After intense lobbying by Indian Steel Association (ISA), an industry body led by big steel companies, the Ministry of Commerce in December initiated a safeguard duty probe on the import of certain steel items. Protection for domestic steel producers has been in place at least since 2010, but calls for a sharp 25 per cent duty hike has triggered a pushback from MSMEs this time around — the Engineering Export Promotion Council (EEPC) told the government that domestic steel prices are much higher than imports.
Despite concerns flagged internally over market concentration in India’s solar panel industry and its potential to inflate household electricity tariffs, the Ministry of New and Renewable Energy brought back its mandate to source modules from select domestic manufacturers starting April 2024, potentially raising the cost of solar generation and giving an upper hand to select players.
Between 2021 and 2023, the government brought in quality control orders (QCOs) on polyester and viscose fibres, key inputs for synthetic textiles, effectively restricting imports. While the Confederation of Indian Textile Industry (CITI) continues to flag high domestic costs and supply shortages, big companies Grasim Industries and Reliance Industries benefit.
A rise in QCOs, tariffs, and other trade barriers on key raw materials, that serve to protect the domestic industry from external competition, is turning counterproductive – strengthening monopolies at the expense of smaller players. Now, MSMEs are pushing back against such protectionist measures.
In a pre-Budget meeting with the Chief Economic Advisor and Finance Ministry officials, the Federation of Indian Micro and Small & Medium Enterprises (FISME) said the use of tariff and non-tariff barriers like QCOs on the import of critical raw materials such as steel, copper, aluminum, and polymers is creating an uncompetitive environment for Indian industries, particularly MSMEs.
Six months back, in her Budget speech in July 2024, Finance Minister Nirmala Sitharaman had proposed a comprehensive review of customs duty rates “to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes”. The government may take steps to rationalise customs duty rates further in the Budget to be announced on Saturday.
Not only bodies representing MSMEs, there is some pushback from within the government too. NITI Aayog Vice-Chairman Suman Bery cautioned against high tariffs and trade barriers at a press briefing in December, and said the government has to be “very careful” to not close off imports to the point where India starts “cultivating local monopolies”. “An economy frankly gains more from its imports than it gains from the exports because imports are what provide competition,” he said.
The Indian Express studied multiple cases where import restrictions – tariff and non-tariff – have led to market concentration and increased costs for downstream users across sectors, from metals and textiles to chemicals and energy.
Steel
The Indian Steel Association (ISA) persuaded the Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce and Industry to initiate a safeguard investigation on December 19 into the import of certain steel items. The ISA’s members include big players such as Jindal Steel and Power Ltd, JSW Steel Ltd, and state-owned SAIL Ltd.
In 2024, domestic price of hot-rolled coils, a benchmark for flat steel products, was approximately Rs 48,350 per tonne. In contrast, steel imported from China was available at Rs 46,870 per tonne.
“MSMEs are not being invited to the ongoing consultations. A duty hike will hurt the downstream industry. If protection is provided for steel producers, there must be protection for MSMEs too. You cannot have a situation where producers are safeguarded, but 8 lakh MSMEs are left without support,” said Pankaj Chadha, EEPC chairman, in December.
A government official said there is merit in the safeguard duty request as globally there is a push back against Chinese steel. “European Union has been blocking imports for the last 8 years, the US has imposed restrictions. So there is a case of trade diversion. The investigation will take into account the view of MSMEs. They are yet to submit the same,” the official said.
Arvind Panagariya, Chairman of the 16th Finance Commission, said: “There is little doubt that these [safeguard duty] policies give a fillip to our steel industry. But they also raise the price of steel, which undermines the pace of expansion of railways and hurts the consumers of products using steel, such as kitchen utensils, cutlery, refrigerators, bicycles, motorcycles, farm machinery, and automobiles. The higher costs also lead to job losses in these products.”
The ISA and the steel companies did not respond to requests for comment.
Chemicals
Between 2021-22 and 2023-24, DGTR, India’s apex trade watchdog, recommended an anti-dumping duty in the final findings of 92 anti-dumping investigations. The Central Board of Indirect Taxes and Customs (CBIC) under the Finance Ministry accepted DGTR’s recommendation in exactly half the cases, of which 37 per cent covered goods manufactured by either a sole domestic producer or just two producers.
Most of these targeted chemical goods and were initiated by “sole producers” like Laxmi Organics Industries Ltd, Sudarshan Chemical Industries Ltd, Cabot Sanmar Ltd, Arch Pharmalabs Ltd, Gujarat Narmada Valley Fertilisers & Chemicals Ltd (GNFC Ltd), and Vinati Organics Ltd, according to an analysis of DGTR documents by The Indian Express.
GNFC Ltd, sole producer of toluene di-isocyanate (TDI) in India, told this paper that its “capacity is sufficient to cater to the majority of domestic TDI demand” and that “unabated dumping of TDI in India is grievously injuring the domestic industry.”
In some instances, CBIC did not accept DGTR’s recommendation in anti-dumping cases initiated by sole producers. The impact of anti-dumping duties on downstream users, who benefit from cheap imports of raw materials, is a major consideration in the Finance Ministry’s decision to accept or reject a recommendation by DGTR, sources said.
Textiles
Less than a month after an anti-dumping duty on VSF was removed by the Finance Ministry in August 2021, Grasim representatives pushed the Ministry of Commerce and Industry to regulate the import of VSF through quality norms.
In April 2023, CBIC started implementing the QCO, allowing VSF imports into India from only those producers approved by the Bureau of Indian Standards (BIS). Notably, most of India’s VSF imports came from Indonesia, while no Indonesian producer has been certified by BIS till now. After the QCO came into effect, Grasim’s market share jumped from 90 per cent to 95 per cent, while downstream user associations appealed to the Textile Ministry to temporarily suspend the QCO.
Currently, there is a QCO on polyester staple fibre (PSF) as well, which is also a man-made fibre like VSF. Compared to VSF, the PSF market is relatively more fragmented but still concentrated.
As per documents from DGTR, Reliance Industries Limited (RIL) accounted for 57 per cent of domestic PSF production in 2017. The remaining market share belonged to Alok Industries Ltd, owned by RIL, Indo Rama Synthetics (India) Ltd, and The Bombay Dyeing & Mfg Co Ltd. Industry players claim that RIL continues to hold a market share of around 60 per cent.
Downstream synthetic textile manufacturers have urged the government to revoke the QCOs on man-made fibres (MMF).
“Indian domestic raw material prices are significantly higher than international prices. While competitors like Bangladesh, and Vietnam have free access to such raw materials, India has imposed QCO on MMF fibre/yarn which is acting as a Non-Tariff Barrier on the imports of such raw materials and thus affecting their free flow. It has resulted in a shortage of some specialized fibre/yarn varieties,” the Confederation of Indian Textile Industry (CITI) said in its latest pre-budget memorandum.
Solar
The Ministry of New and Renewable Energy reimposed its mandate requiring solar projects to source modules exclusively from a government-approved list of domestic manufacturers starting April 1, 2024. The decision was taken despite former Union Minister R K Singh and the central public sector enterprise SJVN Ltd explicitly flagging concerns around domestic manufacturers engaging in “excessive profiteering” and warned of higher tariffs for future projects fuelled by more expensive domestic modules, according to documents accessed by The Indian Express under the RTI Act.
The price gap between domestic and imported modules, mainly from China, has widened significantly in recent years. Compared to 6% in the first quarter (Q1) of FY22, domestic modules turned 50% more expensive in Q1 FY24, before nearly doubling in Q1 FY25, according to an analysis of CRISIL data.
Companies linked to five manufacturers — Waaree Energies, Adani Solar, Nasdaq-listed ReNew Power, US-based First Solar, and Tata Power — control nearly half of the current capacity listed on the Approved List of Models and Manufacturers (ALMM), first issued by the ministry in March 2021.
Copper
More recently, a QCO on the import of refined copper, effective December 1, threatened major supply disruptions, as seven Japanese producers, who supply 30 per cent of India’s copper, were yet to receive BIS certification. Downstream user associations told the Ministry of Mines that a 90-day shortage had been created due to the QCO and have sought to push the implementation date by four months. Without Japanese imports, downstream users stand to lose access to roughly 1 lakh tonne of refined copper over three months.
In India, there are only three major producers of refined copper, namely Adani’s Kutch Copper Ltd, Hindalco Ltd, and Vedanta Ltd. On December 8, two days after The Indian Express report, one Japanese producer received the BIS certification to export to India, followed by another producer days later, as per the BIS website. However, downstream users assert that exports from Japan are yet to resume due to compliance-related hurdles.
