Minerals Cess Will Have Huge Impact Across Industries, Says Tata Steel CEO

Levying cess on minerals has a huge impact across industries, as it will ultimately raise questions about companies' profitability, and investment capabilities, said T V Narendran, chief executive officer and managing director at Tata Steel Ltd.

The effective tax rates on minerals in India is highest among the world. Philosophically, if the tax is more at a nascent stage, there will be impact on motivation for production, Narendran told NDTV Profit in a televised interview.

Tata Steel Ltd. has kept Rs 17,734 crore aside for mineral tax after the Supreme Court ruling upheld the government's power to levy taxes on minerals.

"It's for governments to debate, in both centre, and state levels. It has a huge impact across industries: power, and as well as for consumers," he said.

Narendran sees volatility in prices of base metal in the international commodity market due to macroeconomic, and geopolitical tensions. "The volatility in base metal prices are much more right now compared to past. Events in middle east have a lot of impact on sentiment," he said.

US economic growth needs to be watched. In case, it stays robust, it will act as a good engine for metal prices. China also continued to consume around 900 million tons per annum in the domestic markets, which cannot be ignored, according to Narendran.

However, Chinese exports have been creating pressure on steel prices in the market, he said. "China continues to export about 100 million tons a year at prices that they don't make money, hence that's putting pressure on the rest of the industry. That's a concern."

Restructuring of Chinese economy is happening in such a way, that construction activities are coming down, and other industrials like capital goods, automobile are doing good. But, construction is around 60% of demand, so markets are seeing the impact on steel consumption.

In the second half of the year, Narendran expects Chinese capacities will start shutting down because they are losing a lot of money already. China does cut production to control pollution so that will also play out. Thirdly, some of these exports will come down because enough actions are being taken to curb Chinese exports, he pointed out.

India's demand remains stable and is likely to rise once the country gets past monsoon. The country can also benefit from actions taken on Chinese exports.

Tata Steel expects to remain Ebitda positive in Netherlands, while business can be under stress in the UK as restructuring process is going, Narendran said.