Indian Steel Industry Issues – UPSC GS3

Significance of Steel Industry

• Steel is front and centre in India’s recovery.
• The industry rests on mutual support – investment is made by entrepreneurs, the government offers supportive policies.
• Government will lend weight to India’s competitive and comparative advantages, especially in manufacturing, in a post covid-19 economic order.
• Indian steel’s guiding light is a steel ministry vision of 300MT of capacity by 2030, currently at about 138 MT.
• The pandemic will put pressure on this target.

Why Indian steel industry is non-competitive?

• Indian steel manufacturers bear multiple local taxes – electricity and cross-subsidy duties, clean energy cess and royalties on ore and there are more.
• These taxes make up 12% of the price of steel.
• In rival markets, these levies either do not exist or are comparatively lower.
• So Indian steel is non-competitive even before it leaves our plants.

Impact of Covid

• Impact of Covid on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 MT, was calamitous.
• During the pandemic, the mills’ massive blast furnaces continued to burn.
• Closure and reopening of furnaces can take up to 12 weeks; the process is complex, and maintenance costs are high.
• So, the furnaces were burning during the lockdown.
• India’s mills have continued to bear high fixed costs: firing furnaces but without making much steel.
• Because of this, smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.

BAT could help

• Introduction of a Border Adjustment Tax, known as BAT could help India’s steel industry.
• Many countries use BAT to protect local steel manufacturers.
• With economic pain unleashed by the pandemic and threat posed by Chinese state-subsidised steel imports, India hardly affords not to BAT.
• BAT would create a level playing field.

How the demand can be improved

• Steel needs more infrastructure projects. Also, the fillip would be for the government to pay on time. Expedite the work.
• An initiative to consign old cars to the scrap heap would significantly lift demand for steel to build replacement cars.
• Improving the logistics chain would help transport finished goods and materials more quickly and less expensively.
• Make steel the material of choice in the construction of flyovers, roads bridges and crash barriers, improving their safety, durability and, as a result, their life-cycle cost.
• Indian mills possess world-class infrastructure and capacities and have integrated backwards by acquiring mining rights, partly to mitigate costs. As mentioned, one is high taxes on input materials such as energy.

Conclusion