Hard choices

Protectionist policies will not help achieve a durable turnaround in the steel industry

To get the Indian economy firing on all cylinders, a turnaround in core sectors such as steel, power and energy is absolutely critical. The Centre’s efforts to overhaul the steel industry though a refreshed National Steel Policy 2017 are thus understandable. With an eye on the fact that steel production generates a GDP multiplier of 1.4 and employment multiplier of 6.8, the new policy lays down lofty targets for the steel sector by 2030-31 — more than doubling capacity from 122 million tonnes to 300 million tonnes, lifting per capita steel use from 61 kg to 160 kg, producing high-end products and reducing import dependence. To help the industry attain these goals, the policy even suggests support mechanisms on offtake, costs and logistics. But unless the global competitiveness of Indian steel is improved, without any external crutches, these targets will be hard to meet.

The policy document attempts to analyse the constraints holding back the Indian steel sector, and comes up with some solutions. To prop up domestic steel demand, the Centre will encourage the use of steel-intensive structures in its ‘Housing for All’ programme, and highway and railway projects, and attract foreign investments into infrastructure, ship-building and automobiles. All government tenders for steel have been mandated to give preference to domestic steel. To ensure availability of raw materials, transparent auctions of iron ore and coal mines, washeries and pelletisation plants and overseas mine acquisitions have been suggested. R&D on value-added products is to be undertaken on a mission mode. However, the actual willingness of the steel industry to take up massive expansion projects, and that of user industries to procure this steel, will hinge solely on commercial considerations. Here, there are several roadblocks. Presently, the global steel industry is burdened with massive over-capacity, with China alone looking to mothball over 150 million tonnes. This has triggered a price war between low-cost producers in China, Japan and Korea. The fact that the Indian steel industry is fragmented, with many small players using unviable technology, renders them uncompetitive.

Yes, the Government has been using minimum import prices, anti-dumping duty and compulsory BIS certification to shield domestic steel-makers from global pricing pressures. But for them to ratchet up exports, as the policy suggests, they will have to compete in the global marketplace. An industry used to protectionism will find it difficult to do so. Besides, ensuring high realisations for domestic steel-makers will unnecessarily peg up costs for engineering, construction, automobiles and defence, which are critical to the Make in India programme. The Centre should focus on reducing costs and removing raw material constraints for domestic steel-makers, rather than artificially propping up demand or supply. In the current global context, the capacity build-out is best taken in calibrated doses.

Published on May 09, 2017
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