The Hindu Business Line : Long on ambition

BY CLEARING THE National Steel Policy on Thursday, the Government has sought to prioritise attention on the industry that is in a state of transition globally. In the last few years, there has been a gradual shift in production and consumption centres from the traditional locales to the fast-growing and emerging economies of Asia and if the Indian steel industry can exploit the potential, it can emerge one of the leading producers and suppliers of steel in the international market. The domestic environment too is supportive of increased steel consumption, with the economy on a seven per cent plus trot coupled with the renewed emphasis on infrastructure development. After it was deregulated in 1992, the steel industry has seen some rapid capacity expansion, production growth and exports. Yet, the growth of this sector has not been at the desirable pace. Its current production capacity is estimated at around 38 million tonnes and the objective, as stated in the National Steel Policy, is to raise it to 100 million tonnes over 15 years.

The new policy seeks to address the major constraints to the growth of domestic steel manufacturing — high capital cost, lack of adequate physical infrastructure in transportation of raw materials and finished products, high cost of energy and paucity of high-grade iron ore. In trying to do all this, the Ministry of Steel — which piloted the policy — may have over-reached itself. To take an example, on energy pricing, the draft policy put out by the Ministry speaks of setting up a task force to suggest to the "concerned authorities" an appropriate or special pricing formula for natural gas for DRI (directly reduced iron) units which use natural gas as an essential input. Now, with the oil and gas sector open to stiff competition, it is a moot question whether the public sector companies would be willing to take on another subsidy burden or whether the Government has the power to force private players to lower the price of gas. Similarly, the Steel Ministry talks of making efforts to facilitate power supply to steel units at favourable prices.

For the steel industry, iron ore is a core issue, especially with a spate of proposed investments in the sector by companies such as Posco of South Korea and the global major L. N. Mittal group. Allocation of captive iron ore mines by States to these proposed steel plants has disturbed existing and prospective domestic steel manufacturers, besides lending a political colour to the whole issue. Soon, the Central and the State governments will have to work together to frame a new iron ore allocation policy if fresh investments are to flow into steel manufacturing. The latest effort by the Steel Ministry in framing a National Steel Policy is not the maiden one. But what is significantly new is that the economic environment under which the latest policy has been formulated is vastly different from the command and control system of the past and in this new system, the Government can do precious little but create a favourable policy environment which encourages investment. In this context, the new National Steel Policy does look over-ambitious.

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