The Indian iron and steel industry's journey during the post- Independence years has been eventful. The industry was chosen as a vehicle for all-round economic development by the founding fathers of independent India. The early planners sought to nurture it through large-scale capacity creation in the public sector. A protective environment was created through appropriate policy intervention to support the industry.

Large-scale capacity creation in the integrated plants was reserved for the public sector. Prices and distribution of the integrated plants including the sole private player TISCO were also controlled. The domestic market was protected by high import tariffs and by quantitative restrictions on imports. Exports were allowed only after domestic requirements had been met. As far as the structure of production was concerned, a distinct dichotomous pattern emerged. The large-scale integrated plants in the public and private sectors operated under extensive state control at one end of the spectrum while the small-scale electric steel-makers and independent re-rollers occupied the so-called free market space at the other end.

Deregulation

The Indian iron and steel industry was deregulated in January 1992. The erstwhile control mechanism founded on the four basic precepts of state regulation on capacity creation, import and exports, price and distribution for the major producers was dismantled paving the way for a market-centric industry. Deregulation was an integral part of the general policy of liberalization, economic reforms and structural adjustment programmes initiated in the early 1990s. This aimed at creating a new regime with its accent on competition, free play of market forces and ultimately on the enhancement of efficiency of all economic operations.

In the post-liberalisation period financial institutions have financed 19 steel projects covering a capacity of 12.8 million ton with an investment of Rs. 33,800 crore. Out of this nine plants covering a capacity of 5.75 million ton with an investment of Rs. 14.7 crore have already been commissioned. Three projects have been partially commissioned and others are in different stages of implementation.

The first four post-liberalisation years saw large additions to capacity, production and consumption, reversing the stagnation of the seventies and the eighties. Between 1992 and 1996, crude steel production went up from 17.84 million ton to 23.96 million ton. This constituted the largest periodic increase of 5.85 million ton of crude steel. Production of finished steel recorded an even higher increase of 7.51 million ton from 15.2 million ton in 1992 to 22.71 million ton in 1996. Between 1992-93 and 1993-94 the exports of saleable steel increased from 0.895 million ton to 1.605 million ton, pig iron from 0.016 million ton to 0.620 million ton and DRI from 0.2 million ton to 0.7 million ton.

After the Asian meltdown of 1997, the global steel industry experienced a serious and prolonged downturn. Stagnating demand at home and abroad and the global slowdown made matters worse. Beyond 2001 prospects have improved somewhat with a limited rectification of excess global capacity brought on by capacity rationalization in the developed world and demand resurgence in the growing East Asian economies. The demand in the Indian domestic market was also revived.

Industry in Flux

Structural changes in the supply side of the Indian steel industry beyond the watershed year of 1992 have been far-reaching. It opened up avenues for wholehearted participation of private capital in the capital and technology intensive integrated segment of the industry. Private producers invested in green field large-scale capacities using state-of-the-art technologies comparable with the best in the world. The 'New Majors' have significantly upgraded the technological base, widened the product-mix and imparted the competitive impulse needed to invigorate the industry. A competitive steel market emerged by a high degree of inter-dependence and connectivity among the players.

It resulted in high-growth but volatile business cyclical fluctuations in demand and supply, prices and profitability. Under the new dispensation, exports depend on the relative profitability of overseas sales vis-ą-vis domestic sales and imports on the margin of landed cost over domestic market prices. Imports continued at the pre-liberalization level of 1-1.5 million ton and exports crossed the three million-mark making India a net exporter.

Opportunities and Threats

The gains in operational and cost-efficiency, product quality and range, all bear testimony to the enhanced capabilities of a resurgent Indian steel industry after deregulation. Globalization and economic reforms have enabled the industry to expand its markets beyond the national boundaries to access financial, technical, managerial and other tradable inputs from the least cost sources globally. Consumers also gained in terms of easy access to quality products from domestic and overseas suppliers, a broad-based and customized product-mix, fairer prices and better servicing of peripheral needs. On the supply side, the industry has acquired the resilience to cope with the emerging needs of a growing market under normal circumstances. Unfortunately, however, circumstances have been far from normal during the last five years due to the altered strategies of economic development and the associated institutional changes. The globally integrated domestic industry is now vulnerable to exogenous disturbances in the global economy over which it has no control.

In the domestic markets, the industry faced increased competition from cheap imports from countries with highly depreciated currencies. This resulted in intense pressure on domestic prices, which fell in sympathy with the low landed cost of imports. The problem has been further accentuated by the large-scale replacement of prime imports by low-priced imports of non-standard defectives posing a grave threat to the producers and users of steel alike.

The predilection of the developed countries to deny market access to India and other non-Western producers of iron and steel has been amply manifested in the large number of trade cases like anti-dumping, anti-subsidy and safeguard actions initiated against Indian export deliveries.

Moreover, the tardy progress of institutional reforms in the basic infrastructure and common utilities and the resultant shortfall of private investments in these critical areas impacted the industry adversely on both supply and demand sides. Firstly, the demand growth anticipated from these steel-intensive investments failed to materialize. Secondly, on the supply side the industry finds its competitive edge getting continuously eroded by high costs and insufficient availability of quality services from energy, transportation and other economic infrastructure.

Looking Ahead

Prioritized public investments under centralized planning and large-scale private participation subsequently have made India the 8th largest producer of steel in the world. But paradoxically India also has one of the lowest per capita consumption worldwide. Stagnant consumption remains the bane of this industry. There is need to stimulate demand by increasing investment in industrial and economic infrastructure. It would be better to ensure equitable income growth with redistribution so as to create incremental demand for consumer durable.

Concerted efforts of the State, the producers and the consumers are needed to tackle the trade-related problems. Sustained vigilance and preparedness on the part of all the interested parties and a proactive administration hold the key to the solution of such threats. Remaining within the ambit of the WTO system, all the stakeholders must try their utmost in reporting aberrant behaviour and seeking redress to all such actions. To advocate and enforce the rights of the affected parties full use of WTO forum would be made.

Lastly, a comprehensive information system is needed to improve the quality of the deregulated and diversified steel market. On the supply side, an updated information system covering the entire gamut of activities will lead to efficient investment decisions and production at competitive costs. Similarly, timely availability of detailed trade data will help in fighting trade cases at home and abroad. On the demand side, effective dissemination of information on steel, its various uses and other market intelligence can help create incremental demand for steel.

(These are the personal views of the author)