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In the last three years of the United Progressive Alliance government, the Indian steel sector had a torrid time. Bureaucrats and industry officials, especially those belonging to public sector undertakings (PSUs), were subjected to hellfire and torment by a whimsical minister from a small town of Uttar Pradesh. He would take delight in running down his officials in public, without letting them know where he wanted the country's steel sector to be in the next five or 10 years.
The minister had a one-point programme of using PSU resources to promote projects in his borough and select parliamentary constituencies in his state to curry favour with his party's top bosses, who were seen as indulging him. None of his sponsored projects would find justification on economic grounds.
Though he went on blundering, both as a minister and a politician, he was tolerated by the Congress in the hope of winning favours of a particular community in Uttar Pradesh. This didn't happen; the minister suffered a humiliating defeat in the recent parliamentary elections. He thought the best he could do for the steel sector was to put it on autopilot.
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As the steel fraternity remained in low spirits, not knowing what the minister would do next, India's economic slide started telling on metal demand and added to the gloom. Not just steel, growth in demand for non-ferrous metals such as aluminium and copper, too, took a hit, as gross domestic product grew a decadal low of 4.5 per cent in 2012-13 and 4.7 per cent in 2013-14, the marginal improvement being entirely on account of a good show by the agriculture sector. Contraction of manufacturing by 0.7 per cent in 2013-14 took the shine off metals.
The steel sector, in capacity-expansion mode, fared badly, as supply was more than demand. The Centre for Monitoring Indian Economy said in 2013-14, projects worth Rs 6.2 lakh crore remained on the back burner. A likely positive for the steel sector is an improvement in rural demand, in the wake of 4.7 per cent growth in agricultural production in 2013-14, aided by a bountiful monsoon. The bumper farm production should leave good investible surplus with growers, to be used in house building, among other things. India's per capita consumption of steel stands at 58 kg, against the global average of 250 kg; rural per capita steel use is only 14 kg, leaving enormous scope for growth. A government paper says every one kg rise in per capita rural consumption will result in an incremental one million tonnes (mt) in steel demand.
At what rate steel demand grows in rural India, home to about 70 per cent of the population, will depend on the quality of market promotion work and steel companies' engagement with buyers through dealer networks in about 600,000 villages. The challenge is to initiate rural folk to use steel in all kinds of construction and take the material to their doorstep in the quantities they need. Sustainability of rural steel demand will have much to do with the country's ability to achieve at least four per cent annual farm growth. After crop harvesting and tending of fields for the next round of cultivation, growers must be left with enough surplus to build pukka houses and grain storehouses.
For this to happen, farmers will have to be enabled to take bad weather such as the below-normal monsoon forecast for this season in their stride; also, they must be adequately rewarded for their efforts. In its election campaign, the Bharatiya Janata Party had accorded high priority to improving the incomes of farmers. What remains to be seen is how the Modi government goes about the job without increasing the subsidy burden.
The Indian metals sector, particularly steel, stands to benefit from the government bringing steel and mines under a single Cabinet minister, Narendra Singh Tomar. The past 10 years saw the steel and mines ministries crossing swords over a development strategy for iron ore. What did not help iron ore mining and promotion of downstream pellets manufacturing using fines was the two ministries staying on opposite poles on mineral exports. No wonder, our iron ore production and exports suffered steep falls in the past few years.
In charge of both steel and mines, Tomar is well placed to strike a balance between the long-term requirements of the mineral by the steel sector, targeting capacity of 300 mt by 2025 and compulsion of mines to export fines to boost production of lumps. The mining ban in Goa has been lifted but mines in that state will have to be enabled to export fines with low iron content.
Usually, Goan fines are only in pellet form. So, there has to be an export outlet for fines if production is to be ramped up to pre-ban levels. Tomar also faces the challenge of ensuring new alumina refineries in Odisha not only have access to bauxite deposits, but also receive all clearances in a reasonable period to open mines. India is rich in iron ore and bauxite deposits. There is no reason why some steel mills and alumina refineries should face difficulties in procuring raw materials.
