Make in India in machinery may get leg up from ambitious steel output plan

The domestic steel industry's success depends on a robust supply of locally manufactured machinery and spare parts that the country lacks

Ideally, India should have focused on developing a robust indigenous steelmaking plant and equipment manufacturing base much earlier since it was known for long that the country would require growing quantities of the metal for infrastructure projects and the rapidly growing automobile industry. 

But this deficiency in capital goods manufacturing and also in know-how and engineering is not restricted to the steel industry alone. The highly mature Indian aluminium smelting industry with capacity exceeding 4 million tonnes (mt), too, either turns to Alca-owned Aluminium Pechiney or Gami of China to handhold it for technology and procurement of machinery from foreign companies. The story is no different for our copper smelters. 

Steel Secretary Binoy Kumar thinks all this is because our capital goods sector remains “relatively underdeveloped, weighed down by low investment in technology and talent.” But the situation, according to him, offers a unique “business opportunity” to foreign original equipment manufacturers and their Indian peers to build a production base here and then take advantage of the overflowing demand for steelmaking equipment being generated by India’s march to 300 mt capacity by 2030-31 from about 140 mt now. From an importer, India has the potential to become an exporter of steelmaking machinery.

The challenging steel capacity chase over the next 12 years will require investment of $128 billion in brownfield and greenfield projects. In the absence of local competence to make a good number of critical equipment, imports of the order of $25 billion or more will be needed to support the ambitious steel capacity building. What is more, once the targeted 300 mt capacity is achieved, the steel industry will be left with no option but to spend up to $620 million a year on import of proprietary and other spares.

These estimates are based on experiences of SAIL, which modernised and expanded capacity of plants to 21 mt, and NMDC, which is on the verge of completing a 3-mt steel mill at Nagarnar in Chhattisgarh. Kumar gives an apt message to steel companies creating new capacity — that their “imported plants may be coming at an acceptable cost, but this is more often than not followed by high-priced maintenance contracts and spares.” 

Kumar gives us to understand that building of local steel equipment capacity by our leading engineering groups such as HEC, Larsen &Toubro and Mukand and foreign entities, either on their own or in joint ventures with Indian companies, will create an environment of competition among machinery manufacturers to the advantage of the steel industry. Not only that, the development will lead to significant reduction in cost of steel plant maintenance. What, however, has to be ensured, especially in the context of growing consumer quality awareness, is that the whole range of steelmaking machinery and the spares thereof sought to be manufactured here are of world class available at globally competitive rates.  

Over the years, Indian steel groups have thought it wise to make procurement of machinery and equipment from Western countries. The practice gave them assurance of making quality steel products and cost competitiveness. “Indian steel manufacturers prefer to go with demonstrated experience, which naturally tilts the balance in favour of ... experienced and technologically advanced western players,” says a steel ministry report. But in more recent times, leading Indian steelmakers from JSW to Tata Steel to SAIL have acquired critical equipment such as blast furnace, basic oxygen furnace and coke oven from Chinese manufacturers who claim to match Western quality at attractive prices. Today, Sinosteel, Shougang and MECC of China are no less in contention than their counterparts in the West when Indian steel groups are out to buy machines. 

The world is well aware of Chinese dominance of global steel industry in terms of capacity, production and consumption. What at the same time is noteworthy is that the country has skillfully leveraged rapid growth in steel capacity, ahead of the brake applied more recently to assuage concerns about overcapacity and pollution during winter, to develop competence in designing and manufacturing the whole range of machinery and equipment needed for steel mills. China has become more than self-reliant in steelmaking machinery, as our own imports will confirm, challenging the dominance of Western manufacturers. 

Tata Steel Managing Director TV Narendran sees China’s emergence as a major manufacturer of machines a natural progression for a country bulging with steel capacity. According to him, in India’s quest for building a robust machinery manufacturing base, the Chinese road map will be worth considering. The continued success of this segment of Chinese capital goods industry is as much because of local entrepreneurship as of backing by Beijing. What has particularly helped is the Chinese procurement policy making it obligatory for government undertakings to buy locally made machines and services. Imports are allowed only if the items are not locally available or are for use abroad by Chinese firms in the process of executing projects. 

It’s a given that steel growth in future will be confined mainly to India as China has stepped up the process of closing down environment unfriendly and ageing mills. In the circumstances, realising that India is finally mounting a campaign to become a manufacturer of steelmaking machines of consequence, major producers from the West and China didn’t want to give a miss to the recent steel ministry organised conclave on capital goods. The challenge now for New Delhi will be to create an ecosystem which will help in translating the majority of the 38 deals signed by technology providers and machinery manufacturers into actual businesses. Investments of around Rs 400 billion are envisaged in the deals. 

Steel Minister Birender Singh has promised that the government will enact a policy that will give “purchase preference” to locally made capital goods for the steel industry. Singh’s assurance is on the line of the prevailing preference given to local steel products in all government procurement. But when it comes to capital goods, private sector steelmakers with an 83 per cent share of capacity will have to be prevailed upon to lend full support to the promised procurement policy to make it meaningful. 

Private sector is gung-ho about the growing capacity. JSW is targeting a capacity of over 50 mt by 2030 and Tata Steel wants to be a 25-mt group in the next 10 years. At Angul in Odisha, JSPL has plans to become a 20-mt complex from 6 mt now. ArcelorMittal sees in Essar the scope to double capacity to 20 mt. Hopefully, SAIL and Vizag Steel will too become ambitious. NMDC, once it commissions the 3-mt Nagarnar mill, should consider building new greenfield projects.

STEEL FRAMEWORK
 

• India’s steel capacity is set to reach 300 mt by 2030-31 from about 140 mt now
• $128 billion will be invested in steel projects over the next 12 years
• Machinery worth $25 billion will be imported to support the steel capacity
• Spare parts worth $620 million will be imported annually