Enabling a Robust Scrap Industry – Need of the Hour

October 28, 2021

While the world leaders will be deliberating on climate change and biodiversity in the coming months in Glasgow and Kunming and many policies will be chalked out for meeting those trajectories or pathways for a better world which is decarbonised more than the past and more diverse in species than the past, there are many low hanging fruits which industry and policy makers can pursue. Expectations from India are also increasing especially in view of the announcement made by its neighbouring country China regarding achieving carbon neutrality by 2060. Resource stewardship is very well engrained in the Indian ethos and we have always been trying to do better in this area. This becomes far more important when the convergence of circularity, resource efficiency and sustainability is being tried by all stakeholders globally.

Steel is one of the most recyclable materials and widely traded commodities. While Blast Furnace (BF) – Basic Oxygen Furnace (BOF) route, using iron ore as raw material, has been the dominant mode of steel production in India, steel production using scrap is increasingly gaining traction given the focus on resource efficiency and circularity. As an integral part of the steel ecosystem, the secondary steel producers using Electric Arc Furnace (EAF) will therefore continue to play a major role in the coming days. In countries like USA, Spain and Mexico, the share of steel production through EAF route has been more than 60% while in Italy, Iran and Middle East, it is more than 80%.

As compared to the BOF route, the EAF route saves energy by 16%-17%, reduces water consumption by 40% and GHG emission by 58%. The National Steel Policy envisages expansion of Indian steel production capacity to 300 MnTPA by 2030, 35%-40% of which should be contributed by EAF route. Government of India has taken many steps like vehicle scrappage policy for making scrap available to the steel sector and is also working on making electricity cheaper and effecting tax reform related to scrap. These endeavours will go a long way in decarbonisation, resource efficiency and circularity.

Tax reform has been many a times focussed on emphasising low tax rate, imbibing information technology for compliance and widening the tax net. Introduction of GST has been a major successful step towards this end as GST has not only consolidated indirect taxes but has also brought many taxpayers, hitherto part of the unorganised sectors, under the purview of taxation.

Scrap industry is mostly unorganised. GST rate on scrap is 18%. There can be possibilities of non-compliance in correct invoice and the major effect of such non-compliance is disruption in supply chain. GST rate reduction (from 18% to 5%) will be a big motivator for scrap dealer to comply with the rules. It is important to note that scrap is not the final product and is ultimately consumed by the steel industry, and hence the rate reduction is less likely to result in any revenue loss for the government. Further, the low tax rate can also increase tax base, thereby increasing the tax revenue for the government while also enabling consistent supply of scrap to steel makers and helping them meet their objective of resource stewardship and circularity.


Chief Regulatory Affairs, Tata Steel

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