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Steel Industry sector can provide economic boost to India
Since the Industrial Revolution in 18th Century, steel has been an important ingredient for economic growth. Steel has uses in various sectors viz. infrastructure, automobile, manufacturing, construction, etc. and, thus, is an important factor driving India’s GDP growth. In FY2020-21, India is the second largest producer and consumer of crude and finished steel. According to World Steel Association, SAIL, Tata Steel and JSW Steel were in the top twenty-five steel producing companies in 2020. In 2021, India produced 96.9 million tonnes (MT) of crude steel, up 20.6% year-on-year.
In India, steel has an output multiplier effect of nearly 1.4x on GDP and employment multiplier factor of 6.8x. Steel sector provides 20,00,000 jobs in the country. India’s GDP grew at 8.4% in the second quarter of FY2020-21. RBI expects the real GDP growth at 9.5% for FY2020-21. The contribution of steel to India's economy is around 2%. The growth in steel sector is expected to improve the economic growth rate of India.
Measures to Boost Economic Growth
In recent years, the Government has passed reforms for the growth of the steel industry in India. Some of the reforms are as follows:
- FDI: The Government has allowed 100% FDI through automatic route for the steel sector in India.
- National Steel Policy (NSP), 2017: NSP 2017 aims to create a well-developed and highly competent steel industry to boost economic growth through measures such as meeting steel demand domestically through availability of raw materials and capacity additions and in a cost-effective manner. The Policy also aims, among others, to increase the per capita steel consumption from 74.1 kgs (2018-19) to 160 kgs by 2030-31 and to grow the steel-making capacity from 142 MT per annum (MTPA) (2018-19) to 300 MTPA in 2030-31.
- Steel Scrap Recycling Policy (SSRP), 2019: The Government notified the SSRP to provide for guidelines for metal scrapping centres in India. The framework provides guidelines on scrap segregation, collection, processing, etc. in a scientific manner. This is to recycle and reuse scrap to produce high quality steel. This will ensure more steel production and, thus, reduce dependency on imports.
- Domestically Manufactured Iron and Steel products (DMI&SP) Policy: This policy mandates providing preference to DMI&SP with a minimum of 15%-50% value addition in Government procurement. The policy is applicable to iron & steel products supply having aggregated estimate value of Rs. 25 crores (US$ 3.3 million) or more and not applicable to products not manufactured in the country or in the required quantities. This policy is also helping with import substitution of steel.
- Production Linked Incentive (PLI) for Specialty Steel: In October 2021, the Government approved the PLI Scheme for Specialty Steel Sector for a 5-year period. Today, specialty steel accounts for about 18% of steel produced in India and can meet only 85% of domestic demand. The balance is met through imports. This Scheme aims to promote manufacturing of specialty steel in India through capital investment, employment generation and technology upgradation, thus, reducing dependence on imports in meeting the domestic demand.
- Steel and Steel Products (Quality Control) Order: This policy was enacted to maintain quality control and ensure quality steel products to consumers through the adoption of Quality Control Orders (QCOs) which made BIS Standards mandatory. It also aimed at strengthening
- Other Initiatives: Other Government initiatives include creating Steel Zones and Steel Clusters, promotion of greenfield investments, R&D for production of better quality and cleaner steel, agreements with countries like Russia and Japan for R&D and trade, etc.
These measures are helping to provide an impetus to India’s steel industry and thus, helping boost economic growth of India.
The Indian steel sector have seen large investments in the past few years. As per a forecast by BHP Billiton, an Anglo-Australian mining giant, Indian steel demand may reach 170 MTPA by 2024-25 and 300 MTPA by 2030.
Capital Investments: Kearney, a management consulting firm expects steel demand to rise from 100 MTPA in 2020 to 230 MTPA in 2030-31. To meet the high demand, steelmakers are ramping up their capacity through large capital investments. JSW Steel invested Rs. 280 billion (US$ 3.7 billion) to expand its steelmaking capacity from 24.5 MTPA in 2021 to 36.5 MTPA in March 2024. Tata Steel announced investment of Rs. 80 billion (US$ 1.1 billion) towards completion of the expansion of the Kalinganagar plant which will increase the capacity to 8 MTPA from 3 MTPA, and expansion of mining operations and recycling business. SAIL, too, is on the verge of completing a Rs. 700 billion (US$ 9.3 billion) modernisation and expansion programme to increase its capacity to 21.4 MTPA.
Further, higher steel prices have added to the profitability of steelmakers, thus, allowing them to focus on capacity increases and capex. As per RCP Singh, Minister of Steel, prices of various steel products such as wire rods, plates and TMT bars have risen up to 117% since 2015.
R&D Investments: In response to demand for high quality steel products and willingness to pay premium prices, Indian steelmakers are shifting from mediocre to superior quality of materials. Companies are employing new technologies and investing in R&D, to produce steel products of import substitution kind. The Government has encouraged this by approving specialty steel in the PLI Scheme.
Concerning the environment, the global steel industry accounts for 7% of greenhouse gas emissions annually. As per a steel sector report called ‘Decarbonizing Steel: A Net-Zero Pathway’ by Bloomberg NEF, by investing US$ 278 billion and using green hydrogen and recycling technologies, the steel industry could eliminate carbon emissions by 2050. Further, green hydrogen could be a cost-efficient production method.
Steel News India: Indian steel industry news, in 2021, has generally been positive due to rising steel demand, higher output, better profitability, etc. ICRA, a rating agency, has maintained a positive outlook on the industry due to record high profits, riding on rising deliveries and pandemic recovery.
Future Industry in India 2025
There is a huge scope for Indian steel sector, given its low per capita steel consumption. The demand for better quality steel products is expected to be met domestically, due to capacity increases and R&D investments. The green push is expected to make steel production cleaner and cheaper. All this is expected to make India Atmanirbhar in steel, allowing India to retain its status as a net steel exporter.
Given the various applications for steel, the steel industry is critical. The post-pandemic recovery is highly positive for construction and infrastructure sectors. This is coupled with the government reforms which is adding to the growth. Due to rising demand for Electric Vehicles, the automobile sector is expected to add to the steel demand. Indian steel demand is expected to rise to 170 MT by 2025 and capacity is expected to reach 180-190 MT. Further, the Government expects India to be a US$ 5 trillion economy by 2025. Given all these facts, the future of steel industry in India seems bright and the steel sector is expected to provide a fillip to the Indian economy.