Discriminating industries

Excised steel

Today’s steel prices:

A ton of 10 mm TMT bar manufactured in Bhutan (by Karma Steel, for example) costs Nu 39,000 in Phuentsholing.

A ton of similar grade (Fe415) 10 mm TMT bar manufactured in India (by SRMB, for example) costs Nu 42,900 in Jaigon, outside Phuentsholing.

    If you were a contractor, which steel would you buy? Bhutanese steel, right? All else being the same, TMT bars manufactured in Bhutan would be cheaper by Nu 3,900 per ton.

    But Punatsangchu Hydropower Project Authority contractors prefer Indian steel. Why? Because for PHPA, the government refunds the excise duty levied on Indian steel (collected in India by the Indian government, then transferred to the Bhutanese government). The excise rate for steel is 10.3%. And that seems to be enough to make PHPA contractors prefer TMT bars manufactured in India over those produced in Bhutan.

    PHPA’s demand for steel is huge. And that demand will get even bigger – much bigger – as construction on the other hydropower projects also begin.

    This massive surge in demand for steel should come as good news for our industries. It doesn’t. Instead, our steel manufacturers are disappointed.

    I am disappointed too. And I am confused.

    Ideally, our government should favour our own industries over foreign ones. That, in fact, is what every country tries to do. But if, for whatever reason, that isn’t possible, our government should at least not discriminate between goods produced in our country and those that are imported.

    And under no condition – no matter what – should our government discriminate against national companies by favouring foreign products. But that, unfortunately, seems to be what’s happening at PHPA.

    Our government refunds the excise duty paid on Indian steel. But it does not refund the excise duty paid on Bhutanese steel. (Bhutanese manufacturers pay excise duty in India when buying raw material.) So Indian steel becomes much more competitive. And our own manufacturers lose out.

    If our government must refund the excise duty levied on steel manufactured in India, it should also refund the excise duty levied on the raw material that is purchased by domestic steel manufacturers. Only then will the playing field be level. Otherwise, our manufacturers don’t stand a chance. And they may eventually go out of business.

    That won’t be good for the promoters – they’d lose money.

    That won’t be good for the employees – they’d lose their jobs.

    That won’t be good for the banks – they’d lose their investments.

    That won’t be good for the government – they’d lose revenue from business and personal income taxes.

    And that won’t be good for our economy.

    But that precisely is what’s happening. Bhutan Concast is almost bankrupt. They’ve shut their factories. They’ve let go of most of their workers.  And they may be forced to default on their loans.

    I’m disappointed. And I am confused.