NITI Aayog member V.K. Saraswat has called for an overhaul of India’s steel policy framed in 2012 as the country is unlikely to meet the target to raise capacity to 300 million tonnes a year by 2025 with ‘mere tinkerings in the present policy’ because the steel industry is ‘in the doldrums.’
Though India is now the third largest steelmaker in the world, a global glut and a surge in cheap imports from China, Russia, Korea and Japan has dented the domestic industry’s fortunes and the sector’s share in the banking system’s stressed assets kitty has gone up to 25 per cent.
In a paper on the need for a new steel policy, the NITI Aayog member has called for a new policy to be drafted under the guidance of the government think-tank that examines that entire value chain of the steel industry, from raw materials to taxation and logistics costs that have hindered growth.
The steel sector had flourished between 2003-04 and 2007-08 and these ‘golden years was the time when India grew at over 9 per cent and sustained this growth rate for three years, whereas the same dipped to 4.7 per cent in 2013-14 from 8.9 per cent in 2010-11,” Mr. Saraswat said.
Though the Centre had extended financial support to the sector earlier, the paper noted that ‘presently, the government is trying to support the industry through the RBI’s strategic debt restructuring scheme for the third time, irrespective of whether the scheme works or not.’
“The steel sector, which has a long gestation period, needs long-term finance like pension funds which have the capacity to withstand cyclical volatility of profits unlike funding from banks, external commercial borrowings or capital markets,” Mr. Saraswat concluded.
Though India’s steel production cost is about $320-$340 per tonne compared to $400 in China and the global average of $390, it is uncompetitive in global markets due to freight costs, higher credit costs, industrial power tariffs, high iron ore royalties, import duties and cess on coking coal.
“For example, freight cost from Jamshedpur to Mumbai can be as high as $50/tonne in comparison with $34 a ton from Rotterdam to Mumbai… These factors have made Indian steel uncompetitive as the final cost of steel rises to around $420 per ton,” he said.
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