Business Standard

Steel hub of Punjab in dire straits

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Komal Amit Gera Chandigarh
The "steel city" of Punjab, Mandi Gobindgarh, is crumbling under its own weight. There was a spurt in the number of induction furnaces and steel re-rolling mills two years ago, in anticipation of the boom in demand. But most of them are now in the doldrums. Twenty induction furnaces have come up in the past year-and-a-half.
 
Mandi Gobindgarh has about 326 re-rolling mills and 65 induction furnaces that have the capacity to meet demand for 10 years.
 
Speaking to Business Standard, Mandi Gobindgarh Induction Furnaces Association's President Mahinder Gupta said the year 2004-05 was the boom year for the steel units across India.
 
The surge in demand from China triggered the exports from India that was catered by the large units. Consequently smaller units got a niche for themselves in Indian market. Lured by the burgeoning profit margins many existing units expanded in Mandi Gobindgarh and many new players also plunged into business.According to Gupta, the existing units increased their capacity by three times. The was soon over, many of the units are now on the break even point.
 
Mandi Gobindgarh was developed in the year 1940 as a steel city of the North by the Maharaja of Nabha. The ruler of the erstwhile kingdom declared the area as a tax free zone to promote industry in the region. For about four decades, Mandi Gobindgarh remained important steel centre for the entire north.
 
Although it always had the disadvantage of being at a distance from the source of raw material, the industry flourished due to the various kinds of subsidies like freight equilisation and quota on rolling material by the government of India.
 
In the past few years the market has become more competitive due to the removal of subsidies and growth of new steel centres near the source.
 
The local industry also got a blow after theinduction of tax incentives by hill states in the north.
 
The enterprenuers get 16 per cent excise subsidy besides the cheap power in the states of Himachal Perdesh, Jammu and Kashmir and Uttaranchal. The low production cost in these states has squeezed the profit margins of the units based in Mandi Gobindgarh. The enterprenuers lamented that the power tarrif has been revised by the Punjab government by 40 per cent in the past five years.
 
Most of the units are running at less than 50 per cent capacity. Although there is a boom in construction activity in north but the units based in the neighbouring states are offering steel at more competitive prices. The units based in Mandi are waiting for a boom in infrastructure in the region that would create a huge market for their product.
 
The steel city of Mandi Gobindgarh provides bread and butter to about two lac persons across Punjab. The Associations representing these units expect government to give them some relief in the form of rationalisation of power tarrif and lowering of VAT from 4 per cent to 2 per cent.
 
The enterprenuers told Business Standrad that they do not see a future for themselves. It is better to migrate to greener pastures than to languish in a state that has a callous attitude towards the problems of industry, said one of the enterprenuers.

 
 

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First Published: Feb 07 2006 | 12:00 AM IST

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