The Hindu Business Line : To meet target of 110 mt by 2020 — Steel sector mulls raising Rs 8,000 crore annually

This is the amount that banks and other financial institutions will have to cough up if the steel industry were to meet the rather modest target of 110 million tonnes by 2020, set out by the Government.

With the current capacity at around 35 million tpa (tonnes per annum), among six of the industry leaders (SAIL, Tata Steel, RINL, JVSL, Essar Steel and Ispat Industries), if the country were to achieve its goal, it would mean the creation of an additional 75 million tonnes capacity over the next 15 years.

In other words, to add capacity at the rate of 5 million tonnes each year at a Rs 2,500-crore per million tonne cost outlay, the country needs to infuse funds to the tune of Rs 12,500 crore every year for the next 15 years.

At a debt-equity ratio of 2:1, this would call for funding from banks of some Rs 8,000 crore each year.

Over the next 15 years, the aggregate requirement on this front would be Rs 1,20,000 crore.

However, it is easier said than done, say industry watchers. As neither the Government nor the domestic banks have the depth for meeting the fund requirements that such huge capacity creations would call for, the answer could be a steel growth fund, where funds could be mobilised abroad. That could call for a sovereign guarantee for a certain period, as otherwise there may not be many takers to put money in India.

"Clearly, the Government may need to take a few hard decisions including raising the current level of iron ore mining.

"Then, it would need to decide whether the incremental returns from additional conversion of iron ore into steel justifies the kind of capital outlay that the country needs to make if it were to emerge a global steel manufacturing hub. One way or the other, the Government needs to decide," said a steel sector analyst.

According to Mr V. G. Raghavan, Director-Finance, Essar Steel Ltd, having been in the business of making steel for some 50 years now, India should not be exporting iron ore at all. Instead, it is time the Government decided to leverage the existing strengths of the steel industry and began adding capacities.

Meanwhile, the Government is reportedly mulling a Rs 10,000-crore special purpose vehicle, outside the budgetary allocation, to fund infrastructure projects in the country.

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