If reports are to be believed, then the expert committee should be asked whether they have really understood the problems facing the steel industry. The domestic steel industry has seen a flat or a negative demand growth in the last two years. The supply-demand position is not that bad. There are two new entrants in the steel market this year in Jindal and Ispat. Still, a 10 per cent rise in demand for the next three years will make India a steel- deficit country in half the steel varieties.

Therefore, a 10 per cent rise in demand for steel products is needed coupled with a 10 per cent drop in raw-material prices, reduction of fixed charges for steel players, and reduction of imports. This is not utopian. Input costs can be reduced by more than 20 per cent, taking advantage of low coal prices, which can translate into lower power and raw-material costs.

Further, a 10 per cent demand for domestic conditions is only two million tonnes. Considering that a 1,000mw project needshalf-a-million tonne of steel, a port requires 1.5 million tonnes of steel, and refinery projects need a million tonnes of steel. Starting a few of these projects can sustain a 10 per cent rise in demand for the next three years and more.

But the Vasudev committee proposals seem to revolve around one basic notion, that is, some company in Turkemistan or Azerbaijan has managed to hold the entire steel industry to ransom by dumping products in India. Once we arrest imports, things will improve. The committee has suggested imposing special import duties on seconds and defectives, and extending DEPB rates to deemed exports status. With threat of cheaper imports, especially of seconds, dictating steel prices in India, the committee hopes to eliminate the same. In addition, by extending DEPB schemes for Indian buyers, the incentive for an importer becomes less. With such a provision, the buyer would not have to pay excise duty for purchases made under the DEPB scheme.

One does not dispute the fact that priceswill rise once the tariff barriers for imports are raised. Depending on the product, an immediate rise in prices of Rs 2,000 per tonne could be expected if a provisional anti-dumping duty of even 25 per cent is imposed. An additional realisation of Rs 2,000 per tonne could reduce the losses of SAIL by half, double Tisco's half-yearly profits, and help Essar meet some of its fixed charge. For new entrants like Ispat and Jindal, the additional realisation can help them give a notional breathing space.

Apart from a rise in prices, SAIL can benefit by producing more value-added items. In the last one year, the proportion of semis have risen in SAIL owing to imports of seconds and refills in India. Traditionally, SAIL's profits used to come from value-added products. If SAIL can utilise its capacities to produce value-added products owing to the rise in prices, then its production cost will go down, and at the same time, it will start earning higher margins.

But with most commodity prices ruling at their10-year lows, it won't be long before prices fall for lack of demand, making a mockery of the present proposals. It will be recalled that last year, in aluminium, LME prices were relatively high, and since Indian aluminium prices are linked to LME prices, there was plenty of scope for increasing prices for domestic producers. However, local producers did not raise aluminium prices because of slack demand. The same situation could be repeated for steel, in spite of duty protection.

Buyback of shares

By now, it is fairly clear that The Companies (Amendment) Ordinance, 1998, was poorly drafted. Slightly closer reading reveals several glaring glitches. For instance, the amended Section 211 will have two more sub-sections, (3A) and (3B). Sub-section (3A) of Section 211 provides that every P&L account and the balance sheet of the company shall comply with the accounting standards. Sub-section (3B) of Section 211 provides that where the P&L account and balance sheet of the company do not comply with theaccounting standards, such companies shall disclose in their P&L account and balance sheet: (a) the deviations from the accounting standards (b) the reason for such deviation and (c) the financial effect, if any, arising owing to such deviations.

How this is any different from what is the case even today? If the accounting policy of the company is not in accordance with the accounting standard/guidance notes of the ICAI or even SAP, the accounts are normally qualified, and the management's version is normally reflected in notes to accounts. The financial impact is also disclosed. Nothing more happens. Making accounting standards mandatory does not seem to change anything.

Other anomalies abound. The buyback is allowed through the open market route. If the option is exercised, payment will have to be made as per the settlement cycle. Does it mean that same period will be allowed for payment, if buyback is exercised through any other permitted route? Promoters will not be allowed to participate if thebuy-back is through the open market route. What does the term promoter mean? If one goes by the definition of `promoter' as per the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, some practical problems will arise because according to the definition, person or persons named in any offer document as promoters qualify as `promoters'. What happens in the case of a company where buyback is announced, and a person named in the offer document as promoter has resigned from the company? Will the person be not allowed to participate in buyback? These points need to be clarified.

With contributions from Manish Saxena and Urmik Chhaya