India produced 106.54 million tonne of liquid steel in the last fiscal and came second in the global ranking tally. However, at the same time we were a net importer of finished steel in the last fiscal and significantly dependent on overseas supplies for value-added steels.

If we keenly observe the overall steel product mix, the share of the value-added finished product is very low at ~ 8-10%. This is not only a major impediment in the growth of manufacturing, heavy industry, precision engineering etc. to thrive and achieve cost leadership but also a great contributor to the high capital expenditure intensity of the sector in the country and low economic viability of infrastructure and industrial projects.

India exported ~ 6.36 million tonne and imported ~7.83 million tonne of finished steel in the last fiscal. Neither the Indian steel sector is able to leverage its strengths and realize the export potential nor able to contain the imports. Eventually, we have to resort to heavy imports that results in huge trade deficit and supply chain risks.

Steel is the fabric of life. China realised this early and steel remains the nucleus of its manufacturing and overall industrial growth. In 1990, China’s steel production accounted for ~9% of the global production and today it accounts for around half of it.

The per capita consumption of steel, which is the direct indicator of industrial and human prosperity of a country, has not picked up in the country. In the Indian context, population has exhibited exponential growth while production of steel has grown linearly. India’s per capita consumption of steel at around 70 kg is one of the lowest in the world (particularly in the rural part ~ 10-15 kg) against a world average of ~ 210 kg.

Significant efforts and resources have to be directed towards leveraging the potential of the domestic steel sector. What the sector needs is an adrenaline shot and not incremental reforms for revival and survival. If we channelize the resources properly and work towards leveraging the export potential and containing imports, this industry can be a game changer for the national economy given its significant ripple effect.

In order to achieve these goals, we need to incentivize units producing high value-added steels with input support on imported raw material and key consummables such as coking coal, SMS grade fluxes, electrodes, advanced refractories and imported ferro-alloys etc. This will help absorb high conversion costs.

Steel projects are highly capital intensive in nature and a favourable economic scenario during the gestation period is critical for the success of these units and for best results till debt to equity goes below one. The issue of high project cost is further amplified by the lack of domestic manufacturing of critical plant and machinery, other capital equipment etc. Providing support on imported plant and machinery to export-driven mega steel producers (>2 MTPA capacity) will definitely scale up the production of quality steel. Additionally, improving road and rail connectivity in mining and steel clusters from pit to port and pit to end-use plants will bring down the cost of production.

Currently, there is not much of domestic demand for value-added steels because the focus is on reducing the immediate cost and not on the overall life cycle cost. The situation can thus be reversed by shifting this focus to longer life cycle of the product for which demand side incentives need to be created to produce value-added steels in the country.

Apart from the above, there is an imminent need to rationalize taxes across the mining and metals value chain, simplify the environmental clearance processes and lower the lending rates for heavy industries.

Shantanu Rai is a consultant at Niti Aayog

Disclaimer: Views expressed are personal

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