INDIAN STEEL
INDUSTRY – A STORY OF CONTINUING PROGRESS
Braja
Kishore Tripathy*
The Indian steel
industry’s onward journey in the recent times has been a cause
of great pride to all of us. The last two years have seen the
deregulated Indian steel industry performing at its peak level
in almost all spheres. Steel production went up by 8 per cent
to reach a level of 33 million tons in 2002-03 from 31 million
tons recorded a year before. The domestic demand for steel also
registered a growth rate of 6 per cent and grew from 27 million
tons in 2001-02 to 29 million tons in 2002-03. The most spectacular
achievement has, however, been recorded in export performance.
Exports of finished steel from India increased by a whopping 37per
cent - from 2.7 million tons in 2001-02 to 3.7 million tons in
2002-03. In addition, significant improvement was noted in the
exports of semi-finished steel, stainless steel and pig iron.
All these favourable trends have been reflected in the improved
profitability of the major steel makers in both the public and
the private sectors. The biggest success story has been that of
TISCO, which has recorded an increase of 391per cent in its profits
during this fiscal compared to the previous year. ESSAR’s balance-sheet
has been in the black after a long time, while other major steel
makers have reduced their losses significantly. The fact that
such an improvement has come at a time of intense global competition
and a worrisome proliferation of non-tariff barriers in the developed
world, speaks volumes about the resilience, the innovativeness
and, above all, the competitive spirit of the Indian exporters
of steel. The dexterity, with which the Indian exporters diversified
their destination markets, modified the composition of their export
basket to suit the changing global demand profile, effected sizable
reduction in production costs and adoption of state-of-the-art
technologies provides ample testimony to the maturity of this
industry. From a highly protected inward-looking industry of the
pre-liberalization years it has matured into a modern and globally-integrated
industry in an astonishingly short span of time.
Role
In the changed policy
environment based on the tenets of economic liberalization and
global integration, the role of the Ministry of Steel has also
changed significantly. In the post-deregulation years, the Ministry
has seen a significant expansion in its role as a nodal agency
for facilitating the process of transformation of this pioneering
Indian industry with a history dating back to the beginning of
the last century. The economic reforms have brought with it immense
opportunities for market-led growth of this industry – once a
bastion of state control. On the supply side, deregulation meant
access to domestic private capital and low cost overseas funds,
advanced technology and cheap inputs. On the demand side, the
new policy regime meant opportunities to sell steel in an expanding
domestic market and, most importantly, to the large global market.
The Ministry of Steel has directed its efforts towards fostering
the growth of this industry based on the principles of competitiveness
and economic efficiency. At the same time, much of its efforts
have also been directed at curbing unfair competition from domestic
and overseas sources. Similarly, it has also made efforts to help
the industry in overcoming the structural rigidities, the scarcities
of essential inputs, infrastructure-related constraints and other
market-distorting forces commonly experienced by the developing
countries in the course of industrialization.
Performance
The Ministry of Steel,
in its present incarnation, has striven to provide an effective
interface between the industry and the various economic agencies
– government departments, financial institutions, providers of
input materials and essential services, multilateral agencies
and others. In its capacity of the administrative ministry for
steel and other allied industries, it has sought to bring about
a fair deal as far as railway transportation and power supplies
to the constituent producers are concerned. With the passage of
the ‘Asset Securitization Bill’, the Ministry is also ready to
assist the ailing members of the industry in their financial restructuring
by facilitating meaningful interaction with the financial institutions
(FIs). The public sector steel giant, SAIL, has already put into
operation an ambitious programme of modernization, financial restructuring
and manpower rationalization in active collaboration with the
government. Such rationalization exercises along with other measures
of productivity improvement and cost economy has brought about
a huge improvement in the profitability of SAIL, which recorded
the highest ever profit of Rs 255 crore in the first quarter of
the current fiscal. Similarly, the Visakhapatnam Steel Plant (VSP)
has posted the best ever cash profit of Rs. 272.46 crore and a
net profit of Rs. 160.12 crore during the first quarter of this
fiscal. This is highly commendable considering its substantial
loss of the past year.
Constraints
In the post-WTO scenario
issues related to trade actions and non-tariff barriers have assumed
immense importance. The steel industry worldwide has been subjected
to wide-ranging non-tariff barriers – both fair and unfair. As
a matter of fact, steel as an internationally traded commodity
has attracted the second highest number of such punitive measures
– next only to chemicals. The manifold benefits of an open, democratic
and rule-based multilateral trading arrangement such as the WTO
cannot be underrated by any means. But such advantages apart,
the Indian steel industry has suffered on two counts.
Relief
In the domestic
market it has faced a relentless pressure from the potential and
actual imports at abnormally low prices from the steel-surplus
regions like Russia and the CIS countries, especially in the aftermath
of the Asian financial meltdown and the subsequent collapse of
the global steel prices. Although the worst appears to be over
now, the endemic excess supply conditions in the world steel market
may result in such price depressions periodically. The Ministry
of Steel, in collaboration with the Department of Commerce and
other competent authorities, has attempted to stem such unfair
competition to the domestic producers by setting floor prices
for imports of relevant product categories. Similarly, the Indian
steel exporters have faced numerous non-tariff barriers in the
foreign markets. In cases where such trade actions are unjustified,
the Ministry has initiated steps to take the issues to the relevant
authorities including the highest Dispute Settlement Bodies in
the WTO. The Ministry, along with its other arms in the Government,
is in a state of preparedness to come to the aid of the industry
whenever such aberrations occur at home and abroad.
In the domestic market,
the Ministry has taken up the cause of creating incremental demand
for steel through intensive programmes seeking to promote the
consumption of steel. In a proactive bid to boost the demand for
steel, various specialist institutions have been created. They
are actively engaged in research into expanding the scope of application
of steel in the construction sector and in training the steel
workers and fabricators in meeting the emerging requirements of
the producers of steel-intensive articles and the ultimate consumers
of steel. Apart from this, the Ministry has also created a dedicated
corpus of funds for carrying out various technology missions under
appropriate guidance.
The steel industry
at present is on an upswing. Prices and profits have firmed up.
This has been the year when almost all the leading steel producers
recorded significant improvements in their financial performance.
The future and sustained growth of this industry is intimately
linked to the growth of the economy in general and to the performance
of the industrial sector and the construction activities, in particular.
With the macro indicators looking up in almost all areas, the
short-term demand prospects of this industry looks bright. However,
the slowdown in the rate of capital formation may hold back the
growth of this industry in the longer run. As far as the overseas
demands are concerned, the Indian steel industry has reaped rich
dividends from the upsurge in China even as markets in the USA
and the EU slowed down. The recent improvement in the South East
Asian economies will also provide additional marketing opportunities
in the near future. On the supply side, the uneven and tardy growth
in the infrastructure sectors may constrain the progress of the
Indian steel industry. In the area of international trade, the
hardening of protectionist stances in some of the developed countries
pose a threat to all developing countries. The Ministry of Steel
is committed to providing all assistance to the Indian steel industry
in its quest for a brighter and prosperous future. (PIB Features)
*Minister
for Steel, Government of India.
