The steel sector and allied industries employ 6 lakh people directly and 13 lakhs indirectly in India. It is valued at over 100 billion dollars and contributes around 2% of the GDP of the country. India has become the third largest producer of steel with 89 million tonnes of production overtaking US in 2015 after China and Japan.
However, the steel sector in India faces major issues and seeks structural reforms. What reforms can be accommodated to bring India at the forefront of steel production in the world?
Steel Sector | Background
- When there was a decline in global consumption of steel largely in steel producing nations like China, Japan, US, Russia in 2015, India saw a growth of 4.5% in comparison with the previous year.
- With the economy largely focusing on growth of infrastructure and construction sector, the consumption and demand of steel is set to grow.
- Until 2 years ago India was also the third largest consumer of finished steel in the world.
- The country has been importing total finished steel every year since 2007-08 with the exception of 2013. Besides this, India also remains world’s largest producer of direct reduced iron or sponge iron.
- The sector has been adversely impacted by global steel glut which led to predatory pricing and a surge in steel imports in recent years. This has also led to flooding of domestic market with cheap import from China, Korea and Japan impacting sales and profits.
- To address majority of these concerns and create a globally competitive steel industry, the Government has come up with a new steel policy.
Steel Sector | Reasons for decline
- Some of the raw materials in abundance are suddenly in short supplies like the Goa Iron Ore Mines were shut down by the Supreme Court order, Karnataka mines are facing huge problems and in Odisha there are capacity constraints on mine production imposed.
- Demand for steel in India has been good in the past few years but the effect of demonetization is still not known. Real estate, construction and cars are one of the major consumers of steel and these sectors are affected by demonetization. Revival in these sectors will take some time.
- External factors are operating at various layers and various sectors. The demand of steel is down globally due to which in China that is the largest producer, the steel companies are in great trouble. Some of them are closing down and selling off. Some of them are also selling at a discounted and distressed price due to which Indian steel makers are finding it difficult to sell in the same nations where China is undercutting them.
- China is also undercutting imports and exports to India because of which the domestic steel producers find it difficult to sell even domestically at a good price.
- Though anti-dumping duty is imposed still the Indian industries are not as competitive as Chinese imports. A country as a part of global economy where steel is a decontrolled sector; these problems do arise and have to be negotiated.
Steel Sector | Reforms suggested
- India can be a net exporter of steel of all kinds if there is better research and development.
- Government should look at policy issues while implementation and day to day issues should be looked up by an independent regulator covering all the inputs and outputs of steel industry.
- It has to strategize its raw materials like iron ore and coke carefully with steel production units. These two materials constitute about 75% of the cost of total steel production.
- India produces metallurgical coke but the quality of it is poor and has high ash content not suitable to the technology deployed. Setting up of washeries by organizations by Coal India is a must which should be done. The washeries can be easily subsidized to be set up rather than importing coke.
- The export of iron-ore should be penalised in the form of duties and anti-dumping duties should be further employed to regulate indiscriminate imports of the finished product i.e. the steel.
- Government should encourage private participation in its ‘Housing for All’ and other flagship schemes such as railway track expansion to raise the domestic demand for steel.