Challenges faced by the Indian Steel Industry

Challenges faced by Indian steel industry

In February of 2018, India overtook Japan and now stands as the second largest producer of crude steel in the world. At present, China is the largest producer of crude steel in the world, accounting for about 50 per cent of the production. But even while being the second largest producer of crude steel, India is not able to access its full potential in production of structural steel and relies on import of structural steel to a certain extent. The government has taken a host of steps to curb imports, push local demand with initiatives like ‘Make in India’, implementation of the GST and infrastructure projects, to encourage the domestic market. However, there are some major challenges faced by this industry:

  1. Lack of Capital:
    The iron and steel industry requires large capital investment which a developing country like India cannot afford. Many of the public sector integrated steel plants have been established with the help of foreign aid. This increases the cost of construction of steel structures manifold.
  2. Lack of Technology:
    Throughout the 1960s and upto the oil crisis in mid-1970s, Indian steel industry was characterised by a high degree of technological efficiency. This technology was mainly from abroad. But during the following time period after the oil crisis, steep hike in fuel costs and escalation of other costs related to inputs for steel manufacturing, reduced the margin of profit of the steel plants in the country. Resultantly, it caused lower levels of investment in technological developments. In countries like Japan and Korea, less than 1.1 tonnes of crude steel is required to produce a tonne of saleable steel. In India, the average is still high at 1.2 tonnes.
  3. Low Productivity:
    The per capita labour productivity in India is at 90-100 tonnes which is one of the lowest in the world. To put it into perspective, a mini mill in the U.S. employs less than 300 employees to produce 1.2 million tonnes of hot rolled coils. A comparable facility in India employs 5,000 workers. Therefore, there is an urgent need to increase the productivity which requires retraining and redevelopment of the labour force.
  4. 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.
  5. Shortage of metallurgical coal:
    Although India has huge deposits of high grade iron ore, the coal reserves, especially high grade cooking coal for smelting iron are limited. Many steel plants are forced to import metallurgical coal. For example, steel plant at Vishakhapatnam has to import coal from Australia. This results in the increased cost for locally produced steel and therefore less demand. Serious thought is now being given to replace imported coal by natural gas.
  6. Inferior quality of products:
    Lack of modern technological and capital inputs and weak infrastructural facilities leads to a process of steel making which is more time consuming, expensive and yields inferior variety of goods, forcing us to import better quality steel from abroad.

Even at low per capita consumption rate, demand for steel is increasing with each passing day and large quantities of steel are being imported for meeting the demands. Therefore, production has to be increased to save foreign exchange and to strengthen the infrastructure growth in our country. Given the ample reserves of ore in our country, with strategic investment in technology and efficient use of resources, India could beat its competitors in the steel export market in the next few years.