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Wills of Steel

“Do you mean to say that Indians can produce Steel rails as per British specifications. If they succeed in making it then I will eat every pound of that steel” remarked Fredrick Upcott, the Chief Commissioner of Indian Railways and taking up the gauntlet TISCO supplied 1500 miles of Steel Rails to the British Railway during WWI and then Sir Dorabji Tata famously said I think that Mr. Upcott would have suffered slight indigestion.

Such is the rich history of India and Indians in the field of Steel. History was repeated again when Tata Steel acquired CORUS (of which British Steel was a subsidiary company- manufacturer of rails for the British Railway) and yet again when Arcelor Mittal supplied 50,000 Tons of Magnelis Steel for the construction of the Large Hadron Collider, particle accelerator at CERN famous for the discovery of Higgs-Boson -The God particle and the largest machine in the world.

This is the industry where we are at the peak of the learning curve and we can compete and beat the best in the world. Steel to us is what Electronics is to Taiwan and South Korea, Textile is to Vietnam and Bangladesh. Today, with a production level of 106.56 MTPA of Liquid Steel we are the second largest Steel producer in the world and yet we import maximum amount of head hardened rails for our Metro Rail projects. This is nothing short of a tragedy. The only facility that can produce head hardened rails in the country as per Research Design & Standards Organization (RDSO) norms is at JSPL, Raigarh with a capacity of 360,000 TPA. The demand projection for head hardened rails in the country is ~ 1 MTPA over the next 5 years.

There is more to what meets the eye. In fact, the above example regarding head hardened rails is not the only one, if we keenly observe our overall Steel product mix, the share of value/high value added finished steel is very low ~ 10-12 %. Neither we are able to leverage our strengths and realize the export potential nor we are able to contain our imports. India export around 8.5 MTPA and imported 8.7 MTPA of finished steel in the last fiscal. In value terms exports were recorded at ~ US$ 5 billion whereas imports at ~ US$ 9 billion. Of the imports, a significant share ~ 30 % can be attributed to high value steels.

This scarcity of value added steels has a domino effect and results in impedance to the growth of high end manufacturing in the country such as ship building; precision engineering, advanced automotives etc., high project cost for critical infrastructure projects such as Metro Rail, lack of aesthetics and robustness in building infrastructure etc.

Steel is everywhere around us, in fact Steel is the fabric of life. The Chinese understood this very well which is evident from the fact that Steel is the nucleus around which China’s manufacturing and its overall economy has evolved. In 1990, China’s steel production accounted for 9 % of the global production (66 MTPA) but today it accounts for 50% of the global production (~ 930 MTPA).

There is an imminent need to focus our resources towards leveraging the potential of India’s Steel sector. What the sector needs is an Adrenaline shot and not incremental reforms for revival & survival. If we channelize our resources properly and work towards realizing the export potential and containing imports, this Industry can be the game changer for the national economy.

There are several examples that can prove this, but given the limited scope of the article, I would like to cite one such example. Electric Mobility is poised to come in a big way globally and in India. We are entering into strategic partnerships for procuring Lithium (Li) for battery manufacturing, but there is yet other part of value chain that we capture by producing speciality steels such as Transformation Induced Plasticity (TRIP) Steels, Advanced High Strength Steels(AHSS) that will play a critical role in EV manufacturing. These steels will help bring down the overall weight of the vehicle without compromising the safety that can help in incorporation of higher weight batteries in order to increase the driving range of cars.

These goals are ambitious but nevertheless can be achieved with the right policy interventions. Some of these inter alia include:

  • Incentivize units producing high value-added Steels: Providing input subsidies on imported raw material and key consumables such as coking coal, SMS grade fluxes, electrodes, imported Ferro-alloys etc. should be provided to units producing high value-added steels in order to suitably absorb the high conversion costs.
     
  • Providing import subsidies on imported plant & machinery to export driven Mega Steel producers (Production capacity > 3 Million Tons Per Annum): Steel projects are highly capital intensive in nature and a favorable economic scenario during the gestation period is critical for the success of these units and for best results till the high fixed costs are recovered and the debt-equity ratio goes below 1. The issue of high project cost is further amplified by the lack of domestic manufacturing of critical plant and machinery, other capital equipment etc. Providing import subsidies on imported plant & machinery will go a long way in creating a robust state of the art steel sector.
     
  •  Enhancing focus on life cycle costing: Presently there is not enough market and incentive for producing value added steels in the country. This is primarily because the focus is on reducing the immediate costs and not on the overall life cycle cost. For example, Buses, Rail Bogies etc. are being manufactured with Mild Steel that corrode faster particularly in coastal areas. This can be avoided by manufacturing the same with medium to high Chromium and Nickel Steels that would enhance the overall life cycle cost.

There are several other tools that can turbocharge the growth of the Indian Steel industry and the national economy, but what matters more is to converge our ideas and resources, move with a Steely resolve, believe in our strength and go win the world.

Nobel Laureate Gurudev Tagore realized the potential of Steel centuries ago and penned this eloquent piece:

Hard Iron was lying unconscious in the realm of deep slumber.

O, we awakened it.

It was hidden within the darkness of millions of years.

So we have awakened it.

It has been tamed and is under control.

It speaks the way we want it to.

To we have broken the silence.

It was static but now that it has gained motion

It is running on to conquer the world.

Fearlessly now, we take hold of its reins with both hands.

And now it’s our turn to write the sequel. Shall We Begin!

 

*Shantanu Rai is Consultant, NITI Aayog. Views expressed are personal.

Author
Shantanu Rai