ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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STEEL-The Wrong Kind of Subsidy

STEEL The Wrong Kind of Subsidy S V Char THE Steel Development Fund (SDF) was begun in June 1978, when steel prices were revised upward by Rs 320 per tonne. Of the increase in price, Rs 100 constituted a surcharge on all steel items other than plates, structural, tin bars, and railway materials, specifically to be credited to the SDF. The 15 per cent mark-up again in April 1979, in the base prices of all the steel items, was also for the purpose of building up the SDF. The need for a fund of this kind was in fact felt ever since the Plant Modernisation and Development Fund (PM&DF) was wound up in March 1977. The PM&D Fund and similar funds preceding that were operated by crediting to them the difference between the retention price and the selling price. When the government gave up the retention price system itself in March 1977, the PM&D Fund lost the basis on which it could be computed. The retention price was the ex-works price. It included the cost of raw materials, operating charges, labour, overheads, depreciation, interest, as well as a return on the gross block.' Excise duty and railway freight were added to derive the selling price. In fact, however, the selling price included an additional margin over and above the excise duty, the railway freight, and at one time a surcharge (which' was abolished in 1964), Consequently, the difference between selling and retention prices did not all go to the government and the railways. After statutory control on steel prices of all categories was removed in October 1973, the actual realisations were relatively higher. So also were the amounts credited to the PM&DF.

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