Profile of the Indian Iron and Steel Industry   Why steel? Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and living standard of the people in any country. It is a product of large and technologically complex industry having strong forward and backward linkages in terms of material flow and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development. The long journey Only after liberalization of steel sector, the exports of iron and steel have once again started increasing. Though the country's production of iron and steel is sufficient to meet the domestic demand, some quantity of steel however is always needed to be imported. The finished steel production in India has grown from a mere 1.1 million tones in 1951 to 26.71 million tones in 1999-2000. During the first two decades of planned economic development, i.e. 1950-60 and 1960-70 the average annual growth rate of steel production exceeded 8 per cent. However, this growth rate could not be maintained in the decades to follow. During 1970-80, the growth rate in steel production came down to 5.7 per cent per annum and picked up marginally to 6.4 per cent per annum during 1980-90. Though India started steel production in 1911, steel exports from India began only in 1964. Exports in the first five years were mainly due to recession in the domestic iron and steel market. Once domestic demand revived, exports declined. India once again started exporting steel only in 1975 touching a figure of one million tonne of pig iron export and 1.4 million tones of steel export in 1976-77. Thereafter, exports again fell rapidly to meet rising domestic demand, especially those grades and qualities which are required in small quantities and therefore do not justify setting up of production capacities. The progress of steel industry has a critical influence on the pace of India's development and as such great importance is attached to capacity expansion in line with expected demand at cost and prices, which make Indian Steel internationally competitive. The new economic policies being pursued by the Government have opened up new opportunities for the expansion of the steel industry. With a view to accelerating the growth of the steel sector, the Government has initiated a number of policy measures since 1991. The Indian steel sector - Unshackled The important policy measures which have bee taken for growth and development of the Indian Iron and Steel sector are as under:- In the new Industrial Policy announced in July 1991 Iron and Steel Industry, among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951. With effect from 24-5-92 iron and steel industry was included in the list of 'high priority' industries for automatic approval for foreign equity investment upto 51 per cent (now 74 per cent). Price and distribution of steel were deregulated from January 1992. At the same time, it was ensured that priority continued to be accorded for meeting the requirements of small scale industries, exporters of engineering goods and North Eastern Region, besides strategic sectors such as Defence and Railways. The import regime for iron and steel has undergone major liberalization moving gradually from a controlled import by way of import licensing, foreign exchange release, canalization and high import tariffs; to total freeing of iron and steel imports from licensing, canalization and lowering of import duty levels. Export of iron and steel items was also freely allowed. Import duty on capital goods was reduced from 55 per cent to 25 per cent. Duties on raw materials for steel production were reduced. These measures reduced the capital costs and production costs of steel plants. Freight equalization scheme was withdrawn in January 1992, removing freight disadvantage to states located near steel plants. At the same time, it was ensured that far flung areas and distant states were protected by stipulating that beyond the freight ceiling distance, the main producers would continue to bear the freight charges. Levy on account of Steel Development Fund was discontinued from April'94 providing greater flexibility to main producers to respond to market forces. Current global scenario The global production of crude steel increased by 1.5 per cent to about 788 million tonnes in 1999. The world steel consumption has also increased by 1.4 per cent, which is 9.5 million tonnes more than 1998. The international steel trade constitutes around 250 million tonnes or one-third of production. World steel industry witnessed major ups and downs in the last two decades and especially over the past five years; the pattern of trade has been upset by two important developments. These are the collapse of the Soviet Union and the severe financial crisis in most of South East Asian countries, including Korea and Japan. The Asian crisis and the collapse of USSR have transformed importers of steel into exporters. Till the recent financial crisis, the Asian countries were large importers of steel. In 1996, e.g. eight of the ten largest steel producing nations were in Asia and import by the region in the mid 1990's was around 80-90 million tonnes of finished and semi-finished steel per year which is equivalent to a third of the total steel trade. After the Asian crisis, the region got transformed into a net exporter of steel. Hence, the world steel industry is today being characterized by excess capacity and poor demand. This scenario led to undesirable impact on two fronts, firstly breeding protectionism within the developed countries, and secondly dumping of cheap imports. During this year Indian exports have been subjected to Anti-dumping/CVD investigations in EU, USA & Canada that eroded the export base to some extent. It is in this global context that the Indian steel industry will have to cast its future role. Post-liberalization scenario Finished carbon steel Today, India is the tenth largest steel producing country in the world. This sector represents around Rs 90,000 crores of capital and directly provides employment to over 5 lakh of people. The Indian steel sector was the first core sector to be completely freed from the licensing regime and the pricing and distribution controls. This was done primarily because of the inherent strengths and capabilities demonstrated by the Indian iron and steel industry. During 1996-97, finished steel production shot up to a record 22.72 million tonnes with a growth rate of 6.2 per cent while the finished steel production increased in 1997-98 & 1998-99 was only 2.8 per cent and 1.9 per cent respectively as compared to the 20 per cent in 1995-96 and 6.2 per cent in 1996-97. The growth rate in 1999-2000 has, however, improved and stands at 12.1 per cent. The production of finished steel during April-September has been 14.65 million tonnes. This fall in the growth rate of steel production has been brought about by several factors which inter-alia include, general slowdown in the industrial production and construction activities in the country coupled with lack of growth in major steel consuming sectors. The Economic reforms and the consequent liberalization of the iron and steel sector which started in the early 1990's, brought about a sea of change in the industry, particularly in the field of setting up of new/greenfield steel plants in the private sector. All India Financial Institutions cleared 19 projects involving an annual capacity of about 13 million tonnes of saleable steel at an investment of Rs 13,000 crores. Out of these, 8 projects have already been commissioned with an annual capacity of 4.2 million tonnes. Four more projects have been partially commissioned and are in trial production. Other projects are at various stages of implementation. Thus it will be seen that in the years to come, the percentage production of the private sector will be much larger than production of public sector in the steel industry.   1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02(P) Pig Iron 3.29 3.39 3.00 3.18 3.11 4.65 Sponge Iron 5.00 5.32 5.11 5.34 5.44 6.18 Finished Steel 22.72 23.37 23.84 26.71 29.70 32.01 Pig Iron Along with the production of steel, the production of pig iron in the country during the period 1991-92 to the present has also increased. Sponge Iron During the early 90's, sponge iron industry ha been specially promoted so as to provide an alternative to steel melting scrap which was increasingly becoming scarce. Today, India is the second largest producer of sponge iron in the world. The production of sponge iron in the country has also resulted in providing an alternative feed material to steel melting scrap which was hitherto imported in large quantities by the Electric Arc Furnace Unit and the Induction Furnace Unit. This has resulted in considerable saving in foreign exchange. Apparent consumption of steel The long term projections of steel demand, which formed the basis of capacity planning, during second and third five year plans were based on an optimistic rise in per capita consumption of steel and high absorption of steel in the economy. This optimism was based on the growth rates of different sectors, structural changes in the economy and import substitution. The finished steel consumption, which was only 18.66 million tonnes in 1994-95, has increased to 25.01 million tonnes in 1999-2000. India's per capita crude steel consumption as per the figures available for 1997 was only 22 kg, which is far below the level of other developed and developing countries - 395 kg, 289 kg and 84 kg in USA, the EU (15) and China respectively. The world average was around 126 kgs in 1997. With the ongoing economic liberalization resulting in faster economic growth, the steel consumption is expected to increase rapidly. Apparent consumption of steel is arrived at by subtracting export of steel from the total of domestic production and import of steel in the country. Change in stock is also adjusted in arriving at the consumption figures. It is also treated as the actual domestic demand of steel in the country. The apparent consumption of steel did not show any substantive increase in 1998-99 mainly due to slowdown being faced by some of the steel using industries like automobile and engineering industries and construction. However, 1999-2000 saw an 11 per cent growth in apparent consumption. With the revival of the demand for automobile and engineering goods and general improvement in the economy, it is expected that consumption of steel will increase further. Long-term demand, availability and projections of finished steel In order to have a long-term perspective and planning, a Working Group for IX Five Year Plan was constituted for iron and steel sector under the aegis of planning commission. The Working Group deliberated upon all aspects including supply-demand projections for finished steel during the terminal years of VIIth and IXth Five Year Plans i.e. 1996-97 and 2001-02, taking a GDP growth rate of 5 per cent during the 8th plan and 6 per cent thereafter and a GDP elasticity of demand for steel of 1.33. The Working Group also suggested various strategies for an integrated and harmonious growth of the steel sector during IXth plan period and thereafter. The Ministry of Steel (9th Plan Working Group) has estimated that the demand for finished steel (including demand for exports) in 2001-02 would touch 38.68 million tonnes. The domestic availability of finished steel from all sources for 1998-99 was about 22.75 million tonnes. It is expected that by 2001-02, it would be 38.01 million tonnes. The projected availability is almost adequate to meet the domestic demand and also export potential of 6 million tonnes as identified by the Working Group during 9th Five Year Plan period. The installed capacity is expected to reach 43.606 million tonnes by the end of the Ninth Five Year Plan. Similarly, by 2006-07 the demand for finished steel is estimated to be of the order of 48.80 million tonnes, whereas production in the country would be 57.80 million tonnes, providing adequate surplus for meeting the projected export potential of 9 million tonnes. The major public sector integrated steel plants of Sail including Iisco and RINL would be able to contribute about 11.449 million tonnes and 2.41 million tonnes respectively. With Tisco's contribution of 3.1 million tonnes of finished steel, the integrated steel plants are expected to produce 16.959 million tonnes. The balance 21.053 million tonnes would be from the secondary steel sector during 2001-02. In other words, the secondary sector is expected to contribute about 55.4 per cent of the availability of the finished steel in the country. It will be seen that out of the total estimation of investment of Rs 52,174 crores in iron and steel sector during IXth period made by the Working Group, public sector's contribution was expected to account for about 38 per cent and the balance 62 per cent of the investment supposed to be coming from private sector, but subsequently, the Planning Commission undertook a detailed and in-depth exercise to determine the exact investment, which the Public Sector Undertakings in the Steel Sector would be expected to make during the Plan period. The Planning Commission has finally approved a Plan Outlay of Rs 19,197.88 crores for PSU's for IXth Five Year Plan. Total approved outlay of Rs 19,197.88 crores includes a Budgetary Support of only Rs 90 crore, which constitutes only 0.47 per cent. The remaining investment proposed to be made by PSU's will be met from their internal accruals and extra budgetary resources. In so far as private sector is concerned, as mentioned earlier, the All India Financial Institutions have cleared 19 medium/large projects involving an annual capacity of approximately 13 million tonnes of saleable steel and investment of over Rs 30,000 crores. Ministry of Steel has formulated a well-knit scheme in consultation with Planning Commission for self-reliant and healthy growth of steel sector keeping in view all gamut of growth perspective for this sector. This includes maintaining continuous growth coupled with projected investments both in public and private sectors as well as investment for raising technological and managerial skills, quick decision making for product planning, man-power deployment etc. Year Items Domestic Demand Availability Gap 1999-2000 Pig Iron 3.07 2.94 (-) 0.13 Sponge Iron ? 5.154 -- Finished Steel 25.21 25.38 (+) 0.17 2001-02 Pig Iron 3.45 4.65 (+) 1.20 Sponge Iron 7.67 6.68 (-) 0.99 Finished Steel 32.68 38.01 (+) 5.33 Distribution of iron and steel As a part of the economic liberalization process, the Government of India, on 16 January 1992 abolished the price regulation of the Joint Plant Committee (JPC) on iron and steel, which had been in existence since 1964. However, the requirements of Defence, Railways, Small Scale Industries Sector, exporters of engineering goods and the North eastern Region continue to be met on priority at prices that are announced by the producers from time to time. The Development Commissioner for Iron and Steel continues to make allocations of pig iron to the designated consumers and the main producers supply the material on the basis of such allocation. To meet the requirements of steel of Small Scale Industries, allocations are made by the Development Commissioner for Iron and Steel. This is in addition to the purchases made by Small Scale Units, which draw their material directly from the main producers. The Development Commissioner also continues to issue Release Orders for supplies to exporters of engineering goods and make annual supply plans for North Eastern Region. The requirements of Defence and Railways are met by the main producers directly on priority in accordance with the past procedures. Considering the special problems in meeting the requirements of consumers in the North Eastern Regions, special efforts are made to ensure adequate and timely supplies of that region. Pricing of iron and steel The pricing mechanism of the Joint Plant Committee (JPC) operating from 1964 was abolished with effect from 16 January 1992. Producers are now free to determine and announce their prices, which are now governed by market forces of demand and supply. After deregulation, the main producers, i.e. Sail, RINL and Tisco are charging either the actual freight upto stockyard or freight element as it existed prior to deregulation, whichever is lower. This has ensured that far flung areas and distant states are protected by stipulating that the main producers shall charge either actual freight or freight element existing prior to withdrawal of the scheme, whichever is less. Import and Export of iron and steel Policy framework The general policy and procedures for export and import of iron and steel, ferro alloys and ferro scrap are at present decided by the Ministry of Commerce in consultation with Ministry of Steel. With the liberalization of India's trade policy and commencement of export-import policy for 5 years (from 1-4-1997 to 31-3-2002), the policy for import and export of iron and steel materials has undergone sweeping changes. Import of all items of steel is freely allowed. Exports of all items of iron and steel are also freely allowed. Exports of high-grade iron are also freely allowed. Exports of high grade iron ore, chrome ore and manganese ore are made through designated canalizing agencies subject to the ceilings imposed by the Government, in order to conserve high grade ores for domestic consumption and production of value added materials. Consistent efforts are being made by the Ministry of Steel / Development Commissioner for Iron & Steel to ensure adequate supplies of domestic raw materials to meet requirements of engineering exporters. Import of steel India had been annually importing about 10 to 15 lakh tonnes of steel. However, due to picking up of domestic demand, the import of saleable steel in 1994-95 increased to 1.93 million tonnes. The increase in import was mainly in hot rolled coils, cold rolled coils and semis. Import of saleable steel during 1998-99 was about 1.8 million tonnes which was about 9% more than import in 1997-98. Last Six Year Imports Quantity in MT 1994-95 1.93 1995-96 1.86 1996-97 1.82 1997-98 1.81 1998-99 1.64 1999-2000 2.20 2000-01 (Prov.) 1.63 Export by iron and steel sector India has already registered its presence in the global market in the recent years. While India started steel production in the year 1911, steel exports from India started only in 1964. However, steel exports have been sporadic in the initial years. From 1964 to 1968 India exported a large quantity of steel mainly due to recession in the domestic iron and steel market. Subsequently, exports declined with revival of domestic demand. India once again started exporting steel from 1975, touching a record export of steel in 1976-77. In the year 1976-77, India exported 1 million tonne of pig iron and 1.4 million tonnes of steel. Thereafter, exports again declined only to pick up in 1991-92, when main producers exported 3.87 lakh tonnes valued at Rs. 283 crore. As a result of various policy measures taken up by the Government like liberalization of import-export policy, introduction of flexibility in the advance licensing scheme and convertibility of rupee on the capital account, the export of Iron & Steel (including Sponge Iron) showed a quantum jump to 2.92 million tonnes valued at Rs. 1978 crore in 1993-94. In 1995-96, the export was of the order of 2.79 million tonnes valued at Rs. 2,275 crore. The export of Iron & Steel during 1997-98 was 3.04 million tonnes valued at Rs. 2937 crore. During 1998-99, the export of iron and steel was 2.4 million tonnes valued at Rs. 2,509 crores; the decline is attributable to the global slow down in the steel sector. Last Six Year Exports Quantity in MT 1994-95 1.79 1995-96 2.00 1996-97 2.32 1997-98 2.66 1998-99 2.20 1999-2000 3.28 2000-01 (Prov.) 3.23 Average value of export Pig Iron - US$120 - 130 Sponge Iron - US$105 - 110 Earlier, exports consisted mainly of plates, structurals, bars and rods, whereas now apart from semi hot rolled coils, cold rolled coils, colour coated sheets, GP/ GC sheets, pig iron and sponge iron are also being exported. In future, it is expected the exports of more value added items will increase. Why the current slow-down? The iron and steel sector has been experiencing a slow down in the last 3 years. The growth of the steel is dependent upon the growth of the economy in general and the growth of industrial production and infrastructure sectors in particular The major reasons for the slow growth in the last few years include:- a) Sluggish demand in the steel consuming sectors Steel being the basic raw materials for the construction industry, the capital goods an engineering goods industry, as also the auto sect and white goods sector, its growth is dependent upon the demand for steel by these segments the industry. Since no major infrastructure construction projects have been implemented the last few years, demand for steel has remain low. No major projects in the oil sector, power sector, fertiliser sector where intensity of steel consumption is high, have come up in the recent past. b) Overall economic slow down in the country All major core sectors of the economy have been facing an economic slow down. These include, power, coal, cement, industry, mining and steel. The slow down phenomenon is not restricted to the steel sector alone. Only when the overall economy of the country picks up, would the steel sector also show signs of revival. c) Lack of investment by Government/ Private sector in major infrastructure projects Due to budgetary constraints, no major construction activity in mega projects including fertiliser, power, coal, railway etc. have been planned by the Government. Despite liberalization of the economy and relaxation in the investment norms, private sector investment is yet to materialize in the core sectors of the economy. This has also contributed in slowing down demand for steel. d) Cost-escalation in the input materials for Iron & Steel Power tariff, freight rates, coal prices etc. have been under the administered price regime. These rates have been frequently enhanced, thereby contributing to the rise in input costs for steel making. e) Continuous reduction in import duty on iron and steel After liberalization import duty rates on iron and steel items have been gradually reduced over the years. This has opened up the domestic iron and steel sector to international competition. Due to rationalisation in the import duty structure in 19992000, the rates of basic custom duty have gone up. f) Greater competition from imports Due to the drastic reduction in import duties in iron and steel materials along with sharp fall in international prices, the imports of finished steel even in those sectors where adequate capacity exists have shown an increasing trend. g) Dumping of finished steel in the country Taking advantage of lower tariff regime and the unrestricted import of all iron and steel materials with the liberalization of the EXIM policy, some countries are reportedly dumping their finished steel products in India. h) Adverse conditions in export markets for iron and steel Due to economic crisis, the South East Asian countries, the traditional market for Indian iron and steel exports has dried up. Countries, which were hitherto importing steel from India, have cut down on imports to conserve scarce resources and Indian exports have been forced to look for newer markets elsewhere in the globe. These countries particularly Indonesia, Malaysia & Korea in fact, have now become competitors to Indian exports in other global markets. Government acting as facilitator The Ministry of Steel has been making all out efforts to help the domestic steel sector to overcome the problems faced by the steel industry at present. These include:- a) Boosting demand in the steel consuming sectors To boost the demand and consumption of steel an Institute for Steel Development and Growth (INSDAG) has been set up in Kolkata with leading steel producers in the country as its members. The Development Commissioner for Iron & Steel (DCI&S) has launched a National Campaign for increasing the demand for steel, in non-traditional sectors, particularly in the construction, rural and agro-based industrial sector. b) Duty on project imports To enhance the consumption of steel in the country, the Finance Ministry has been urged to provide a level playing field to domestic steel producers for steel supply against International Competitive Bidding (ICB) under 'project imports' in the fertilizer, power, oil sectors by exempting them for excise and sales tax. c) Reduction in Power & Rail Tariffs The Ministry of Steel has been interacting with State Governments to provide power at reduced/ concessional tariffs especially to mini steel plants all over the country. Similarly, the freight rates adopted by the Railways have been rationalized after inter action with the Railway Board and freight cost on raw material transportation for steel producers is reduced. d) Reduction in input costs The Ministry of Steel has also been able to rationalize the classification of coking coal in consultation with the Coal Ministry so as to reduce the impact of royalty payable on this basic raw material. Import duties on several raw materials, such as, scrap, ships for breaking, coke, non-coking coal etc. used by the steel industry has been reduced steadily over the past 4-5 years. e) Import Duty In the last Budget, imports duties on finished steel items has been increased as a result of rationalisation of tax structure. f) Excise Duty The Finance Ministry was requested not to resort to further increase in Excise Duties on iron and steel materials, in the last few budgets. On the other hand, a case has been made to reduce the excise duty levels on all finished steel items, especially long products (which are consumed by the construction sector) by at least 10%, as the construction sector cannot avail of MODVAT benefit. g) Strengthening of Anti Dumping mechanism To check the increasing trend of cheap imports in certain categories of flat products especially from CIS and South East Asian countries, the Ministry of Steel has urged the Commerce Ministry and the Finance Ministry to strengthen anti dumping mechanism so that fast decision on dumping can be taken. The road ahead With the onset of liberalization, the steel industry has now to gear-up, not only to domestic competition, but also to global competition in terms of product range, quality and price. The growth of the steel sector is intricately linked with the growth of the Indian economy and especially the growth of the steel consuming sectors. India has become self-sufficient in iron and steel materials in the last 3-4 years. Exports are rising and imports are falling. Production and production capacities are increasing. This position needs to be further consolidated and issues affecting production and consumption need to be resolved on a continuous basis. At the same time, productivity of our steel plants must be maintained at levels close to international standards. The Ministry of Steel continues to play an active and major role in helping the steel industry to overcome bottlenecks in the growth of this sector. With these efforts, the IXth Plan projection for finished steel of 32 million tonnes for domestic consumption and 6 million tonnes of export can be achieved, as also the projections for availability of 3.75 million tonnes of pig iron and 6.18 million tonnes of sponge iron. India is already recognized as a global player in the steel industry and this sector is poised to play a key role in the international steel scenario by the turn of the century. At a Glance The Year 2001