India should consider going ahead with its own border tax adjustment mechanism, TV Narendran, Managing Director and CEO at Tata Steel told businessline. While it is unlikely that the European Union (EU) will roll back CBAM (carbon border adjustment mechanism), India should work on its own “carbon tax” whose credits accrue in the country and can be used internally, he said.

Narendran was speaking to businessline on the sidelines of 51st National Management Convention of AIMA.

Despite objections, including from India, Europe is going ahead with the CBAM. Steel industry here sees it as a non-tariff trade barrier that increases cost of exports making it less competitive.

Currently, CBAM as a mechanism is being phased in gradually. In 2023, (November onwards) it entered the transitional phase, requiring importers to start reporting emissions embedded in their goods. The full implementation is expected to start in 2026.

Concerns over imports

Narendran also pointed out the growing steel imports, especially from China. Describing it as a concern, he said, globally, the industry is hurting because of Chinese exports, and other countries have taken action. It was time for India to consider action as well.

Amid India initiating a probe into imports coming in from Vietnam, Narendran called it a “part of the problem”.

“Because a lot of Chinese steel goes to Vietnam and then ends up here. But China itself is the main problem. I think that’s been a point in the government. The data shows we shouldn’t wait till it gets too late. Other countries are moving,” he said.

While there is no immediate impact on investments being made in the sector, prolonged influx of imports could make the industry reconsider its investment proposal.

“It (imports) continues like this for a long time, obviously the industry cannot be profitable..... this (steel) is a capital intensive, high cash flow intensive industry. So if you don’t have the cash flows....” he said.

Dip in steel exports

India continued to be a net importer of steel for April – August period, with imports witnessing a 25 per cent rise, while exports fell 39 per cent on a y-o-y basis. Government data shows, India lost out on key export markets such as in the Europe and Middle East.

Narendran said, this was due to Chinese exports at prices lower than the production cost there.

“So at these prices, obviously, the Chinese are not making money (and) that is our fundamental point. Right? When we say Chinese steel is competitive, they’re (actually) losing money at these prices. Just look at the profitability of the Chinese steel industry. They rarely make money. We are market economy. We have to, obviously, make profits, have cash flows, take care of investors. It’s not a fair situation at all,” Narendran said.

Centre’s push for a level-playing field

In the face of rising steel imports, and growing pressure over the EU’s CBAM – wherein tax will be subject to the embedded carbon emission in export of the metal – India’s Commerce and Industry Ministry, Piyush Goyal, in a recent meeting proposed countervailing duties on imports and a border tax adjustment mechanism, on the lines of CBAM.

The basic outline of the mechanism proposed hinged on the fact that Indian steel players pay an additional tax, which is around 10 - 12 per cent of the price of the metal (excluding freight). These are State-level taxes and additional levies or cess, which are not subsumed in the GST. For instance, if the metal is being exported (apart from freight) at $450 per tonne, the additional tax component is around $50 per tonne. Imports do not pay for this.

Goyal’s proposal was that this $50 be adjusted from exporters while importers pay an additional $50 per tonne (depending on how the tax is calculated). This would be the Indian equivalent of a border tax adjustment mechanism and provide a level-playing field to Indian steel industry.

Industry captains and apex industry bodies are expected to meet the Minister soon to discuss modalities of such a taxation mechanism.

“I think the Minister’s comment on export tax is probably the right way forward. Because I don’t think Europe is going to do away with the CBAM. It is a tax which creates a level-playing field in Europe. So they are not going to remove it. I think this way, if you have a carbon tax (in India) which you can take credit for, then you can at least keep the money in India, and use it as you deem fit,” Narendran said.

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