The steel industry in India is more than a century old with the TATA Iron & Steel Company being the first plant to be established in 1907. The steel sector is one of the most important sectors for development of any nation and generally, the level of per capita consumption of steel is an important determinant of the socio-economic development of a country.
As it stands, India is the fourth largest steel producer in the world and is expected to rise to become second largest producer by the year 2020. India’s 33 per cent growth in steel production in the last five years was second only to China amongst the top five steel producing nations; China, European Union, Japan, United States and India. Currently, the Indian steel industry employs around 500 thousand people with this number set to rise with increased industrialisation throughout the country.
The Indian steel industry is divided into the primary and secondary sectors. The primary sector contains a few large integrated steel providers producing billets, slabs and hot rolled coils. The secondary sector involves small units focused on the production of value-added products such as cold rolled and galvanised coils, beams, other re-rollers and sponge iron units. Both sectors supply to different market segments.
Companies such as Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL) and NMDC Ltd are responsible for the bulk of the production in the public sector. However, companies such as Tata Steel, JSW Steel and Essar Steel are some of the more predominant firms operating within the private sector of the Indian steel industry.
Steel production in the country has increased at a compound annual growth rate of 6.9 per cent between the years 2008–2012. The infrastructure sector accounts for approximately 60 per cent of the country’s total steel demand while the automobile industry accounts for 15 per cent.
The Global Financial Meltdown
In 2008 the global financial crisis, resulted in global steel demand had a fall, causing the prices to plummet, however prices have recovered 33 per cent since 2008. Despite the growth rates, the Indian steel industry is facing problems.
It’s estimated that India has reserves of 30 billion tonnes of iron ore, however, mining accessibility and availability of these ores to the private steel sector is not necessarily commercially viable to extract. The presence of the ores in environmentally sensitive areas has complicated the problem further.
High capital requirement
The steel industry incurs very high initial capital requirement. The capital costs increase even further depending on which type of technology is needed in the extraction process.
High interest rates
The rates at which firms can borrow for capacity expansion in India is very high relative to other countries. Indian industries are charged 14 per cent, whereas the interest rates in Japan are 2.4 per cent. This may result in production being uncompetitive due to such high financing costs. Therefore only two solutions to improving competitiveness remain, firstly to improve efficiency within the industry and processes involved, or alternatively for the government to intervene and grant subsidies or lower financing costs.
Vision 2020 of the Steel Industry in India: The National Steel Policy aims to increase the total steel production of the country to 110 million tonnes per year in 2019-20 from 38 million tonnes in 2004-05, which is a compound annual growth rate of 7.3 per cent. The total production in 2010 was 66.8 million tonnes and for the years 2005-2010, the steel industry in India achieved compound annual growth rate of over 9 per cent. Whether India can continue to maintain this level of grows remains to be seen, especially when currently battling with inflation and other macroeconomic issues. India’s demand for steel could be a suitable proxy for economic development and growth in India for the years to follow.
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