The overall recession had an adverse effect on the steel trade, which has been already dwindling during the past few years. The volume of steel handled by steel traders has been reducing with the passage of every year. Particularly in the big cities like Mumbai, Calcutta, Delhi etc. The continuous fall in the prices have resulted into heavy losses to stockists. Besides, cash crunch compelled consumers to make unduly delayed payments to their suppliers resulting it into payments crisis in the market. Most of the steel producers with keen competition amongst themselves are trying to eliminate the middle man i.e., traders and are trying to supply material directly to the actualuser. Several main and secondary steel producers in order to cut down their distribution cost endeavored to reach most of the customers, by-passing the trade channel, specially in the Mumbai market, which happens to have the highest operating cost. The amendments in the Modvat credit scheme whereby the traders could pass on credit only up to two stages as against indefinite earlier and have not been allowed to pass on Modvat credit on material purchase from the induction furnaces and rerolling mills have also been responsible for reducing the share of trade in the distribution of steel. In the absence of the Modvat credit, Traders cannot supply material to the such consumer who need Modvat credit benefit.

In a representation made to the Central Board of Excise & Customs, steel Chamber of India (a premier organisation of steel industries), has made various suggestion in respect of Modvat credit scheme relating to the dealers. Chamber has suggested that dealer's stages should be extended up to 4 stagesinstead of present two stages, sale in transit between dealers (under rule 57GG) should be allowed. At present, sale in transit is allowed on invoice issued under rule 52 A and only between a manufacturer, dealer and actual user. Chamber has also suggested the board that one set of invoice book (Modvat - table invoice) of a dealer should be pre-authenticated up to the second stage before the book is put to use, instead of present practice of post- authentication of each invoice before the goods are despatched. Chamber has also suggested in its representation that Registration of a dealer should be done on the basis of his registered office premises instead of present requirement of Office and godown or storage facilities.

In Mumbai, exorbitant handling rates charged by the Registered Workers of the Bombay Iron & Steel Labour Board also contributed to the falling quantum handled by the traders in Mumbai. This is another major reason of flight of trade from organised steel markets in Carnac Bunder,Darukhana, and Kalamboli. The handling and loading charges in these markets are several times more then the rates prevailing anywhere in other Metropolitan cities. Market sources complain that while traders were trying to survive on a meagre margin of one per cent to two per cent, handling cost is coming to around one per cent to three per cent (between Rs 150 and Rs 500 per tonne). The result has been that very few dealers afford to store the material in their warehouse.