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Govt uses tax scalper to rein in prices

An inflation-weary Govt announces a slew of measures including an export tax on some steel products to tame runaway prices, reports Gaurav Choudhury.

business Updated: Apr 30, 2008 04:01 IST
Gaurav Choudhury

An inflation-weary government announced a slew of measures on Tuesday including an export tax on some steel products and basmati rice and slashed duties on key intermediate products such as cement to tame runaway prices.

Finance Minister P Chidambaram also warned of stringent action against such manufacturers or traders who might be resorting to hoarding or cartelisation.

“If it (fiscal and monetary measures) is not enough... and if the industry does not change its behaviour, certainly we will improve administrative measures,” the minister said addressing Confederation of Indian Industry’s (CII's) annual session.

The inflation rate has been hovering over 7 per cent for more than a month, despite several measures taken by the government and the central bank to contain it. The latest spike in prices has come on the back of a sustained increase in prices of commodities, stemming from supply shortages.

Chidambaram's comments in Parliament came shortly after the Reserve Bank of India announced another hike in the cash reserve ratio citing inflationary pressures and Governor YV Reddy said "a lot more action will be required on the supply side" to curb inflation.

In his reply to the debate on the finance bill, Chidambaram said there was a case to discourage export of steel and domestic prices cannot be contained unless supplies were enhanced. He said customs duty on several steel products such as pig iron, mild steel and cold rolled coils would be abolished.

The basic customs duty on three critical inputs for steel manufacture – metallurgical coke, ferro alloys, and zinc—would also be abolished. Currently, these products attract an import duty of 5 per cent.

The finance minister also abolished the existing 14 per cent countervailing duty (CVD) on thermo-mechanically treated (TMT) steel bars and structurals, commonly used for construction of houses.

The finance minister also announced a 15 per cent export duty on specified primary forms and semi-finished products, and hot rolled coils and sheet, 10 per cent export duty on specified rolled products including cold-rolled coils and sheets and pipes and tubes, and five per cent export duty on galvanized steel in coil and sheet form.

"The objective of containing domestic prices will not be achieved unless we augment supplies and availability of intermediates and finished products," he said.

He also imposed ad-valorem duty on cement that would replace the existing specific duty, a move aimed to bring down cost of the critical intermediate product.

“Despite the fiscal steps taken by us, some sectors like steel continue to exhibit sharp increase in prices. It contributes 21.3 per cent in the overall inflation," he said. Chidambaram, who said India faced no fear of food shortages with bumper harvests of both rice and wheat expected this year, said an export tax of 8,000 rupees per tonne would be imposed on basmati rice.

The minimum export price, however, has been reduced from $1200 per tonne to $1000 per tonne. India has already banned exports of non-basmati rice.

Chidambaram proposed to reduce basic customs duty on skimmed milk powder from 15 per cent to 5 per cent, while import duty on butter oil would be reduced from 40 per cent to 30 per cent.

The finance minister also announced a cut in basic customs duty on newsprint cut to 3 per cent from 5 per cent.

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