The global steel industry has entered an era of massive
paradigm shifts. It’s time India equips itself to swoop up the underlying opportunities by directing efforts towards addressing crippling issues of logistics, R&D, and skill development.
India is gearing up for big-ticket economic growth in the decades to follow. The experience of nations like South Korea, China and Japan shows that rapid economic development leads to a steep rise in the demand for iron and steel. Remember, steel is a critical input in major sectors like construction, machinery, automobiles, energy and transportation.
When compared to the world average per capita steel consumption of 208 kg, India stands at a mere 63 kg (2016), making it a blessing in disguise for the steel industry. With quite a few advantages such as abundant iron ore reserves and competitive wages, India is already ahead of its game in steel manufacture.
China is currently the largest steel producing and consuming country (45 per cent demand; 50 per cent production), with forecasts of declining growth rate in demand at 0.9 per cent (World Steel Association estimates) over the next decade. Such an occurrence would clear the way for India to attain better demand capacities, contributing 35 per cent of the total increase over the next decade. Implementation of GST, liberalisation of the foreign direct investment policy and contemporary initiatives such as ‘Make in India,’ ‘Digital India’ and ‘Skill India’ also will expedite the economic development.
However, a few stumbling blocks and untapped opportunities must be addressed.
COST OF DOING BUSINESS
India has jumped 30 places to rank 100 in the ‘Ease of Doing Business Rankings’ released by the World Bank. It doesn’t as yet call for celebrations, as the country still lags in areas such as starting a business, enforcing contracts and dealing with construction permits. Inadequate infrastructure, restrictive labour laws, and complicated business environment are other factors choking India’s otherwise prosperous growth. For instance, while the effective taxation on mining hovers around 45 per cent for most of the mineral-rich countries, India stands at 65 per cent. Auctioning of mineral assets drives this rate further up with winning bids committing to a royalty payout equal to the published prices of iron ore, i.e., paying a 100 per cent royalty in addition to the cost of mining the ore and other taxes.
As a highly capital-intensive industry with a minimum viable unit size of three mtpa (million tonnes per annum), a steel plant requires an investment of more than Rs 15,000 crore. Delays in getting environmental clearances and completing the land acquisition often set back projects, discouraging potential future investments. The high cost of capital in India makes timely project execution even more critical to the success of the expansion.
Logistics constitute 25 per cent of the delivered cost of steel and has affected cost competitiveness of Indian goods in global markets. Timely availability of railway rakes for transport of raw materials and finished products is a challenge for many steelmakers. The viability of greenfield projects would depend on how quickly infrastructure can be extended to these potential new sites in a cost-effective manner. Such cost effectiveness is pivotal to achieve a capacity of 300 mtpa by 2030, as stated in the National Steel Policy of 2017.
Going the extra mile to establish a strong research eco-system with pioneering technology is an equally pressing necessity. Climate change challenges have pushed the steelmakers into adopting low greenhouse gas emitting technologies and business models, with customers also jumping on the bandwagon to ensure low life-cycle emissions from their products. Such a healthy, collaborative eco-system encompassing industry can be brought about only when sizeable impetus is offered to research institutes and universities.
CAPITAL GOODS INDUSTRY STILL NASCENT
India’s capital goods sector accounts for just 0.6 per cent of GDP as compared to a prominent 4.1 per cent in China. Capital goods industry catering specifically to needs of the steel industry in India remains in a nascent stage, primarily due to the unwillingness of foreign suppliers to share process technology coupled with lack of investments in R&D. If India were to build 100 MT of steel capacity in the next decade, about $ 25-30 billion worth of capital goods would have to be procured. Today, most of this is ordered from Europe, USA, Japan, S Korea or China. Over the last 20 years, led by the Chinese government’s focused approach, China has not only spearheaded steel manufacturing but has also significantly added capabilities and capacities in design and production of steel plant equipment. With the Indian steel industry poised to grow at a rapid pace, the development of such industry needs to be prioritised. There is an urgent need to focus on government policies to develop indigenous steel technologies and equipment industry, incentivising investment in R&D for capital equipment manufacturers and encouraging technology collaboration with international technology owners and foreign suppliers.
SMART MANUFACTURING – INDUSTRY 4.0
The Fourth Industrial Revolution is making huge waves worldwide by accelerating the integration of traditional industries and information and communications technology. The Internet of Things (IoT), Big Data, 3D printing, Advanced Robotics and Artificial Intelligence (AI) are forcing traditional industrial structures to scale up rapidly. This revolution, in the Indian context, brings along with it tremendous opportunities to leapfrog many stages of development into becoming an industrialised and developed nation. Adopting Industry 4.0 will entail using the digital platform and enable smarter management of supply chains, manufacturing operations and lifecycle management. Customising technologies such as AI and virtual factories and applying them to the production sites would provide a definite edge in this race.
In every industry, let alone steel, a digitally sound workforce is critical for sustained prosperity in the long run. Similar to the services sector, the manufacturing industry and steel, in particular, need to offer an employee value proposition to ensure engagement of quality talent. Re-skilling has also gained a conspicuous role in acclimatising to the ever-changing disruptive technologies.
While India is a bright spot in the global economy which will lead global steel demand growth, the industry and the government need to go hand in hand to ensure that India does indeed wear the crown of ‘steel powerhouse’ of the world.