Protectionism and its downside
We are seeing in the Indian Steel prices the outcome of multiple trade and non-trade barriers on imports over the last couple of years. Steel prices have sky rocketed.
Small and medium scale industries are in doldrums as the prices are unsustainable and they cannot import their requirements in small quantities.
The supply chain is disrupted as stockists do not have the stocks as imports are almost impossible thanks to multiple locks which include anti-dumping, safe guard duty and seemingly benign but highly effective trade barrier….Bureau of Indian Standards requirement.
Result: Along with high domestic prices (and sky high profits of domestic steel mills) is that trade credit for working capital has disappeared and banks are unwilling to lend to the small and medium steel user sector as the banks try recover from their Non Performing Assets (left by the domestic steel mills as they tried expanding exponentially).
Cleverly the pain of the banking sector from unpaid loans of Steel mills has been transferred to the Small and Medium user sector which is made to suffer for the follies of the bankers, consultants and Steel Mills that took everyone for a ride.
These trade barriers are making India an island while the supply chain for the steel user industry is global and the need is to be globally competitive.
What these excessive trade barriers have done is that they have broken the price mechanism. It is not allowing the market to find price through the economic demand and supply for steel. Price is now an outcome of price gouging by steel producers.We implore the Government to take a step back and understand the implications of these excessive trade barriers, the effect on small and medium scale industry in India and above all, the effect it is having with increasing job losses as these small and medium scale units turn unviable.