Steel Sector Seeks Government Support on Lines of Textiles, Sugar

New Delhi: India's steel industry, which is facing a crisis due to cheap imports and subdued prices, has sought a government support package on the lines of the ones extended to the textiles and sugar sectors.

After lobbying for imposition of import duty, safeguard duty and anti-dumping duty on imports from China, South Korea and Japan, the over $100-billion industry has now approached the government for a comprehensive steel package.

The demand includes a year-long moratorium on payment of interest and principle amount as well as segregation of debt into two categories - sustainable and balance.

According to analysts, domestic steel companies are sitting on a debt burden of Rs 3 lakh crore and falling prices have led to steeply lower realisation making it difficult to service the debt burden.

Besides, cheap imports from China, South Korea and Japan, among others, have further exacerbated the situation leading to a decline in the share of the firms in the domestic market.

According to the industry, the sector's share in gross non-performing assets as well as restructured standard advances of scheduled commercial banks is 10-11 per cent. Besides, an estimated 26 per cent of the total advances to the iron and steel sector are under stress.

In a presentation made to the Steel Ministry last week, companies said cheap imports and fall in prices of steel products are eating into their working capital funds and is impacting their debt servicing capacity.

That apart, investments to expand capacity has led to large borrowings and huge financial charges.

Appreciating the efforts taken by the government to help the sector, the firms in their presentation said that there is an "urgent need for a far more comprehensive relief (steel package) involving participation from all stakeholders, including the Banking sector".

The government has provided similar support to industries such as textiles and sugar, the presentation said. 

Under the package, the one-year moratorium will be a short-term measure to ensure continued operations, while various remedial measures are put into place.

Besides, segregating debt into Sustainable and Balance will help the industry in managing its financial burden. 

Sustainable debt will include long-term debt and working capital loans that are required to run the business as well as maintain cash flows to pay debt obligations.

The remaining - termed as balance debt - will be repaid over an extended period of time by converting it into redeemable preference shares with a nominal rate of about 0.01 per cent.

"Considering the financial position of the companies due to various factors beyond their control, the industry would require a comprehensive package for its survival," the presentation explained.