Cause for celebration

The signing of a memorandum of understanding between the government of Orissa and Korean steel leader Posco, to set up a 12-million-tonne steel plant in the state, marks the largest foreign investment deal in the history of the country.

The natural advantage created by the presence of abundant high-quality iron ore was always there. But the fact that Posco has come forward now means several things.

One, the Indian economy is emerging as a source of global steel demand and supply. Two, it is becoming increasingly difficult for global steel makers to take iron ore out of one country and make steel in another, and hence the quicker a producer can locate a large steel mill near where the iron ore is of superior grade, the better.

Three, if others do not take steps to meet this demand, then Indian companies will grab the market with their own expanding steel-making capacity.

Four, the state of India's infrastructure and regulatory systems, particularly the aggressive self-marketing by state governments, makes it possible to run a large, globally competitive steel-making unit in the country.

While some celebration is in order, the Posco decision has several implication for Indian steel makers and the authorities. At least one Indian steel maker, Tata Steel, has been considered globally competitive for some time but it may now need to run a little faster.

Tata Steel itself has recently signed an MoU with the Orissa government to set up its own 6-million-tonne steel mill in the state but its project could have been the first as well the biggest by now if it had not abandoned its earlier decision to set up a plant at another location in the state.

The company now shows every sign of trying to pick up steam in order not to be left behind. The other major Indian steel maker, SAIL, has also chalked out ambitious plans to expand capacity but has a long way to go in emerging as a global player in terms of quality and operational efficiencies.

The Posco deal, impressive as it is, was overtaken by controversy ever since its details became known. The bone of contention was its desire to export iron ore from India, which was strongly resisted by Indian steel interests.

Don't allow iron ore exports, insist on steel being made in India, the industry argued with the government. This would have become largely an academic exercise if the Indian industry leaders, particularly Tata Steel, had firmed up their own plans and sewed up the known iron ore reserves in good time.

It is of course better for steel to be made in India rather than have iron ore exported, but the best way to ensure this is not by administrative fiat; the preferred route should be Indian companies developing the necessary global ambitions and the Indian government making India a more attractive place for making steel.