‘With GST, supply chain can become more efficient’

With the five NPA steel accounts being heard NCLT accounting for almost ₹1.41 lakh crore, the debt-laden steel industry has hogged the limelight more than the Insolvency and Bankruptcy Code under which the Reserve Bank of India is trying to unwrangle the debt issue in the industry. Though burdened by high debt, Tata Steel has done well to stay afloat and is now looking better with steel demand reviving. TV Narendran, Managing Director, Tata Steel, spoke to BusinessLine on way ahead for the company. Excerpts:

How do you see the high debt levels in the steel industry?

Cyclical nature of steel business is itself a big challenge. Like in any cyclical business everyone over-reacts at both ends of the cycle. When things are good they think it is fantastic and when things are bad they over do it. Companies in this sector over invest in good times and under invest in bad times. It is malice of this industry. But if I look at it globally, the period between 2002 and 2010 will not get repeated in a hurry. I say ever, because I cannot think of any country that can add demand like China did over the last decade. India is the only country which has the population to do that but China model was different. They can build bridges and factories wherever they want, we do not work like that. India's National Steel Policy is based on certain growth forecast and other steel consuming sectors performance. Ground level economic activity is picking up. In fact, demand had picked up last year itself but demonetisation has put things off track for some time. Private sector investment is expected to follow government spend on infrastructure. They have over invested in the last ten years and there is going to be a bit of hesitancy. Compared to rest of the world India is in a much better position, but rest of the world is also catching up.

How long will GST roll out impact persist on corporates?

Bigger players are better prepared. The impact will be felt in organised sector bit more. The impact should settle down in a month or two. Anyway June and September quarter is a slow quarter for steel sector because of monsoon. If GST has come in December or March quarter it would have cost more pain. Last two months, we insisted our vendors to get registered. Unlike demonetisation when everything went off, there will now be some guys who are prepared. I was more worried on our supply side rather than sales side. But they are ready now. Recently, there was expectation that GST roll out may be put off, but good that the government stood its ground. If you keep pushing the date it will never happen. There may be turmoil initially, but things will settle down.

What are the challenges on supply side?

We have about 10,000 vendors. Unless they are registered on GST, we will not be able to deal with them because we have to get GST credit. Over 70-80 per cent of our vendors have already registered with GST. May be it was 30 per cent a month back. Even if some 10 per cent are not registered with GST, they will lose business from this month. Our steel plant will not stop for want of GST-compliant suppliers.

How do you see the clause of buyer being responsible for seller’s GST payment?

I assume the system puts a check on misuse of this clause. The way the government is running it, I do not think it will be easy to manipulate to produce GST-compliant bill without paying GST. However, you can never underestimate the ‘creativity of people'. They always come up with new ways and new methods.

Will logistics come down with implementation of GST?

The supply chain can become more efficient. For long, companies opened stock yards to do local billing. If you are in Indore, it will be better for me to send steel from Jamshedpur to Nagpur and truck it to Indore from there. In the earlier scenario, I would open a stock yard in Indore, so that I can bill the customer locally and optimise on tax. It would mean extra cost on handling, damage, holding inventory and running the stock yard there.

The second challenge is predictability of reaching goods to customer on time given the condition of roads and delays. Twenty years back, we planned to have one mother stock yard and four hubs to serve the whole country. Today, we have 30 stockyards. We see this number of stockyards coming down to 15 with the road infrastructure improving and GST coming in. In a country of high capital cost, it is a crime to waste money on inefficient logistics system. We paid ₹40 crore a month as demurrage charges for importing iron ore three years back. It was not that the ship owner was making money. The ship was burning fuel because it could not get a berth.

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