Recalibrating Trade Policy: The Rationale Behind India’s Steel Safeguard

In December 2025, the Government of India instituted a three-year safeguard duty imposing tariffs on select flat steel imports, signifying a substantial recalibration of its trade policy in response to mounting pressures in the domestic steel market. The reform followed a period of acute stress within the industry, where declining profitability, falling capacity utilization, and rising leverage persisted despite strong growth in domestic steel consumption. Initially introduced as a temporary stabilization mechanism, the government has decided to impose tariffs on steel imports permanently for 3 years. The safeguard duty seeks to stabilize prices, restore capacity utilization, and preserve investment incentives in a strategically critical sector. While large and mid-sized steel producers are likely to benefit from improved margins and market stability, downstream industries such as automobiles, construction, and capital goods face higher input costs. Consequently, the policy raises important questions regarding inflation, industrial competitiveness, and the trade-offs inherent in strategic trade protection.

State of The Steel Industry

In the financial year 2024-2025, the Indian domestic steel manufacturing sector was severely financially and operationally disturbed before tariffs were imposed. The operating profits were declining substantially for India's most notable steel manufacturers: from FY2022 to FY2025, JSW Steel’s operating profit fell from Rs. 40,538 crore to Rs. 23,598 crore FY2025, and Tata Steel’s operating profit declined from Rs. 64,275 crore to Rs. 26,839 crore. This erosion in profit margin was occurring despite increasing domestic steel consumption (10-11%) annually, suggesting that the industry was facing fundamental, structural difficulties.

Capacity utilization, an important indicator of the health of the steel industry, had dropped dramatically to levels not seen in recent years; yet this decline occurred in the same time frame that domestic demand for steel was growing at a high rate. This indicated that the steel mills were losing business to imported products because of their inability to match the price of imported products. Additionally, the increase in leverage ratios experienced by the leading steel mills, even though their profitability had been declining, was caused by the continued heavy investment in the expansion of production capacity by these mills. The steel industry’s structural vulnerabilities have rendered the total steel industry unable to support its capital investment pipeline or achieve a competitive position without government assistance. The confluence of profit margin vulnerability, low capacity utilization, and increasing financial leverage on the part of the leading steel mills had created an urgent need for policy initiatives to stabilize the steel industry.

Reasons for Imposition of Tariffs

The government’s decision to impose a 3-year safeguard duty on steel imports was grounded in the findings by the Directorate General of Trade Remedies (DGTR). In its final investigation report dated August 16, 2025, the DGTR concluded that there had been a recent, sudden, sharp, and significant increase in imports of steel flat products into India as a result of unforeseen developments that are causing and threatening to cause serious injury to the domestic industry.

The DGTR investigation confirmed the sudden surge in imports of 'Non-Alloy and Alloy Steel Flat Products,' used in various industries, including fabrication, pipe making, construction, capital goods, autos, tractors, bicycles, and electrical panels. Import of these products increased from 2.293 million tons during 2021-22 to 6.612 million tons during the period of investigation.

The investigation identified specific mechanisms of injury: price depression, market share erosion, and reduced profitability among domestic producers.

Price Depression: The DGTR cited evidence that foreign steel prices, which are substantially cheaper than those of domestic steel, have put downward pressure on domestic steel prices. The disparity between the landed costs of foreign flat steel products and the domestic mill prices is so significant that Indian producers are unable to defend their market positions without accepting lower prices.  This continued price pressure on domestic producers has made it impossible for them to pass on their cost increases to their customers, resulting in very low profit margins for steel manufacturers and creating a difficult operating environment for domestic steel producers.

Market Share Erosion: The increase in imports during the period has also led to the gradual erosion of domestic mills' market share. As domestic mill prices were being driven lower than they would otherwise have been by imports, many domestic mills lost sales to imported products, even though there was substantial growth in the consumption of domestic steel. The increase in domestic finished steel production during this time period was only 5% compared to an increase of 10-11% in the total domestic finished steel consumption. 

Profit Reduction: The interaction between the price depression and decreased volume has caused domestic producers to suffer, as they were not able to recoup their fixed costs in times of reduced sales volume, and their margin compression was reducing the per-ton revenue that producers were generating. The squeeze caused by the reduction in both firm profitability and revenue made it more difficult for domestic mills to meet their debt obligations and fund further capital investments.

The Trump administration reinstated Section 232 to impose tariffs of 25 % on steel imports in March 2025. In June 2025, this amount was increased to a 50 % tariff. As a result of these US tariffs, global trade diversions occurred, and China’s steel exports diverted away from North America and into Asia. India's use of trade remedies is consistent with the global precedent, including the United States, the EU, Canada, and South Korea, all of which imposed either steel safeguards or anti-dumping duties.

Policy Design

The government first imposed a provisional safeguard duty of 12% on steel imports for 200 days beginning April 21, 2025. This provisional measure was an emergency safeguard to prevent irreparable damage to the domestic steel industry. This provision lapsed on November 7, 2025, and on December 30, 2025, the government decided to replace this provisional structure with a 3-year permanent safeguard structure. The safeguard duty applies to flat steel products, which account for about 60 percent of India’s steel imports

India's safeguard duty was structured with a declining tariff mechanism designed to balance immediate protection with gradual market adjustment. Duty rates are initially set at 12% during the first year, decrease to 11.5% during the second year, and subsequently drop to 11% during the third year, ending on April 20, 2028. The phased decrease in duty rates conveys to the domestic steel industries the message that protective measures are for a limited time frame only, providing mills a stimulus to enhance their competitiveness within the immediate three-year trend of tariffs.

The policy uses price-based exemption thresholds to identify dumped goods sold as legitimate competition. Imports priced at or above specified cost-insurance-freight benchmarks remain duty-free. This provides an import mechanism for high-quality, premium products while being able to target only those products that have been purposely priced lower than their competitors. 

Developing countries with a small market share are exempt, while countries with significant shares will have duties imposed upon their imports. China will have duties applied to all covered product categories; Vietnam will have duties applied to certain segments of covered products, and Nepal will have duties applied to certain types of covered products. Developing countries with minimal import market shares benefit from exemption under this provision. This differentiation in treatment of countries is consistent with the Safeguard Agreement adopted by the World Trade Organization and applied under specified conditions.

What the Safeguard Structure Aims to Achieve

Reducing Imports: The primary objective is to curb the surge of low-cost steel imports flooding the domestic market. The government stated it is focused on reducing the number of shipments of low-priced products from China. The provisional safeguard duty demonstrated this mechanism: Steel imports declined by 13.5% year-on-year during January-November 2025, with sharp declines in finished flat products. As import volume restrictions were placed on imported steel through a safeguard duty, domestic mills are no longer under pressure to give up their ability to set prices. Imports are unlikely to stop entirely, but the duty could reduce overall steel imports by 20–25 % in FY26 and FY27.

Sustaining Price Hikes: The safeguard duty aims to restore domestic mills' ability to maintain and raise prices. According to market analysts, without the tariff, it was nearly impossible for the mills to implement any price hikes because they would be competing against continuous dumping from China. Meanwhile, the duty provides a floor price for domestic producers, ensuring price stability during a time when the price of steel in India has been flat or declining relative to previous quarters.

Market Stability: Before the imposition of the safeguard duty, cheap imports had forced mills to continuously accept lower prices than normal and thus could not recover their costs nor maintain planned margins. The purpose of imposing a safeguard duty is to restore stability by limiting the volume of disruptive imports while providing a price floor so that domestic producers do not have to compete below that price. By placing limits on sufficient competition from imports, this ensures that mills may establish production schedules, negotiate supply contracts, and provide capital commitments, thus having more confidence in the future returns from sales.

Strategic Self-Reliance: The tariffs align with Atmanirbhar Bharat’s vision of becoming resilient, self-reliant, and globally competitive. India's reliance on steel imports will be diminished as the domestic steel industry grows into a viable, profitable, and expanding source of steel-producing capacity. With tariffs encouraging the domestic steel mills to invest further into producing more product through continued enhancements of their capacity, technology, and ability, the amount of steel manufactured in India will grow significantly. The growth in available domestic capacity will decrease the dependency upon imported steel and, thus, reduce the dependency on imports.

Winners and Losers

Winners

Large and mid-sized integrated steel mills are the primary beneficiaries. Domestic steel price increases by approximately 1,500-2,000 rupees per tonne occurred in December 2025 and January 2026; the imposition of this tariff will immediately restore some pricing power to domestic mills and allow for this resurgence in price. Capacity utilization in the industry dropped from 85% to 74-78%. The implementation of this tariff will further raise capacity utilization levels back towards 82-85%, allowing domestic mills to recover lost market share from imports. With regard to the larger players such as Tata Steel, JSW Steel, and Jindal Steel, the reestablishment of profit validates their investment in expansion plans. Additionally, this tariff will help to prevent layoffs and reductions in workforce as the steel industry directly employs over 1 million workers. By stabilizing profitability, it will be possible to retain workers at many of the large mills and their respective mining operations.

Losers

Higher input costs affect the manufacturers of passenger cars, two-wheelers, and automotive components. Approximately 40% to 50% of the vehicle's total weight in a traditional vehicle consists of steel alone. Therefore, when the 12% steel tariff is implemented, this results in a corresponding 4%-6% increase in the manufacturing cost of the vehicle, which already faces a competitive margin squeeze in the price (sensitive market in India) due to competitive pressures. The construction industry uses a large number of flat sheets of structural steel for its projects. When faced with higher input costs, developers must experience an increase in project costs and subsequently, a delay in the project's completion date as they must re-evaluate project pricing. Similarly, manufacturers of machine tools, boilers, and heavy equipment also rely on the use of steel. As the price of steel rises, this, in turn, results in an increase in the retail price of consumer products that use a large quantity of steel: automobiles, appliances, hand tools, and building materials. In the end, it is the end-user consumer who ultimately faces these increased costs. The increased burden of inflation will fall disproportionately upon lower- and middle-income consumers who purchase these necessary goods.

References

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