Articles by ecothrust at Technorati Headline Animator

Thursday, May 26, 2022

Reduce Regulatory Risk for Indian Business - Lower Import Duties, But Don’t Tax Steel Exports



    Why Restricting Wheat Exports to Curb Inflation is OK , But Taxing Steel Exports is Not 

The three month old Russia Ukraine war and the US sanctions thereafter  has disrupted global supply lines. It has raised the price of crude oil above the $100 per barrel mark since the last week of February 2022 ,  - the first time since 2014. It has also created uncertainty in the financial markets and spiked shipping rates, food and fertiliser  prices and the commodity markets resulting in high inflation and fear psychosis. 
                           

                                                           T.V. Narendran  CEO Tata Steel 

RBI Governor Das had no way to see it coming and take steps to manage inflation, nor can the Union Govt be blamed for opening wheat exports only to clamp down on it the next day. The GOI has however agreed to undertake selective wheat exports on requests from needy nations that may actually help the Government to reduce its procurement at MSP prices for the PDS scheme and manage its fiscal deficit. 



Whereas controlling wheat and sugar exports to curb domestic food inflation was a positive step, the same cannot be said of the 15% export tax levied on steel  to cool domestic prices. T. V. Narendran, chief executive of Tata Steel India's biggest steelmaker said that such decisions could affect the steel making capacity output in India and long term goals of businesses.  Looking at the fact that Tata Steel has global experience and plans  to double its steel making capacity to 40 million tonnes per annum, the Government should not increase the regulatory risk for domestic businesses. They can very well reduce steel prices for the construction sector by permitting selective imports at lower import duties. Already UAE and Singapore is weaning away Indian tech startups who are facing regulatory challenges from GOI. Other nations could very well ask Tata Steels with an immaculate reputation to invest abroad where the tax regime is stable.

                           



India has lost many businesses and tech startups due to its ad hoc taxation policies in the past. The right way of dealing with rising domestic steel prices is to lower import duties of competing products temporarily. When import duties are lowered or raised the regulatory risk is transferred to the foreign manufacturer. Taxing steel exports is counter productive as the risk is borne by the Indian manufacturer. That harms domestic industrial growth and hurts Make in India. The decision needs to be reversed before permanent damage is done to export competitiveness. 


          


Over 2700 foreign companies have closed operations in India since 2014 confirmed Mr Piyush Goyal in the Parliament last November. Businesses need regulatory stability and India has a very poor record due to which Indian businessmen move abroad. The Golden visa scheme of UAE is one such scheme that has been weaning Indian unicorns promising minimum regulatory interference.  “One of the key things Dubai has been successful in doing over the last 12 months is attracting the attention of the tech community from India. We have seen a huge appetite from that community across different stages- from series A, and all the way to a unicorn status. Founders and talent are considering Dubai as a tech hub. Talented people are sensitive and precarious. Keeping them happy is also part of the solution and not only the money”  says UAE Tourism Director Yousuf Lootah to ET  It is high time that India’s bureaucracy and political bosses also try to keep talented people happy and create conditions for long term growth.  






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