The steel industry in India today
symbolises the general changes of a radical nature which have swept across
the economic scene of the country during the current decade. These changes
have been concerned primarily with the industrial and commercial sectors
of the country's economy. Following the introduction of a new industrial
policy in 1991,many industries, formerly reserved for the public sector,
were thrown open to the private sector and were removed from the requirement
of industrial licensing, i.e. it was no longer necessary for a private
sector organisation to obtain a licence to set up a manufacturing unit
for iron and steel. The control on price and distribution of the main producers
was also removed, as was the equalisation on railway freight which had
ensured that the same freight was borne by customers regardless of distance
from the manufacturing point. The import of steel was also removed from
the requirements of import licensing and canalisation and placed under
Open General Licence. The import tariffs on steel have been progressively
reduced over the years. The peak of rate of customers duty on steel has
been brought down from 15% in 1991-92 to 35% in 1998-99. These steps are
of some significance today, because the public sector industries of comparable
size and importance, also concerned fundamentally with basic growth-the
oil refineries and power plants-are only just beginning to see the first
stages of open market competition of the kind to which the steel industry
has been exposed for quite a few years.
For the old steel producing units
in the eastern and central parts of the country, which include the plants
of SAIL at Bokaro, Rourkela, Durgapur and Bhilai, its subsidiary TISCO
at Burnpur and the plant of Tata Steel at Jamshedpur, this has resulted
in exposure to competition from new plants which have come up on the west
coast. These plants on the west coast have certain locational advantages
by virtue of being close to the consuming market where cold rolled steel
is produced in large quantities and consumed again in the same part of
the country by the manufacturers of automobiles and white goods who have
a large presence here. The plants based in the west also have the shore
based advantage of importing inputs-particularly moulting scrap-and exporting
their finished products without incurring the expense of inland transportation.
The exemption from Sales Tax to these new units offers price advantages
vis-a-vis the old steel producing units.
The erection of the steel plant
of Rashtriya Ispat Nigam Ltd. (RINL) at Vizag in the Eighties created a
new regional location for a steel plant, this time in the south, enabling
it to gain from its shore based position on account of the critical imported
coking coal which lands close to its won site. A similar advantage is gained
for its exports. The south is becoming author centre of steel manufacturing
with the recent commissioning of the integrated steel plant of Jindal Vijayanagar
Steel Ltd. (JVSL) in Karnataka, Orissa was becoming a favoured place for
new steel projects but the recent stagnation of the economy and steel consumption
in particular, has caused many new projects to be put on hold. In the private
sector the major expansion in capacity in recent years- and most of the
proposed capacity now on hold-has been in flat products whose demand grew
with the growth of the automobile and while goods sectors, but there is
now a danger that this concentration on flat products will result in excess
capacity until industrial production grows at a much faster rate to absorb
the output from this capacity.
So far we have viewed the nature
of the indigenous steel industry in India and the way in which it has responded
to deregulation and liberalisation. With the years, the influence of the
global market has been gaining ground on India as is witnessed particularly
in the liberal import regime and the manufacture of foreign brands in automobiles
and other consumer products. The steel industry too displays its vulnerability
to the global market. The world wide commitment to free trade encouraged
particularly by western nations, led to the supply of low priced steel
from the CIS countries at the cost of the domestic manufacturers in these
countries. India was no exception and low international prices have gravely
constrained the financial performance of Indian steel manufacturers in
both public and private sectors. The collapse of the South East Asian economies
in 1997 added to the troubles in a stagnating international steel market,
both through reduced demand and through devaluation of currencies which
led to lowering of prices in dollar denominated exports. Ultimately both
the USA and the European nations are reacting through protective moves
against the dumping of steel. The USA has already imposed punitive duties
and successfully pressurised Japan and South Korea to reduce the volume
of steel exported by them to USA. The European Union is emerging as a regional
centre in the world where its own currency the Euro has now been floated
and where a common market without borders is designed to increase trade
within the region. The South East Asian market is emerging as an entity
with common economic features among its constituent nations. The balance
of steel production is shifting towards the east. The share of Asia (excluding
Japan) in world steel production rose from 16% in 1990 to 25% in 1996.
Both China and South Korea are major producers and China has for many years
been one of the top steel consumers in the world. India is also being seen
as a growing producer and consumer of steel but the recent recession prevalent
since 1997 had dampened the promise of 1994-95 and 1995-96 when steel demand
saw exceptional growth in the range of 15-20%.
Exposure to competition represents
one of the significant features of the Indian steel industry during its
liberalisation phase introduced from January, 1992. This has happened on
two fronts. With the withdrawal of licensing requirements, a large number
of investment proposals, mainly in the flat sectors, were attracted by
the possibilities of comparatively fast growth of the economy. These expectations
were confirmed by the excellent performance in the initial years following
the liberalisation, with growth in the steel sector peaking at 17% in 1995-96.
The second factor was the exposure to external competition. In a growing
economy-growing demand is expected to take care of the internal production
as well as the imports, but there was a change in the economic scenario
following the peak performance in 1995-96. The year 1996-97 experienced
considerable slow down in the growth of the economy and decline in industrial
growth. Consequently, the expected rise in demand in steel did not take
place and additional capacity created by fresh investments faced a surplus
market. Competition from within as well as external, created a situation
for the sector which was highly sensitive to price. However, the input
costs continued to rise leading to reduction in the margin and putting
the pressure on steel sector to reduce cost.
While this would by and large describe
the scenario with regard to the flat sector, in the long product sector
also the scenario changed considerably. Whereas the former deficit situation
in the flat sector was substituted by surplus particularly for HR Coils
and HR Plates, in the long product sector, the expected growth in the construction
sector partially the project construction is yet to materialise at the
desired rate. There are however, positive indication as regards end using
segments for long products.
No country, whether in the open
economic or the socialist system, has been able to built the infrastructure
sector without substantial support from the Government. In India, therefore
, early expectations followings liberalisation that the infra structural
sector would find investors from abroad was perhaps premature. There was
a need on the part of the Government to step in the continue to give high
priority to the sectors by appropriate policy indication. This is all the
more necessary in view of the fact that in India public investment has
been the prime mover for private investment specially in sectors with long
gestation period.
Indifferent performance of the economy
in the last couple of years and with the unstable political scene, have
choked the flow of foreign investments. The sectors which were expected
to be attracted to FDI are power, port, road, building etc. These are considered
to be steel consuming sectors. However, situation is changing and the investment
climate particularly FDI is adjusting to the changed scenario quite fast.
The Govt. has already provided counter-guarantee to a few fast track POWER
projects. It has also introduced policy guidelines relating to BOLT (Build
Operate Lease and Transfer) and the other schemes to attract private and
Foreign Direct Investment in major infrastructure sectors namely roads,
ports, power, petrochemicals communication etc. During April-December 1998,against
an approved Foreign investment of Rs.207.10 crores the actual inflow has
been of the order of 31 percent only. This needs to be raised substantially.
The other redeeming feature is that
the economy, despite a slow down has not followed the path of South-East
Asian countries. Indian economy has been able to insulate itself from the
storm resulting from this crisis.
Looking forward, the possibilities
are a faster growth of the steel sector. While the production in the 1990s
was around 14 million tonnes, in course of eight years, it has reached
a level of 24 million tonnes and is expected to go up to 35 million tonnes
by 2005. This may not be remarkable compared to experience of China or
South Korea. But in our environment where initial advantages gained quickly
lost, this is a far better performance in comparison to earlier two decades
where normal growth was stifled under the weight of controls and
regulations.
All the developed countries have
passed through a phase where steel production and demand reaches a peak
thereafter starts declining. The South-East Asian countries particularly
China and South Korea have perhaps reached its peak phase. It is obvious
that India which started early but faltered in the 60s and 70s is now in
its peaking phase and both demand and production of steel will accelerate
considerably by the first decade of the next millennium. The untapped potential
for steel consumption in the country, be it in the rural sector or in the
vast infrastructure sector, provide glorious opportunities to augment steel
production considerably in the coming years. |