The ministry of steel has urged the finance ministry to double the basic customs duty on finished steel products to 15%, up from the current 7.5%, in the upcoming Union Budget 2025-26. This move seeksto curb the influx of cheaper steel imports, particularly from China, and bolster domestic manufacturers. As global economies increasingly adopt protectionist measures to support local industries, India’s proposal aligns with this trend.
The global steel industry is going through difficult times, marked by excess capacity, rising protectionism, and shifting trade dynamics. China, the world’s largest steel producer, continues to dominate the market, leveraging its cost-efficient production methods to flood international markets with low-priced exports. In response, developed economies like the US, EU, and Japan have imposed steep tariffs and stringent trade measures to protect their domestic industries.
READ | Budget 2025-26: The blueprint for a resilient social security framework
The domestic steel industry has raised alarm bells over a sharp rise in imports from China. The steel ministry’s assessment highlights that much of the new steel production capacity in the region is driven by Chinese investments targeting export markets, including India. The statistics are stark: imports from China surged to 32% of total imports in FY24, compared with 23% in the previous fiscal year. Overall, inbound shipments of finished steel rose 38% year-on-year to 8.3 million tonnes in FY24.
Loopholes in trade agreements
The government has also uncovered cases of trade circumvention. Steel imports from countries like Vietnam, which benefit from zero customs duty under the India-ASEAN Free Trade Agreement (FTA), may actually originate from China. Reports suggest that Chinese metal is being routed through ASEAN countries or steel mills in South Asia with direct Chinese investments. Notably, nearly 40% of China’s steel exports are destined for ASEAN countries, Korea, and Japan—nations that enjoy FTA benefits with India. This creates a backdoor for cheaper Chinese steel to flood Indian markets.
India, once the world’s second-largest crude steel producer, became a net importer of steel in March 2024. This transition threatens the India’s quest for self-reliance envisioned by the Atma Nirbhar Bharat mission. In response, the Indian Steel Association has called on finance minister Nirmala Sitharaman to double customs duties on steel imports to 15% and abolish the lesser duty rule, which caps import duties at the minimum required level. These measures aim to restore competitiveness and protect domestic producers, including major players like JSW Steel, Tata Steel, ArcelorMittal Nippon Steel India, and the state-run Steel Authority of India.
Challenges for domestic producers
The challenges facing Indian steelmakers are multi-faceted. A sharp decline in exports, coupled with a surge in cheaper imports, has led to a significant drop in domestic steel prices. The government’s analysis reveals a stark price disparity between locally produced steel and imports from China. Even raising the import duty to 12.5% would not eliminate this gap. As a result, the profitability of integrated steelmakers has been squeezed, jeopardising nearly Rs 75,000 crore of planned capital investments. The industry has called for both trade and non-trade measures to address the situation.
Indian steel exports face significant challenges in developed markets due to stringent quality standards, higher environmental compliance requirements, and trade protectionism. The European Union’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Section 232 tariffs are key examples of non-tariff barriers that increase the cost of Indian steel exports. Additionally, Indian producers often struggle to compete with countries that enjoy free trade agreements with these markets, such as Japan and South Korea. This has curtailed India’s export potential in premium markets and highlights the need for both policy reforms and strategic collaborations to enhance competitiveness.
The Directorate General of Trade Remedies, the investigative arm of the ministry of commerce, has launched an inquiry into the rising imports of certain flat steel products. Following a recommendation from the steel ministry, the DGTR is considering a 25% safeguard duty on these imports for a two-year period. Such measures are crucial for shielding domestic industries from sudden import surges. Globally, other nations have implemented similar protections. The US has imposed a 25% tariff on Chinese steel, while Japanese and European steelmakers have also sought import restrictions.
Steel industry in Indian economy
Steel has a multiplier effect on both GDP and employment, making it a cornerstone of economic growth. India’s steel inventory has been rising steadily, and the country is now leading the world in steelmaking capacity expansion. However, unchecked imports could derail this progress. To revitalise the investment ecosystem, the government must address the root causes of China’s competitive pricing and enable the domestic industry to replicate these efficiencies.
India’s steel consumption potential is vast, but the industry must be prepared to leverage it. Raising import duties is a necessary step to mitigate the influx of cheaper steel and support domestic manufacturers. However, long-term resilience will require a holistic strategy, including technological upgrades, cost optimisation, and policy measures that ensure fair competition. By addressing these challenges head-on, India can strengthen its steel industry and secure its position as a global leader in steel production.