The new government is faced with an uphill task of formulating reforms and policies to revive the economy. Growth has declined sharply in the past few years, with the GDP falling to a meagre 4.4% in 2013.
Economic growth is dependent on flourishing manufacturing and infrastructure sectors, which in turn are dependent on core industries such as steel.
To achieve 7% growth, the steel sector is expected to grow at 8 to 10% per year.
In order to achieve the infrastructure growth target set by the 12th Plan Document, the steel industry would need to grow at a significant pace. The manufacturing sector has been experiencing negative growth (-0.8%) in FY14. However, in order to support the government’s focus on developing National Manufacturing Industrial Zones (NMIZ) manufacturing’s contribution to GDP would have to reach 25%. This would provide a much needed impetus to steel industry.
Policy reforms for the steel industry
Raw materials: Ensuring adequate supply of raw materials such as iron ore and coal is essential for the steel ministry to realise its target to produce 300 million tonnes (MT) of crude steel by 2025–26. Extraction of ore will have to increase by at least another 50% to meet the iron ore requirement.
Efficiency: The introduction of advanced scientific mining and exploration techniques are essential to accurately map raw material reserves. The mines ministry has expressed a need to enhance mineral exploration efforts of the GSI, and to digitise this data along with private reconnaissance efforts. It is also necessary to establish “core enablers” for mining by way of enhancing infrastructure, human capital and technology to bridge gaps in the extraction, beneficiation and utilisation of raw materials.
Renewal of mining leases: Captive mines are a fundamental requirement for long term sustainability of integrated steel plants. State governments should make considered effort to grant renewals based on the fulfillment of necessary conditions. The iron ore leases have been pending for renewal at the state level for a considerable period of time despite the fulfillment of all necessary conditions. All efforts should be done by concerned states to renew these leases on an urgent basis to remove uncertainty and speculation.
Export of iron ore: There is also a need for the new government to review the export of raw ores. The value added by exporting steel over iron ore as a raw material is greater and policy should therefore take these considerations into account. The decrease of iron ore exports will also help keep price volatility in check. This will be a significant as raw materials contribute significantly towards the costs of steel making through the blast furnace route.
Taxation: The import of industrial machinery, process plant equipment, construction and mining equipment for the steel industry attract Central Value Added Tax (CENVAT), which raise the cost of the finished product. The excise duty cut on small automobiles, as announced in the interim budget in 2014-15, was a welcome move for the steel industry. There is a need to maintain this momentum and look comprehensively at the revision of excise duty for steel products particularly on constructional steel.
Approvals and clearances: The process for acquiring land for industrial and infrastructure projects under the current law is extremely tedious and is a major impediment for initiating projects in a time bound manner. In addition, land acquired in rural areas requires compensation four times its market value. In urban areas, this figure is double the market value. In order to support industry, the government should perhaps consider long-term leases for certain projects instead of outright acquisition, as well as realistic and fair compensatory mechanisms to accurately conduct land transactions. In addition, the initiation of land acquisition process by itself should be sufficient for consideration of projects for grant of environmental clearance.
The new government’s initiative in moving environment and forest clearances online is a promising step towards building a single-window clearance system, so that the viability of projects is not hampered. Additionally, the environmental clearance process should provide preferential treatment to those companies which follow internally acclaimed best practices, on the lines of similar customs followed in the construction and chemicals industries.
Way forward: It is a widespread hope in the mining and steel industries that the new government will bring much needed clarity and relief on vital issues such as the availability and effective utilisation of raw material in the steel industry. Raw material security in the long-term needs to be established for the steel industry in India. Growth in the steel industry remains heavily dependent on favourable policies and approval mechanisms.
source: Financial Express