Facts:
- According to Steel Users Federation of India (SUFI), India has overtaken Japan to become world’s second largest producer of crude steel in February 2018.
- China is the largest producer of crude steel in the world, accounting for more than 50% of the production.
- Earlier in 2015, India had overtaken US to become third largest producer of crude steel.
Steel industry in India is experiencing downturn owing to both global and domestic factors. Examine these factors and consequences of this downturn. (200 Words)
Steel industry is one of the most important capital goods industries and a major commodity which finds its use in from automobiles, real estate to domestic appliances. Of late, there has been a downturn in the steel industry globally and Indian steel industry in particular.
Global reasons for this downturn –
- Major economies except U.S are witnessing slowdown post financial crisis in 2008 and European crisis in 2011, leading to reduced overall demand for this commodity.
- A major steel producer China due to weakening demand but over capacity of its steel industry dumping steel in Indian markets, which reduces the demand for domestic steel.
- The steel dumping from China, South Korea and Malaysia into India has resulted in the Indian Steel Industry losing the competition.
Domestic factors –
- Lack of infrastructure, non-availability for cheaper and quality coking coal, increased input prices of coal and iron ore (especially in the wake of auctioning prices) do pose major issues before steel manufactures.
- Rising capital and input cost, risk -averse tendencies coupled with inefficient regulatory environment are major hurdles for private investors. Real estate sector slow is also a major issue.
- Over all, technological inefficiency and per capita labor productivity has reduced the competitiveness of India steel industry.
- Big infrastructural projects being struck at environmental clearances and land acquisition stage in India.
- Economic-Steel companies are unable to repay borrowed capital and currently account for one-tenth of Indian Banks NPAs.
Consequences- This rising input cost and reduced demand scenario has led rising debts of steel industry (one of top 5 sectors identified as stressed sectors by RBI due stressed balance sheet) which has even led to rising NPAs of banks, choking overall economy. Besides, it leads to cost cutting including job -cuts which has varied socio -economic consequences. Spill over negative effects to other sectors are detrimental too.
The government should provide relief via cheaper credit access to steel industry, bring in efficiency in regulatory environment, boosting physical infrastructure in country and put rational anti-dumping duty on imports ( as U.S did ) to protect domestic industry.
Steps taken by government:
Government has introduced minimum import price (MIP) protection scheme to guard against increased imports
Recent Developments:
- Major steel producers China, India and Japan along with other G20 nations have called for increased sharing of information as well as more cooperation by forming a global forum to address the issue of excess steel capacity
- The development assumes significance in the backdrop of the problem caused in international markets due to excess steel capacity amidst softening of prices, which eroded sales and profits of firms across countries, especially at a time when the global economy recovery is weak. The forum facilitates increased information sharing and cooperation