Indian Steel Industry Facing A Major Crisis

By G. Srinivasan

Indian steel industry is in dire straits as it is faced with an existential crisis, caught between a deluge of demand for safeguard duty or virtual ban on cheaper imports getting dumped into the domestic market on the one hand and downstream industries disfavoring any such blanket ban on imported steel on the other. This is so because in the latter group, steel is extensively used as an input in various industries like basic metal and non-metal products, machineries, transport, construction and consumer goods.

It is no wonder that an official document like the pre-budget Economic Survey of 2015-16 pertinently pointed out that for a 10 per cent increase in steel prices, the cost of production of basic metal and non-metal products would increase by 5.4 per cent, construction by 1.7 per cent, machineries by 1.3 per cent, transport by 0.7 per cent and the consumer goods sector by 0.4 per cent. The irony-cum-paradox is that if an import levy is slapped either by way of hike in customs duty or anti-dumping duty or safeguard duty, the implication of accompanying cost escalation in a host of downstream industries and its implacable impact on labour-intensive industries is too obvious to be overlooked.

No doubt, the domestic steel industry needs to be nurtured and protected but with its astronomical amount of high borrowings and raw material costs and perpetually abysmal productivity, it is at a relatively disadvantageous situation to fight on its own or face down imports imperiling its very survival. The authorities had also in the past went to the industry’s rescue, arranging a steel package by way loan waiver or extending the tenure of loan with soft interest cost to the detriment of the banking industry’s health! This was much before the 2008 agri loan waiver made a wave of its own, the ricocheting impact of which is still haunting in 2017 with fresh farm loan waivers across the country! In a written reply in the Lok Sabha, Minister of State for Steel.Vishnu Deo Sai said on April 10 this year that the total advances to iron and steel sector from the public sector banks as at end-December 2016 was Rs 2,80,728.27 crore and gross non-performing assets (NPAs) were Rs 1,46,668.85 crore, reflecting that half of the loan extended to this sector had turned bad to the dismay of the lending institution due to its captive exposure to a moribund industry under political duress even when the country adapted market-driven model of growth by degrees for over two and a half decades by now. This is notwithstanding the fact that the domestic steel industry by and large contributes around two per cent in the country’s gross domestic product (GDP).

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