Elusive price variation clause cripples fabrication units

Ancillary units are unable to absorb the impact of the drastic rise in the cost of raw materials

Published - June 02, 2022 08:47 pm IST

The recent reduction in the price of steel by a few thousands of rupees per tonne has not meant much for the fabrication units. 

The recent reduction in the price of steel by a few thousands of rupees per tonne has not meant much for the fabrication units. 

The Tiruchi region seems to have lost its hold on the recognition it had attained as one of the best fabrication hubs in South Asia, due to the inflationary impact of the COVID pandemic.

Hundreds of industries - most of them ancillary units of Bharat Heavy Electricals Limited (BHEL) - that were already in the red due to the shift from thermal to renewable energy, have been closing down at a worrisome pace due to a steep rise in the cost of steel. The recent reduction in the price by a few thousands of rupees per tonne has not meant much for the fabrication units. Only 25% of the capacity to manufacture seven metric tonnes per annum has been put to use. "This is a criminal waste to our State and our country," said Rajappa Rajkumar, president of BHEL Small Industries Association (BHELSIA).

The cost of the highest-quality steel coil has reduced by about ₹6,000 per tonne from ₹82,000. But the industries are still unable to overcome the barrier of the price variation clause, Mr. Rajkumar said.

Ancillary units were anticipating a meaningful reduction of the price by steel industries following the cut in import duties, said S. Gopalakrishnan, Secretary of the Tiruchi District Tiny and Small Scale Industries’ Association.

The incentives of the Central government, implemented during 2021-2022 to tide over the impact of COVID-19 could, to some extent, support sustenance of the ancillary industries that were on the verge of closure. However, the industries are still in a fix, as they had taken orders from BHEL for meagre margins, just to remain operational in order to provide jobs for their workers.

Having made a representation to the BHEL Corporation to cancel and refloat the tenders in the context of the sudden rise in the cost of steel, a delegation from BHELSIA recently called on Minister for MSME Narayan Rane and submitted a memorandum for safeguarding the interest of MSME units. The delegation made a fervent plea to the Minister to control the prices of raw materials, and to advise public sector undertakings, including BHEL, to cancel the orders placed on its vendors without levying any penalty, considering the steep increase in the cost of raw materials.

For the first time in two years since BHEL cancelled the Annual Contract System, which had the price variation clause, the ancillary units have been pushed into a state of desperation, as they are unable to absorb the impact of the drastic rise in the cost of raw materials.

Representatives of MSMEs had also reached out to the Union Steel Ministry with a plea for the restoration of the annual rate contract system with the price variation clause to uphold the spirit of 'Atmanirbhar Bharat'.

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