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Confident Of Achieving The 2030 Targets: Steel Secretary Aruna Sharma
In an interview with BW Businessworld, Steel Secretary Aruna Sharma talks about the growth of the sector, increasing per capita consumption, dealing with NPAs in the sector, evolution of private players in the steel sector and the challenges the sector is facing due to the ongoing trade wars
Photo Credit : Ritesh Sharma
Steel Secretary Aruna Sharma and her team have been instrumental in the sector’s turnaround, despite the ongoing global turmoil. In a conversation with Suman K. Jha, Sharma talks about the growth of the sector, increasing per capita consumption, dealing with NPAs in the sector, evolution of private players in the steel sector and the challenges the sector is facing due to the ongoing trade wars.
The steel sector’s success in the midst of global turmoil is a story in itself. How do you look at this?
The journey has been really good... 2015 was a very bad year. In 2016, we realised that the sector requires immediate protection under the existing laws, and under existing laws, WTO does allow anti-dumping. So, that was worked out. We did all the homework, along with the Ministry of Commerce and Finance, we ensured that these orders were implemented, so that the steel sector could come out of the ICU. And once that was done, the whole gamut of issues were taken up — from raw material to consumption.
One big challenge was that we were a low-consumption country. We were consuming just around 60 kg per capita and to go from 50 to 59 kg we took seven years. Whereas the international average was 208 kg and China was 489 kg per capita.
We realised that steel was being replaced by alternative materials very fast over the last 40-50 years even though steel was very strong immediately after Independence. So, we worked for the amendment of the general financial rules to introduce the concept of lifecycle cost because you can execute the project in nearly one-third of the time if not half, and literally maintenance is negligible. So, with that, the consumption started going up and we are very happy to see that in the last two-and-a-half years, it has grown to the point of touching 70 kg.
Having taken care of the market part of it, we started focusing on the issues of the various sectors. The biggest problem was the NPAs. And then, the sets of problems with the PSUs. So, the problems of each set of team were flagged and the entire team started working towards those problems. We then discussed the issues related to the polices. We started with the National Steel Policy of 2017, in which we targeted that by 2030, we will reach 300 million tonnes.
Another was the preferential policy for procurement by government and its agents. That ensured a big market. If we are able to produce the quality material here, which is fulfilling the requirements of the client, then definitely the steel made in India will receive preference. So, in a way, the production and the marketing supplemented with raw material supply was taken care of and because of the teamwork we were able to achieve all the targets.
Of the 12 biggest NPAs in the RBI list last year, five were from the steel sector. Is it a problem of the past?
We started to unwind the tangled threads in the sector. When we analysed, we found that the top 5 as companies were doing very well. As plants, they were doing very well, there were no issues as far as production was concerned. However, there were some external factors and there was a bad balance sheet. So, in a sense, the bankruptcy was more because of the bad financial management in the balance sheets and the moment the sector, as a whole, started recovering, these five also started recovering. This also enabled getting good bids for the companies and, in turn, enabled the banking sector to get a window to recover their loans.
So, in a way, it is a very good sign and it has also given a message that if you are not disciplined enough to repay your debt, you may be out of this sector completely. Having said that, the plants have a great future. Changing of labels is not enough. We will be more happy when the plants expand further and add on to the investments.
Today we are the second largest crude steel producer. So, from fourth position, we stand at the second slot today. How would you describe the journey? And what are the targets for the future?
We should plateau at 300 million tonnes. China will be at No. 1, at 700-800 million tonnes range. It is equally important that we should plateau at 300 million tonnes with the consumption of 160 kg per capita. This is something we can sustain.
How do you look at the SAIL turnaround story?
SAIL went for a huge modernisation plan in 2009 and missed the bus by delaying of the projects considerably. So, their return on investment was getting delayed and that was creating problems. So, the Steel Ministry tried to find how the steel sector was reviving, but the PSUs were not reviving at the same speed.
So, even though we are at the arm’s length from the PSUs, we thought we must have a deeper look into it. We set up a committee chaired by the Secretary, Steel and nominated four experts who inspected these plants and highlighted serious problems. Many of them were management issues than technical issues. We asked the government representatives on the Board to handle these management issues and SAIL resolved the issues on its own.
With the handholding, the difference has started showing but still, it has to go a long way because even though the returns have started coming, there are still gaps in the organisation to optimise the ROIs and there is also a need to tighten their belt further. Because now they are competing and gone are the days of monopoly. And they have to slowly move towards value-added products.
Talking about the global scenario, how is the US protectionism impacting the Indian steel industry?
The US went the 232 way, which is not WTO compliant. So, the first objection is we don’t believe in these kinds of measures that are not as per the multilaterally agreed trade practices. The second reservation is that even though the immediate impact is not substantial since we hardly make 2 per cent of the total import of the US, but in principle, we do not want any dissimilar treatment, and we do not want any doors closed across the globe.
Today, it may not be having a major impact but we want the doors to be open for future. So, with that strategy along with the Ministry of Commerce, we are in a dialogue with the US and they are agreeable to some of our terms, some of our concerns taking into account the 2016-17 figures.
Our argument is that with tariff there should be no limit so that the market is open to us. But the importer does make a difference and that is all that matters. As a reaction, the European Union is coming forward with some safeguard measures that is of concern because our exports to the European Union is nearly 4 million tonnes so we are in talks with them — 14 September will be an opportunity to discuss and there also we are arguing on similar points like which year should be taken as the base year.
India has proposed an additional tariff on 29 US goods in retaliation to the additional duty on Indian steel and aluminium. You are talking but talks have not yielded results. What will happen on 4 August?
See, it is open-ended at this moment. We will know only on 4 August where exactly we are heading because these are very important tools and these are very important points for negotiation so let us see how it progresses.
In the context of heavy tariffs levied on Chinese steel imports and exports to the US, it is feared that India may become a dumping ground for them. What do you think?
India has already put anti-dumping duty and we have taken another step — the BIS norms apply and they cover nearly 85-90 per cent of steel. So, in the quality standards, poor quality steel will not come to India. There is nothing to panic about. Indian manufacturing is competitive enough.
What preventive measures, if at all, we are taking to prevent this dumping phenomenon in the industry?
We will wait and watch. If there is a need we will definitely take those preventive measures but right now there is no need.
You have announced the National Steel Policy with 2030 targets. What are the factors that you think will enable us to achieve the target?
We are very optimistic. Four years ago we had a production capacity of just 85 million tonnes. Then two years ago, we were at 125 million tonnes and, in March, we reached 134 million tonnes of capacity.
It shows we are on the right path and the kind of investments that are already in the offing, we will reach 150 million tonnes by 2020. So 150 million tonnes are already in the pocket out of 300 million tonnes, which is the 2030 target. Which means we will have 10 more years to reach the target. As the domestic consumption goes up, the capacity frequency or accelerated rate will happen. We will reach production of 300 million tonnes by 2030 or maybe even earlier in case the consumption graph shows a faster growth. Because it is not something unrealistic.
We will add around 20 million tonnes just by improving the techno economic parameters without any new investment. The secondary sector will add another 20-25 million tonnes. That takes care of 50 million tonnes. New investment will be required for 100 million tonnes.
Then, iron ore requirement will also not grow in the same proportion because scrap and pellets will get added to the steel making mechanism. So the scrap-based cycle will start coming. If you look at it, India being a low infrastructure country, the government in power will have to invest in the infrastructure. And with steel becoming a preferred material for the growth in infrastructure, consumption is bound to go up. The moment consumption goes up, manufacturing of steel will go up too. These two will grow hand in hand and we are quite optimistic about that.
How do you look at the evolution of the private sector in the steel industry?
If you look at the pie graph, 84 per cent is the private sector, 57 per cent is the secondary steel sector, 24 per cent is private integrated steel sector and 16 per cent is the PSUs. The same graph will grow.
Can you tell us more about the alloy policy?
The future of a country like India, as we go for defense production and other activities, would depend on special steels and alloy steels. So it is time that we start flagging the issue and therefore we are working towards. We do have alloy steel makers in the country as well as stainless steel makers. So, they will grow.
Also, we are becoming number one in the stainless steel industry. If the drinking water pipes after filtration (with the help of the Ministry of Urban Affairs) employ steel, there is no leakage, and if it becomes a practice, consumption will go up with the manufacturing.