Relevance: GS-3: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.

Key Phrases: Global manufacturing hub, MSMEs, High steel prices, Steel exports, Hot-rolled coil, Cold-rolled coil, Crude steel, Production-Linked Incentive (PLI) scheme, National Steel Policy.

Why in News?

• Holistic pricing of the key input like Steel is needed if India is to become a global manufacturing hub and its MSMEs are to thrive.

Context:

• In a bid to rein in all-time high steel prices, the government imposed 15 per cent export duty on a range of finished steel products.
• Steel exports are now seeing a pronounced drop of up to 20 per cent and prices in the domestic market have fallen by 8- 10 per cent since the Centre levied the export duty on finished products such as bars, wire rods, angles, Hot-Rolled Coil (HRC) and Cold-Rolled Coil (CRC) that accounted for nearly 95 per cent of India’s finished steel export.
• The steps taken by policymakers should also make products like engineering goods, automobiles and parts, tractors and agri-implements more competitive.
• But to take on China and make India a global manufacturing hub, much deeper, long-term reforms are required in the steel sector.

 

Production and Market of steel in India:

• In FY22 (till January), the production of crude steel and finished steel stood a 98.39 MT and 92.82 MT, respectively.
• The consumption of finished steel stood at 86.3 MT in FY22 (till January). Between April 2021-January 2022, the consumption of finished steel stood at 86.3 MT.
• In FY22 (until February 2022), exports and imports of finished steel stood at 12.2 MT and 4.3 MT, respectively. In April 2021, India's export rose by 121.6% YoY, compared with 2020..
• As of January 2022, India was the world's second-largest producer of crude steel.

Challenges faced by the steel industry in India:

• Shortage of metallurgical coal:
  • Although India has huge deposits of high grade iron ore, her coal reserves, especially high grade coking coal for smelting iron are limited.
  • Many steel plants are forces to import metallurgical coal.
• Shortfall of capital:
  • Large-scale industries like steel require huge capital investments. In India even the major public sector integrated steel plants are aided by foreign investments. Thus, the production cost increases and so do other expenses.
  • It all leads to higher domestic steel prices which in turn leads to a decrease in domestic demand.
• Power problems:
  • Cost of electricity in India is among the highest in the world and on top of that the supply and quality remain uncertain. This has slowed down the progress of steel making in the country.
• Lack of technological advancement:
  • Steel Industry in the 21st century heavily depends on technology. The technologically advanced machinery, tools, and equipment give a significant boost to steel production and steel procurement. But this is not available to many companies due to various factors like capital, land, expertise, manpower, and more. Thus, utilizing cost-intensive methods that spike the domestic steel prices in India.
• Low Productivity:
  • The per capita labour productivity in India is at 90-100 tonnes which is one of the lowest in the world.
• Poor logistics:
  • Whether it is physical transportation of raw materials for steelmaking or physical transportation of finished steel to demand centres, transportation of bulk materials is always challenging, arduous and costly for Indian steel makers due to poor logistics. It has resulted in high costs at every stage.
• GHG emissions:
  • The steel industry contributes to roughly 9 per cent of the country’s total GHG emissions.
• Low potential utilisation:
  • The potential utilisation in iron and steel is very low. Rarely the potential utilisation exceeds 80%. This is caused by several factors, like strikes, lockouts, scarcity of raw materials, energy crisis, inefficient administration, etc.

Government Initiatives:

Some of the other recent Government initiatives in this sector are as follows:

• In October 2021, the government announced guidelines for the approved specialty steel Production-Linked Incentive (PLI) scheme.
• In October 2021, India and Russia signed an MoU to carry out R&D in the steel sector and produce coking coal (used in steel making).
• In June 2021, JSW Steel, CSIR-National Chemical Lab (NCL), Scottish Development International (SDI) and India H2 Alliance (IH2A) joined forces to commercialise hydrogen in the steel and cement sectors.
• Under the Union Budget 2022-23, the government allocated Rs. 47 crore (US$ 6.2 million) to the Ministry of Steel. The budget's focus is on creating infrastructure and manufacturing to propel the economy.
• In addition, enhanced outlays for key sectors such as defence services, railways, roads, transport and highways would provide impetus to steel consumption.
• The Union Cabinet, Government of India approved the National Steel Policy (NSP) 2017, as it intends to create a globally competitive steel industry in India.
• NSP 2017 envisage 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030-31.

Way Forward:

• Presently, the government is trying to support the industry through the RBI’s strategic debt restructuring scheme. But it needs long-term finance, such as, pension funds, savings etc. which can withstand cyclical volatility of profits unlike funding from banks or capital markets.
• The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel.
• The steel industry needed a comprehensive planning for modernisation, up-gradation of technologies, replacement of obsolete equipment and removal of technological imbalances.

Source: The Hindu BL

Mains Question:

Q. What are the challenges being faced by the steel industry in India? Suggest measure to overcome the same.