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New steel policy: Minimum government, maximum intervention?

In a working paper, Niti Aayog (NA) has proposed a new steel policy aimed at increasing steel manufacturing capacity to 300 million tonnes  ( MT) and production to 275 MT by 2025.

The $100 billion Indian steel industry is a key component in the industrial production chain.The World Steel Association (WSA), the global steel industry body, forecasts total world demand at 1500 MT in 2016 and 2017. Further, the WSA states that there is global under-investment in the steel sector. The site Statista, predicts that steel demand would be 1900 MT in 2020 and 2900 MT in 2030. Currently India produces 89 MT and exports a net 2.3  MT annually.

In the face of cheap imports from China, Japan and Korea the government imposed higher tariffs. This has led to improved sales and higher margins for Indian steel companies. In turn this has allowed industry players to repay bank loans. Thus a strong steel industry can have multiple impacts on the economy. In this context, the NA feels that rather than an overhaul of the 2012 Steel Policy, a whole new policy statement will be in order. It wants to examine the entire value chain, from raw materials to finished products. The NA said: “to bring steel sector back on track, mere tinkering in the present policy would not bring out a transformational change that is required.” (Moneycontrol.com, 17 October 2016).

However, there is also a sense of déjà vu.The NA process is eerily reminiscent of the failed five year plans. In the twenty fist century the government must not fall into the trap of ‘commanding heights for the public sector’ and a suffocating ‘I know best’ attitude. Indeed, the Working Paper states that an ecosystem has to be created to ensure profitability and general health of the entire process, including mining, pellet, pet coke, sponge iron, long term finance and transportation strategies. It also goes on to worry about ’windfall profits.’

Market intervention at its worst
This is market intervention at its worst. Another myth that seems to be the bedrock of the ‘policy’ is that domestic manufacturing, irrespective of the costs involved, is better than imports even though scholarly research and practical experience speak against it. It also continues the state’s policy of privileging the producer over the consumer. Again, from the Working Paper it is not clear if the authorities have factored in new technological developments, like additive manufacturing, 3D printing… which use much less material than earlier processes. How would this impact demand for steel?

As if to allay such fears, the paper states: “Niti Aayog, being government's think tank, would be the right place to build on the consensus for a new National Steel Policy with the support from different stakeholders comprising various ministries, PSUs, state governments, industry associations, academia, think tanks, etc.”

’The only omission in the list is of course the poor consumer, who likely will be forced to consume the costly and/or poor quality steel that this policy produces.

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