CHAIRMAN’s DESK MAY 07

It is now universally accepted that after China, India is going to be the next big production and consumption hub for steel globally. Assuming that all optimistic prognoses about the prospects of the Indian economy hold good, then growth of the Indian steel industry is unlikely to be constrained seriously by dearth of demand within India. Also, given the competitive advantage of producing steel in India, it is but a certainty that the demand would be met predominantly by domestic production, other things remaining equal. In a demand-led growth situation such as this, our primary objective would be to enable the suppliers meet the emerging demand seamlessly. We need to concentrate on improving the supply-side parameters of the steel economy so that shortages do not spoil the growth process. The foremost task of the government would be to create a facilitative policy environment to support the production system such that supply to the growing market continues unhindered and costs and prices are kept in check.  We have to be vigilant that the external environment within which the entrepreneur operates does not vitiate his rational plans of expanding his production base. The infrastructure, the international trading regime, the monetary and fiscal policies – are all important pieces in the jigsaw puzzle that define the external environment within which the entrepreneur operates and over which he has no control. Any shortfall in these areas will lead to higher transaction costs to the producer and in turn result in a deadweight loss to the nation at large.

The unprecedented investor enthusiasm in the iron and steel sector in India has thrown up a number of important supply-side issues, which have to be tackled effectively so that the high growth momentum can be sustained over the medium and the long terms. The foremost issue is that of availability of critical raw materials in adequate quantities, at the required location and in real time. It means that to meet the domestic requirement of steel from domestic sources, the policy makers have to effectively address several important issues in the areas of mining, logistics and environment. The first and foremost task would be to ensure adequate investment in the mining sector for translating the mining deposits into mineable production. Secondly, it becomes equally important to provide an adequate and efficient transportation system and other critical infrastructure such as power, water and land. Moreover, with the envisaged increase in material and energy-intensive activities in the steel sector, steps will also have to be taken to protect the environment. All of these would require not only an effective policy environment and regulatory regime but should be backed up by adequate administrative set up.

Several steps have already been initiated in the desired directions of ensuring raw material security to the prospective and existing producers of steel. The National Mineral Policy has liberalized the mining sector in a bid to attract investment in this sector. Once the remaining centre-state issues of value-addition within the boundaries of the mineral-rich states and those relating to captive mining and fixation/sharing of royalty and cess on mined products are amicably sorted out, the policy is expected to provide the necessary impetus to prospecting and mining of  iron ore in India. As far as coking coal - another vital but scarce ingredient for the steel sector - is concerned efforts are being made at all levels to secure long term supply linkages in and outside India to steel producers. While the private sectors producers are being encouraged to acquire overseas mines to meet their long term demand, the PSUs are also experimenting with new arrangements to deal with this problem. A notable effort in this area has been made by a consortium of public sector steel producers and mining companies. SAIL, RINL, CIL and NMDC are in the process of floating a Special Purpose Vehicle (SPV) to acquire coal mines and mining rights overseas. The PSUs will use their internal resources for equity participation to the tune of Rs 3,500 Crore in this  SPV with a total proposed capital base of Rs 10, 000 Crore. If successful, this will be a big step forward for the Indian steel industry and may set a trend for others to emulate. As domestic availability of low ash coking coal used in the BF-BOF route is limited, this might provide the necessary long term coking coal security to the producers.

Transport logistics is the next important area that needs to be looked at for an efficient supply-side management. An analysis of the IEMs would show that more than half of the proposed brown-field and green-field steel projects are coming up in the two states of Jharkhand and Orissa - the mineral rich states located in the Eastern part of India. It must also be noted that these two states provide important bulk minerals such as iron ore for steel plants and coking/non-coking coal for steel as well as             the expanding power sector. The capacity of the railways and the road network in these states need to be ramped up significantly if flow of raw materials is to continue unhindered.  A calculation by the ERU shows that the incremental bulk movement of raw materials originating in the steel sector that has to be handled by Orissa alone will increase from around 15-20 Million Tonnes currently to more than 60 Million Tonnes by 2011-12. The Working Group for Eleventh Five Year Plan on Power Sector projects around 500-600 Million Tonnes of thermal coal requirement per year by 2011-12. Since most of the thermal coal is found once again in Orissa and Jharkahnd, these would have to be transported to the power plants in different locations. The combined load of the steel and power sector on the transportation network in these states, leaving aside other sectors, would be tremendous. Hence, enhancement of capacity - in terms of linkages, rolling stock, transportation and material handling/ storing equipment - has to be taken up on a priority basis.

Similarly, availability of water and land would have to be ensured in a manner compatible to the larger interest of the community at large. These are very tricky and sensitive issues requiring tactful handling of various socio-economic dynamics- often set in a pre-industrial, agrarian production set up involving displacement of people existing at the margins of the society. At another level, unregulated production and mining activities have also given rise to environmental hazards. These activities also will have to be curtailed and if need be environmental regulations have be strengthened and rationalized.  The state and the other stake-holders are all making concerted efforts towards solving the supply-side issues such that total welfare of the local communities and of the nation at large is maximized. However, the task is hard and time is short. So the efforts of the different economic agents will have to be well co-ordinated and monitored to be commensurate with the enormity of the task.

K A Singh Deo                           

Joint Secretary                        

Ministry of Steel                           

& Chairman, JPC