Rising steel cost deals devastating blow to BHEL’s ancillary units

The rapid rise in cost of steel is turning out to be the final death blow for ancillary units of BHEL in Tiruchi region that have already been battered by the economic slump caused by COVID-19 lockdown.

The much reduced number of ancillaries that have managed to weather the COVID crisis by making use of incentives by the Central government to reactivate MSME sector are finding the going rather tough and most of the units are staring at complete closure.

“The abrupt increase in the cost of steel from ₹40,000 to ₹47,000 per tonne has crippled the ancillary industries that take orders from BHEL for meagre margins just to remain operational in order to provide jobs for workers. The increase effected in the cost of the raw material at such a critical juncture is unethical,” president of BHEL Small Industries Association Rajappa Rajkumar said.

“We have made a representation to BHEL Corporation to cancel and refloat tenders in the context of the sudden rise in the cost of steel,” Mr. Rajkumar said, adding that the consequences will be disastrous otherwise for the surviving units.

For the first time in two years since BHEL cancelled the annual rate contract system, which had a Price Variation Clause, the ancillary units have been pushed into a state of desperation.

“In the past, we could absorb the impact when the cost of raw material was increased in the range of ₹500 to ₹1,000. The current extent of escalation in cost of steel is bound to cause complete closure of the ancillary units,” he said.

In a letter to Union Steel Minister Dharmendra Pradhan, district unit president of BJP’s Economic Cell V. Kannan says the huge rise in cost of steel has dealt a death blow to the surviving units that managed to function by utilising the financial incentives provided by the Central government to activate the MSME sector. The manufacturing activities in the ancillary units that have been executing pending orders for BHEL have now come to a standstill.

The Centre must intervene for restoration of the annual rate contract system with price escalation clause to uphold the spirit of ‘Atmanirbhar Bharat’.

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