The Hindu Business Line : A deal cast in iron

With the management of Anglo-Dutch steel major Corus recommending the acceptance of the Tata offer to buy out the entire share capital of the company, the process of consolidation of steel-making capacities of the two groups has taken a decisive step. True, the move will have to pass legal and regulatory muster in the UK. Also, even at this stage there could be some new competitive bids although that seems somewhat unlikely with the Corus management's assertion that it had sounded out a few others, thus placing the Tata offer as the best. Though far from being completed, there is no denying that it marks yet another milestone in the process of restructuring that the global steel industry has been going through.

Traditionally, companies see in such alliances a great deal of synergy across many facets of their operations. But even if such synergies did not exist in the instant case, that the largest single producer and its nearest rival have come together (the Mittal Steel-Arcelor deal) would itself generate a momentum for other companies in the industry to think of consolidation. All the more so in an industry that has a record of cyclical movements in financial fortunes and suffers from chronic over-capacity. When one of the players (Corus) has just emerged out of a painful process of struggle for survival, it becomes a ready acquisition target. That this is the era of global alliances in the steel industry is reinforced by the announcement on Friday by two other majors, Nippon Steel and Posco, that there would be a further strengthening of cross-holdings in each other's capital. Indeed, the steel industry is merely following the trend set by the auto sector that is also undergoing ownership restructuring as a fallout of global competition.

By this one single deal, India would have effected an overseas investment that would be twice as large as the average annual inflows into its own economy. This is not just a tribute to the entrepreneurial capacities of a domestic industrial combine. It is in a sense symbolic of the unleashing of India Inc's animal spirits. As such instances multiply, the impact would be felt across many facets of policy formulation. For instance, an obvious policy dilemma that the latest development poses is: How far are our xenophobic concerns about foreign capital justified if we want our businesses to enjoy a level field in investments abroad? Then there has to be the recognition that economic diplomacy now acquires a whole new tinge with the market for Indian capital layered upon the traditional concerns for market access to Indian goods.

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