Naveen Jindal, chairman of Jindal Steel and Power Ltd (JSPL) and a former Congress Party parliamentarian, is an unhappy man. It’s not that he doesn’t appreciate the measures the National Democratic Alliance (NDA) government has recently taken to bail out a once-thriving domestic steel industry. He acknowledges the government’s role.
Right from anti-dumping levies to safeguard duties to minimum import price on 66 types of steel products (back in February, the list included as many as 173)—a lot has been done to give some breathing space to the domestic steel makers grappling with cheap imports from China, Japan, South Korea, Malaysia, among others.
Jindal’s cause of concern lies elsewhere, though. “Even at the time of Independence, we were making more steel than China. And today, some 70 years later, China is producing 10 times more than what we do. Still, we can increase our capacity by three times in the next 10-15 years if it’s required,” he muses.
What the industry leader does not reveal is perhaps the biggest worry of a country that claims to be the fastest-growing large economy in the world whose gross domestic product (GDP) grew 7.6% in financial year (FY) 2015-16. The anomalies are stark. For one, in spite of the enviable growth numbers, per capita consumption of steel is as low as 60kg compared with the world average of 216kg, and hence a laggard production system that’s lacking China’s drive.
Second, India is known for high-cost steel production. Even in the face of cut-throat global competition, a lean model leading to low cost of production seems a far cry. A case in point being the hot-rolled steel costing around $330 a tonne in China, around $480 a tonne in India and at least $500 per tonne in the US.
However, before announcing the death knell for the steel sector, its legacy may help us understand the situation better.
From smelter to boom
India’s steel industry has come of age since the country’s liberation seven decades ago. Possessing a small but viable steel capacity of around 1.3 million tonnes (MT) per annum at the time of Independence, India overtook the US last year to become the third largest producer of crude steel after China and Japan, according to data compiled by the World Steel Association. The country’s provisional crude steel production capacity stood at 118.20 MT as on 31 March 2016.
As in many sectors, commercial production of iron and steel took off during the pre-Independence era with the Tata group setting up the Tata Iron and Steel Co. Ltd (Tisco) at Sakchi (now Jamshedpur) in 1907. Tisco’s original plant was engineered and constructed with American assistance to produce 35,000 tonnes of pig iron and 50,000 tonnes of saleable steel. Next came the Indian Iron and Steel Co. Ltd (IISCO) in 1918 while Mysore Wood Distillation and Iron Works started operations at the same time. Mild steel production was commenced in the latter in 1936 and the firm’s name was changed to Mysore Iron and Steel Works. It was later rechristened as Visvesvaraya Iron and Steel Ltd, or VISL.
After Independence, the government focused on all core industries, including iron and steel, thus leading to increased public sector investments, enhanced production and new manufacturing units.
In 1953, agreements were signed to set up the first integrated public sector steel plant (with a capacity of 1 MT per annum) at Rourkela in Odisha with collaboration from the erstwhile West Germany. Three years later, two more pacts were signed for setting up steel plants at Bhilai (with assistance from the erstwhile USSR) and Durgapur (with collaboration from the UK) having similar capacity. A new plant at Bokaro, with a capacity of 2.5 MT per annum, went into production in 1973-74 while another facility at Salem in Tamil Nadu went live in 1972. The government also set up Hindustan Steel Ltd (HSL) for the supervision and management of these facilities. Also, with capacity augmentation happening across these plants in phases, the total crude steel production capacity of HSL rose to 3.7 MT in 1968-69 and subsequently to 4 MT in 1972-73.
But there was more in terms of quality and capacity building. India’s first coastal public sector integrated steel plant, Rashtriya Ispat Nigam Ltd, or RINL (also known as Visakhapatnam Steel Plant), came up in August 1992. It had a capacity to produce 3 MT of liquid steel per annum, which is currently being expanded to 6.3 MT per annum.
Keeping in mind the complexity of a fast-expanding infrastructure sector, the then-ministry of steel and mines formed the Steel Authority of India Ltd (SAIL) in 1973 as the holding company to manage the industry. SAIL had an authorised capital of Rs.2,000 crore, and was made responsible for managing the five integrated steel plants at Rourkela, Bhilai, Durgapur, Bokaro and Burnpur, as well as three special plants—Alloy Steels Plant in Durgapur, Salem Steel Plant and VISL. In 1978, SAIL was restructured as an operating company.
According to information available on the website of ministry of steel, during the first two decades of planned economic development—1950-60 and 1960-70—the average annual growth rate of steel production exceeded 8%. But during 1970-80, the growth rate fell to 5.7% per annum and then went up marginally to 6.4% per annum during 1980-90.
With liberalisation came the dismantling of the licensing regime, and iron and steel got taken off the list of industries reserved for state-owned firms. The benefits were many. Compulsory licensing was scrapped, prices were progressively deregulated, foreign investment up to 74% was allowed, and import duty on capital goods was lowered.
This paved the way for private entities finally entering a heavily controlled industry segment. Among these, the most significant are JSW Steel Ltd, Essar Steel Ltd, Jindal Steel and Power Ltd (JSPL), Bhushan Steel Ltd, Electrosteel Steels Ltd (ESL) and Usha Martin Ltd. While the new companies courted cost-effective, state-of-the-art technologies from the very start, the state-run companies opted for modernising and expansion as well.
Beginning 1991-92, production rose from 14.33 MT to 21.4 MT by 1995-96 and to 29.27 MT by 2000-01. Since then, it has been a roller-coaster of sorts, with periodical booms and slumps, but the industry entered a new development stage back in 2007-08, riding high on a resurgent economy and a rising demand for steel.
Source: VCCIRCLE