India’s Steel Industry Needs Transformational Reforms

NEW DELHI – Current dismal conditions plaguing India’s struggling steel industry can only be addressed if the government introduces a transformational reform programme and stop tinkering with present policies, a study by the National Council of Applied Economic Research (NCAER) has said.

 

It said that the potential existed because India’s steel industry was comparatively younger while those in other major economies were ageing. “While many old steel producers are struggling with the difficult task of retrofitting, India as a late- comer has the advantage of leapfrogging to the latest technology that is efficient and eco-friendly. If India’s economic growth accelerates, the production of steel should increase by several hundred million tons over the next few decades,” the report said.

 

Low profits, low capacity utilization and dim prospects of new private investment, either foreign or domestic have become a bane of the industry, which has also been hit hard by the devaluation of the yuan in August that fuelling fears of dumping of Chinese steel in the Indian market.

 

The steel industry is also battling with issues such as suboptimal system of mineral allocation, inadequate exploration of mineral wealth, inadequate availability of skill manpower, high cost and low quality logistic facilities and inadequate progress in meeting the environmental standards expected of a modern steel industry.

 

“If the high potential of the steel industry in India is to be realized, the government must introduce a transformational program for the industry. Mere tinkering with the present policies and exhorting greater effort will not achieve much,” the study said.

The NCAER study finds that the steel industry is constrained not just by the usual supply- side factors, such as availability of land or minerals or environmental clearances, but also by inadequate demand and several other macroeconomic factors. The study identifies several roadblocks hindering the resurgence of the Indian steel industry. These are: demand deficiency, decline of trade competiveness and surge in imports, financial fragility, excessive taxation, stalemate in land acquisition, delays in project implementation.

It said while there was much excitement about the ‘Make in India’ program launched by the new Modi government, the steel industry was being missed out from the scheme of things, as the manufacturing sector was yet to pick up.

The hope is that the rate of growth of manufacturing will accelerate and the share of manufacturing in GDP, which has been stagnant at about 15 per cent for the last three decades, will increase to 25 per cent. Unfortunately, the performance of the manufacturing sector during 2014-15 has been below expectation.

The rate of growth of industrial production during the year has been only 2.3 per cent, much below the growth rate of GDP. There is considerable excess capacity in the manufacturing sector, and private corporate investment is not yet showing signs of a strong resurgence, the study said

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