New Delhi: Government think-tank Niti Aayog has favoured creating independent regulators for steel and mining sectors in the country in a bid to make both industries profitable. The premier policy-making body has also pitched for a new and dynamic steel policy to bring the over $100 billion industry back on track as well as meet the target of 300 million tonnes (mt) capacity by 2025.

“Since steel is a deregulated sector, there is need for an independent regulator for effective regulation, which the sector presently lacks," Aayog said in a working paper. “Also, in the mining sector, though National Mineral Development Corporation (NMDC) should act as a regulator, it itself is engaged in iron ore mining, which may create conflict of interest. Therefore, a new independent regulator is required in the mining sector as well," it added.

About the deteriorating financial health of steel firms, Niti Aayog said firms have a huge debt load over the past couple of years due to the combined effect of supply and demand factors.

“Situation is quite critical as they are not even able to service their interest cost. There was an aggregate debt of 45,160 crore on the iron and steel industry in 2014, according to the corporate debt restructuring cell progress report, which has increased to 53,580 crore in March, 2016," it added.

The working paper—prepared by Niti Aayog Member VK Saraswat and Niti Aayog professional Ripunjaya Bansal—said share of stressed advances has reached 25%, of which 19% are restructured standard advances and 7% are non-performing assets (NPAs). It said the government has provided financial support to steel firms earlier in 1999 and 2003 while it is trying to support through Reserve Bank of India’s strategic debt restructuring scheme currently.

“Therefore, the steel sector, which has a long gestation period, needs long-term finance like pension funds, which have the capacity to withstand cyclical volatility of profits unlike funding from banks, external commercial borrowing (ECB) or capital markets," the paper suggested.

According to the think tank, mere changes in the National Steel Policy, 2012, will not benefit the sector, which over the last few years has been flooded with cheap imports from China, Korea and Japan impacting its sales and profit. This has also impacted its capacity to repay debt. “There is need for a new and dynamic steel policy. Seeing the current situation of the steel sector, it may be unlikely to achieve the targets envisaged in the National Steel Policy 2012 i.e. a capacity of 300 mt and production of 275 mt by 2025," it added.

“To bring steel sector back on track, mere tinkering in the present policy would not bring out a transformational change that is required." Aayog feels there is a need to examine the entire value chain associated with the industry—from raw materials to production of finished products—to discover the bottlenecks in the sector.