Syllabus: GS3/Economy
Context
- Recently, the Union Ministry of Steel has released the Draft National Steel Policy: Vision 2047, aiming to transform India into a globally competitive steel producer and increase steel exports to 45 million tonnes.
About India’s Steel Industry and Its Performance
- India’s steel industry is a critical pillar of economic development, supporting infrastructure, construction, automobiles, railways, defence and manufacturing.
- Key Achievements:
- India has emerged as the world’s second-largest crude steel producer, with production reaching approximately 170 million tonnes (Mt).
- Its global position has improved from ninth in 2000, when it accounted for less than 5% of global steel production.
- The industry’s average profitability stood at approximately 15% during 2000–2025, exceeding the broader manufacturing sector by 3–4 percentage points.
- The ‘Draft National Steel Policy: Vision 2047’ seeks to strengthen India’s global position, promote exports and develop a competitive domestic steel ecosystem.
- However, higher production and profitability do not necessarily indicate global competitiveness.
Understanding the Protection–Competitiveness Paradox
- India’s steel industry enjoys considerable government protection, which raises concerns about whether its profitability reflects operational efficiency or policy support.
- Major Forms of Protection Include:
- Iron Ore Export Duty: A 30% export duty on iron ore containing more than 58% iron content keeps domestic iron ore prices approximately 30–40% below international levels.
- Import Tariff Protection: A 7.5% basic import tariff, combined with an 11.5% safeguard duty, creates an effective protection level of around 18%, compared with approximately 3–4% in ASEAN countries.
- Non-tariff Barriers: Quality Control Orders (QCOs) cover 228 steel products. Although the Gauba Committee reportedly recommended removing 122 products, only 59 had been suspended at the time of the reported assessment.
- Consequently, domestic steel producers can sell hot-rolled coils at a 6–7% premium over Japanese prices, despite Japan being a relatively high-cost producer.
Economic Consequences of Excessive Protection
- Excessive protection creates several economic distortions:
- Higher Input Costs: Expensive domestic steel adversely affects construction, automobiles and engineering industries.
- Export Competitiveness: MSMEs and downstream manufacturers face higher production costs, reducing their ability to compete internationally.
- Resource Misallocation: Lower domestic iron ore prices reduce mining incentives and limit value creation in mineral-rich regions.
- Reduced Efficiency: Protection from international competition weakens incentives to adopt advanced technologies and improve productivity.
- Fiscal & Economic Distortions: Policy-induced profitability may conceal inefficient operations and discourage necessary structural reforms. Reducing steel prices by 6% could reduce profitability by 25–50% for major steel companies.
Other Concerns in India’s Steel Industry
- Apart from excessive protection, the industry faces several structural challenges:
- Dependence on Imported Coking Coal: India relies heavily on imports, exposing producers to international price fluctuations.
- Environmental Concerns: Conventional blast furnace-based steelmaking is energy-intensive and carbon-emission-intensive.
- Technological Limitations: Greater investment is required in advanced steelmaking, automation and high-value speciality steel.
- Mining Inefficiencies: Only around 10% of India’s obvious geological potential has reportedly been explored.
- Public Sector Inefficiencies: Differences in profitability and market performance indicate the need to improve governance and operational efficiency.
Related Reforms & Initiatives
- National Steel Policy, 2017: Promote domestic steel production and reduce import dependence.
- PLI Scheme For Specialty Steel: Encourage domestic manufacturing of high-grade and value-added steel.
- National Green Hydrogen Mission: Facilitate the adoption of green hydrogen in hard-to-abate industries, including steel.
- Steel Scrap Recycling Policy, 2019: Promote scrap availability and resource efficiency.
- PM Gati Shakti: Improve multimodal connectivity and reduce logistics costs.
- National Mineral Policy, 2019: Encourage sustainable mineral development and exploration.
Reforms Required For Global Competitiveness
- Gradual Reduction in Tariff Protection: Import duties should be rationalised over five years to bring them closer to ASEAN levels.
- Unnecessary QCOs should also be removed to encourage competition and improve input availability.
- The experience of pharmaceuticals and automobile components demonstrates that reduced protection need not undermine domestic industries.
- India’s global export share in automobile components increased from 0.2% in 2003 to 1.5% in 2024, while pharmaceuticals increased from 0.7% to 2%.
- Rationalise Iron Ore Export Duties: Removing the 30% export duty on high-grade iron ore would allow market-based pricing, encourage exploration and improve returns from mineral resources.
- Reform Mining Regulations: India should adopt exploration-friendly mining policies inspired by countries such as Australia.
- Discoverers of mineral deposits should receive appropriate incentives and transparent mechanisms for accessing mining rights.
- Improve Public-sector Efficiency: Privatisation or strategic disinvestment of selected inefficient steel plants should be considered, alongside professional management and stronger corporate governance.
- SAIL’s market share reportedly declined from 30% to 10% between 2000 and 2025, while JSW’s increased from 1% to 12%.
- It highlights the importance of operational efficiency and competitive business models.
- Promote Green & High Value Steel: Investment in hydrogen-based steelmaking, renewable energy, scrap recycling, energy efficiency and speciality steel is essential to remain competitive in emerging global markets.
Way Forward: Towards Steel Competitiveness by 2047
- India needs to move from protection-led industrial growth towards productivity-led competitiveness.
- The National Steel Policy should establish measurable benchmarks covering:
- Internationally competitive production costs and productivity.
- Higher exports and greater integration into global value chains.
- Increased investment in research, development and technological innovation.
- Sustainable mining and responsible resource utilisation.
- Lower carbon intensity and wider adoption of green steel.
- Greater participation of MSMEs in the steel value chain.
- Reforms should be phased in to provide domestic manufacturers sufficient time to adjust without causing unnecessary industrial disruption.
| Daily Mains Practice Question [Q] India’s steel industry has achieved significant growth in production and profitability. However, excessive protection may undermine its long-term global competitiveness. Examine, and suggest suitable reforms to make the Indian steel industry globally competitive. |
