Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

Why Narendra Modi's 'Make In India' Push Depends On Steel

Photo Credit :

The steel industry in India is going through a bad patch as it is facing stiff competition from cheap steel coming in from abroad. Steel imports jumped 72 per cent in the last fiscal year to March to 9.3 million tonnes, putting local steel firms' balance sheets under pressure. 
 
Moreover, imports are being dumped at extremely low prices, below the cost of production of many plants in India.
 
The Narendra Modi-led National Democratic Alliance (NDA) government is mulling a fresh hike in steel duty of 2.5 per cent as well as a duty increase on aluminium products following a rash of complaints by Indian companies against dumping by foreign manufacturers, reports The Telegraph.
 
At present, Indian steel companies owe banks nearly Rs 3 lakh crore in debt, and lower output forced by cheaper imports or losses would mean some of this debt could turn into bad loans.
 
Experts believe that the expected rise in duty is not adequate to significantly reduce shipments coming in from Japan and South Korea, countries with which India has free trade agreements (FTA).
 
The steel ministry is in favour of taking steel out of the FTAs, reports Reuters quoting industry sources with knowledge of the issue, but such a decision is unlikely in the near term, given government-to-government relations.
 
Many steel companies, such as Tata Steel Ltd, JSW Steel Ltd and Kalyani Steels Ltd, have seen profits come under pressure in recent quarters due to surging imports of steel.
 
In an interview to BusinessLine, Heavy Industry and Public Enterprises Minister Anant Geete said, "Imports are not only hurting Indian steel companies but also workers who are associated with the industry. Today, Indian steel production has slumped to 50 per cent of the installed capacity."
 
Ratings agency Moody's has said higher import duty on flat and long steel products will help in reducing pressure on domestic prices which have been going down due to cheap imports from countries like China.
 
"The import duties will ease some of the downward pressure on domestic steel prices from cheaper Chinese steel imports. Indian steel prices have dropped 27 per cent over the past 12 months owing to a 70 per cent increase in cheaper imports, one third of which came from China," it said.
 
The steel sector has been crying for a solution but the government has done nothing concrete to prevent the dumping of Chinese, Russian, and Korean steel into India.
 
The moot question is: What are the other basic problems the country’s steelmakers are facing?
 
Indian steel makers plan to invest around Rs 2.94 trillion ($46.13 billion) over the next decade to increase the country’s steel production capacity.
 
Recently, Prime Minister Narendra Modi has asked domestic steel makers to step up production to compete with global leader China. Modi had said more steel should be produced to encourage product manufacturing as part of the government's Make In India initiative.
 
India is trying to emulate China and South Korea where manufacturing is a major growth driver for the economy, accounting for 34 per cent  and 30 per cent of GDP respectively.
 
According to a Crisil report, while lack of infrastructure, financing, land acquisition and rigid labour laws have been largely responsible in holding back manufacturing, for developing the Indian steel industry all these factors need to be taken care of. 
 
The government should also evolve policies that will support India's long term vision as net steel exporter. 
 
“Focus on manufacturing is of critical importance not only for high growth of the sector but also for long term economic growth," the Crisil report pointed out.
 
Moody's expects lower Indian steel prices will likely help in reducing the cost of manufacturing and infrastructure building, which are two important pillars of the government's pro-growth agenda.
 
India’s per capita consumption is low at about 60 kg as against the world average of 220 kg. India needs to expand its infrastructure and manufacturing. The Make in India vision of the Prime Minister is a focused step in the right direction. Steel is the backbone of growth of any economy.
 
In June, the government raised import tax to 10 per cent from 7.5 per cent on flat steel and to 7.5 per cent from 5 per cent for long steel products.
 
Indian steel makers had urged the government to take action against what they claim is "dumping" of cheaper steel, which has pressured prices and hit profitability over the past few quarters.
 
However, hikes in duty have been unable to deter Chinese, Japanese, Korean and even Ukrainian steel makers from selling various kinds of flat and bar rods to India as there exists a $15-20 a tonne difference between various grades of imported and locally made varieties.
 
Although Indian steel demand is poised to outpace other emerging markets, competition from imported steel is likely to remain strong, keeping some pressure on Indian steel prices, Moody's said.
 
Global industry body World Steel Association expects steel demand in India to grow by 6.2 per cent in 2015 and 7.3 per cent in 2016, compared with a decline in all other large emerging countries except Turkey, it added.