Steel projects that have suffered on account of inefficient management, unwillingness of the promoters to bring in additional resources or diversion of funds by promoters should be de-linked from the existing promoters, according to the draft report of the macro-policy examination group on the steel sector.
The group has also said the last-mile projects that are viable in the longer run may be supported to reach completion. In case of other projects, the option of freezing them at their current stage of completion for sale at the right time may be considered.
The group has also highlighted the need to establish a Steel Revival Fund by the government in order to fund these projects and take away the burden from the financial institutions and banks.
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The committee that prepared the report had JJ Irani, chairman, Indian Steel Alliance; SN Das, joint secretary, ministry of steel; Y Radhkrishnan, managing director, SBI as its members.
It suggested that the Steel Revival Fund should be similar to the Textile Upgradation Fund and should provide low-cost funds to steel producers and should finance steel exports. Consolidation will help weaker companies to tide over the downturn in the industry as well as enable the domestic steel industry to achieve economies of scale, it has said.
According to the macro-policy examination report on the sector, financial institutions and banks had an exposure of about Rs 35,000 crore to the iron and steel sector.
Of this, a considerable part of the portfolio has turned out to be non-performing, impinging upon profitability and cash flow of these FIs. Therefore, in the present circumstances, it will be inappropriate to expect the institutions and banks to bear substantial sacrifices that might arise out of restructuring of liabilities, the committee has said.
Institutions and banks may be allowed to raise tax-free relief bonds for making low-cost funds available, it has suggested adding that relief bonds, duly guaranteed by the central government, should be provided at lower interest rates.
According to the report, some of these projects have been severely affected by substantial time and cost overruns. These projects may not be viable until the demand situation improves.
In fact, the report says exports should be encouraged and the Steel Revival Fund must provide adequate financial support to help in the reduction of the oversupply situation in the domestic market.
At the same time, due to over capacity in the market, green-field and brown-field projects need to be discouraged, says the reports suggesting that modernisation and capacity balancing of the existing units may have to be supported on merits of each case.
The committee also recommended that the custom duty, which is at present 25 per cent for hot-rolled coils and 35 per cent for finished goods, should be increased to 40 per cent. This rate should be maintained for at least three years to provide the domestic industry to overcome the adverse conditions and gain a competitive edge.