Indian Steel Industry in Dire Need of a Revamp Package
The turbulent waters the Indian steel industry seems to be passing through show no signs of giving way to calmer climes. This has created a perfectly solid case for intelligent policy measures that can put help the industry get back on its feet in the country. The steel industry has been seeing low demand and is facing stiff competition from imports. The increasing raw material costs and overheads only go on to compound the problem for the Indian steel industry.
Reports indicate that 2014-15 saw a 50% increase in steel imports over the last year. Imports of Chinese steel has increased a stunning 200% over this time and there is also import pressure from Russian steel producers. However, most in the steel industry agree that the dumping of cheaper steel in India by the Chinese steel producers is a very real threat. Considering that the Chinese have an incredible 800-million-tonne production capacity, 280 million tonnes of which is surplus. Even the European Commission has imposed a provisional anti-dumping duty of 25.2% on stainless steel from China and is lobbying other countries, including the US for similar protective measures.
In September 2015, steel companies reached out to the government and sought a special financial package. This request also included restructuring their loans till March, 2016, without increasing the provisional requirement for the banks. The Indian Chamber of Commerce, on behalf of the Steel Companies, had urged the RBI Governor and Finance Minister to set up an organization like the Power Finance Corporation to take over the loans and set up a separate fund to infuse equity in steel companies.
What the steel industry in India is demanding is not unique in nature. The steel industry was aided by a special package from the government during the challenging economic times between 1999 and 2002. The worst fact here for the Indian steel manufacturers is that the conditions are beyond their control. There has been a global crash in steel prices and the RBI, in its Financial Stability Report last year stated that five of the top ten steel companies in the country are under severe stress.
The doing away of subsidized coal and iron ore for most steel producers means a host of questions for the industry. With a handful of major companies retaining legacy captive mines, others are left to bid for coal and iron ore mines and, as a result, have varying input costs. If in such a scenario the output cost is measured against imports it would definitely present a skewed picture. While the operational efficiency and productivity of the industry needs to be encouraged, specialized products also need to be developed along with steel types.
There are a whole host of solutions available if the government hopes to right he steadily tipping boat of the Indian Steel Industry. From subvention of interest rates to temporarily suspending the duties on coking coal. There is a crying need to reenergize delayed infrastructure projects and will need close monitoring to revive the demand for steel.