steel industry to largely depend on the highly polluting coal-based sponge iron to be used as raw material. 

By continuing the exemption on customs duty for steel scrap for a year, the government has been successful in pushing a larger problem a day beyond and providing temporal relief.

To resolve this issue permanently, the government needs to ensure that good quality scrap is being made available to India’s steel plants domestically and whatever systematic infrastructure needs to be put in place on the ground is there as soon as possible (as proposed in the Steel Scrap Recycling Policy, 2019). 

It would have been good to hear from the government that apart from extending the exemption of customs duty, they are also taking concrete steps to improve domestic scrap availability. That would have been much more in alignment with the vision they have laid out in the National Steel Scrap Recycling Policy 2019. 

The current decision seems like a push to the on-going setting of India’s partial dependence on imported steel scrap with no concrete measure on the ground to increase domestic scrap availability.

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