The steel secretary to the government of India is on record as saying, in a press conference in Kolkata in 2007, that India would reach a capacity of 124 million tonnes by 2012 -- excluding POSCO and Mittal -- up from an earlier projection of 80 million tonnes.
The break-up of the capacity addition was to be 26 million tonnes from greenfield plants and 38 million tonnes from brownfield plants. When the statement was made, the capacity then stood at 60 million tonnes and production at 51 million tonnes.
Demand in 2012 was anticipated as 89 million tonnes; the rest of the capacity would help make India a major exporter of steel, rather than being a major exporter of iron-ore without any value-addition. That was then.
This is now. We are now moving to a huge scarcity of steel, and the country will perhaps import steel at very high costs (Indian manufacturing costs are much lower than in the rest of the world). Since there are no administered prices of steel, Indian steel prices will also go up, to the benefit of steel producers.
Consumers and the consuming industry will suffer, reducing our competitiveness. How did this happen?
The new projects whose MoUs were signed with state governments with much fanfare are given in Table 1. Work has started on Jindal's project in Jharkand, and on the Electrosteel Project in the same state. It takes 5 to 10 years to build a new plant. Against the target of 26 million tonnes from greenfield plants by 2012, the likely achievement will be 5 million tonnes.
The proposed brownfield expansion projects are given in Table 2. There has been very slow progress in the expansion of the SAIL and RINL plants, and in the Hazira plant of Essar and the Raigarh plant of JSPL. The first phase of Tata Steel's and JSW's expansion has been completed but there has been no activity thereafter.
Work has not started at other plants. We may therefore add about 8-10 million tonnes, against a target of 38 million tonnes from the brownfield projects.
We will therefore add just 13-15 million tonnes, as against the projected 64 million tonnes, and reach 73-75 million tonnes against an earlier steel ministry target of 80 million tonnes (forget the 124 million tonnes that the steel secretary talked of in 2007). We should be grateful for the economic slowdown, or we would already have been in a steel-famine.
There have been a number of recent statements by the government, SAIL, Tatas and others in the steel industry about the performance of the Indian steel sector, the steadfastness of demand, and India not facing a recession in steel. We have been told that while global steel production has gone down by about 15 per cent in recent months, India has registered a positive growth in production and has not been impacted by the meltdown.
Is there a reason to celebrate? The government says it has taken a number of steps and that steel demand is likely to pick up again. Should that happen, the lack of steel capacity would become a choke- point all over again.
Why have most of the greenfield and some of the brownfield expansions not started? They were to start on the basis of numerous MoUs signed by state governments which assured the grant of iron ore and coal leases to steel producers.
Barring a few, none have been granted. Besides, a large number of leases have landed up in courts due to faulty procedure in such grants. These cases need to be sorted out fast, and leases granted to large steel producers and to those who have been assured such grants through MOUs with the state governments.
The plants have also not been able to acquire land, get forest clearance, obtain water-linkages, etc. Large steel plants have not come up anywhere in the world except with active government help. If we feel that we will get back to 9 per cent GDP growth and 12 per cent growth in steel demand, we have to ensure a number of large steel plants get started.
The shortage of steel, compounded with the 50 per cent shortfall in completing power projects and a much higher default rate in the start-up of road projects, will severely impact our capacity to scale up to 9 per cent GDP growth, and should be accorded top-most priority by the government after the elections.