From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Issues faced by steel industry
The steel industry forms the backbone of the economy. This article highlights the difficulties of the industry magnified the pandemic. Ans suggest ways to revive demand.
BAT could help
- Introduction of a Border Adjustment Tax, known as BAT could help India’s steel industry.
- Many countries use BAT to protect local steel manufacturers.
- With economic pain unleashed by the pandemic and threat posed by Chinese state-subsidised steel imports, India hardly affords not to BAT.
- BAT would create a level playing field.
Why Indian steel industry is non-competitive
- Indian steel manufacturers bear multiple local taxes – electricity and cross-subsidy duties, clean energy cess and royalties on ore and there are more.
- These taxes make up 12% of the price of steel.
- In rival markets, these levies either do not exist or are comparatively lower.
- So Indian steel is non-competitive even before it leaves our plants.
Impact of Covid
- Impact of Covid on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 MT, was calamitous.
- During the pandemic, the mills’ massive blast furnaces continued to burn.
- Closure and reopening of furnaces can take up to 12 weeks; the process is complex, and maintenance costs are high.
- So, the furnaces were burning during the lockdown.
- India’s mills have continued to bear high fixed costs: firing furnaces but without making much steel.
- Because of this, smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.
Significance of Steel Industry
- Steel is front and centre in India’s recovery.
- The industry rests on mutual support – investment is made by entrepreneurs, the government offers supportive policies.
- Government will lend weight to India’s competitive and comparative advantages, especially in manufacturing, in a post covid-19 economic order.
- Indian steel’s guiding light is a steel ministry vision of 300MT of capacity by 2030, currently at about 138 MT.
- The pandemic will put pressure on this target.
Short term hurdles faced by Steel industry
- Government capital expenditure is diverted to public health.
- Real estate builders have an interest in large scale construction.
- Car manufacturing will not see upturn until the second half of the year.
- The pandemic has also hurt demand for capital utilisation, weighing heavily on capex.
How the demand can be improved
- Steel needs more infrastructure projects. Also, the fillip would be for the government to pay on time. Expedite the work.
- An initiative to consign old cars to the scrap heap would significantly lift demand for steel to build replacement cars.
- Improving the logistics chain would help transport finished goods and materials more quickly and less expensively.
- Make steel the material of choice in the construction of flyovers, roads bridges and crash barriers, improving their safety, durability and, as a result, their life-cycle cost.
- Indian mills possess world-class infrastructure and capacities and have integrated backwards by acquiring mining rights, partly to mitigate costs. As mentioned, one is high taxes on input materials such as energy.
Consider the question “Examine the issues Indian steel industry faces. Suggest the ways to make it more competitive.”
A revived economy means a revived steel industry. The government should provide the wider and deeper support to the government to bring this vital sector back on the track and make help achieve global competitiveness.