Loading Posts...

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).

It is also revealing that due to adverse global prices and predatory dumping of steel, as conceded by the mandarins in the Ministry of Steel in a query to Parliament recently, the indigenous iron and steel companies were under financial pressure as reflected in their financial performance in 2015-16. Only a well-managed private firm like Tata Steel posted profit after taxes of Rs 4900 crore in that year, while other private companies such as JSW at -3498 crore rupees, JSPL at -1019 crore rupees, Bhushan Steel at -2839 crore rupees and public sector behemoth SAIL at -4137.28 crore were wallowing in the red. It is also interesting to note that the country’s steel production has been steadily going up from 81.69 million tonnes in 2013-14 to 88.98 million tonnes in 2014-15 to 89.79 mt in 2015-16 and to 97.38 mt during the first eleven months of 2016-17 (Apr-Feb).Real consumption on the other hand has not been showing any dramatic spurt, ranging from 74 mt in 2013-14 to 76.99 mt in 2014-15 to 81.52 mt in 2015-16 and to 83.93 mt in the first eleven months of 2016-17. Obviously the domestic consumption is made up of a variety of steel products including specialty steel for which the country had to depend on imports for running industrial machinery industry producing capital goods.

The NDA government unveiled a National Capital Goods Policy early this year, following its launch of a scheme in November 2014 for enhancement of competitiveness of the domestic capital goods sector. As the country’s share in global export in capital goods sector was a measly 0.8 per cent against China’s 15.5 per cent, the government launched the national capital goods policy with a view to augmenting the sector’s contribution from 12 per cent to 20 per cent in total manufacturing by 2025. The 16 per cent targeted growth rate for this sector is far removed from ground reality as the capital goods sector growth has been anything but dismal. Save in 2014-15, when this sector posted a moderate 6.3 per cent growth, its growth had been consistently negative ranging from -6.3 per cent in 2012-13 to -2.9 per cent in 2015-16.

Industry insiders concede that the government is not following any holistic industrial policy as its fragmented approach to favour one industry without understanding its wider impact on other user industries is like cutting the nose to spite one’s face! For instance, when import duty is levied or anti-dumping duty or safeguard duty is contemplated and implemented to protect domestic steel industry, the fallout of such a course on other industries using steel as intermediate input puts them into grave peril. The Mumbai-based Process Plant and Machinery Association of India (PPMAI) in a recent communication to the Ministries of Steel and Heavy Industry had drawn attention to the piquant position in which the country’s capital goods industry was in.

PPMAI secretary V.P.Ramachandran in a missive to the concerned ministries sought to exempt stainless steel imports above 1250 mm width for all grades widely used by the capital goods sector, which are currently not being manufactured in the country, from import duty in the larger interest of ensuring robust growth of the capital goods industry. The association representing industry topnotch firms such as Larsen & Toubro, Godrej, Thermax Ltd, TUV India and Toyo Engineering India was of the view that the demand for capital goods industry is for new-age grades and sizes beyond 1250 mm width as the industry is buying stainless steel coils and plates in width as high as 3200 mm which the domestic industry cannot churn out. It said the domestic industry can purvey the most common grades like 304 and 306 upto 1600 width only with severe limitations in thickness capabilities withal.

The domestic capital goods sector with a turnover of Rs 2.50 lakh crore with limitless job creation potentials remains sub-scale. If the authorities’ aim to ramp up output of this sector to Rs 7.50 lakh crore with creation of 30 million jobs by 2025, the association contends that any blanket ban on imports of stainless steel products, the crucial raw materials, would deal a raw blow to the cost-effective operations, stymieing the industry’s future growth. It is time the mandarins in the concerned ministries gave their ears to the woes of the industry before it goes broke once for all even as the ailing steel industry is not finding a way out to diversify its product portfolios by retooling and re-engineering! (IPA Service)

0
AgreeAgree
0
DisgreeDisgree
Voted Thanks!
Loading Posts...