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IRON AND STEEL INDUSTRY IN INDIA - PAST, PRESENT AND FUTURE

The history of steel-making in India can be traced back to 400 BC when the

Greek emperors used to recruit Indian archers for their army who used arrows tippedwith steel. Many more evidences are there of Indians¶ perfect knowledge of steel-making long before the advent of Christ. Archaeological finds in Mesopotamia andEgypt testify to the fact that use of iron and steel was known to mankind for morethan six thousand years and that some of the best products were made in India.Among the widely-known relics is the Iron Pillar near Qutab Minar in Delhi. The

pillar, built between 350 and 380 AD, did not rust so far -----an engineering marvelthat baffles the scientists even today. Yet another engineering feat is the famous SunTemple at Konark in Orissa, built around 1200 AD, where steel structurals were used

for the first time in the world.

These were the halcyon days when India flourished in all directions and when its prosperity was a matter of envy for the foreigners. But as ill luck would have it,India¶s prosperity gave way to poverty after the advent of the foreign rule. India¶sindigenous industry languished because of a deliberate policy of the colonial rulers tomake the country only a supplier of raw materials.

Steel Role plays a vital role in the development of any modern economy. The per capita consumption of steel is generally accepted as a yardstick to measure the level of socio-economic development and living standards of the people. As such, no

developing country can afford to ignore the steel industry.

Beginnings

The first notable attempt to revive steel industry in India was made in 1874 whenthe Bengal Iron Works (BIW) came into being at Kulti, near Asansol in West Bengal.However, forty-four years before that, in 1830 to be precise, a foreigner, namedJoshua Marshall Heath, had set up a small plant at Porto Novo on Madras Coast.Heath produced in his plant pig iron at the rate of forty tonnes a week. His method of iron-making needed approximately four tonnes of charcoal to produce one tonne of

low quality pig iron which proved to be too expensive for Heath to carry on in theface of stiff competition from the British steel industry. The BIW made considerableimprovement in the process of iron and steel making. It used coke as the fuel insteadof charcoal. But the plant fell sick as the source of funds dried up. It was taken over

by the Bengal Government and was rechristened as Barakar Iron Works. In 1889 theBengal Iron and Steel Company acquired the plant and by the turn of the century theKulti plant became a success story. It produced 40,000 tonnes of pig iron in 1900 and



continued to produce the metal until it was taken over by Indian Iron and Steel

Company (IISCO) in 1936.

For modern India¶s iron and steel industry August 27, 1907 was a red-letter daywhen the Tata Iron and Steel Company (TISCO) was formed as a Swadeshi venture to

produce 120,000 tonnes of pig iron. The TISCO plant at Sakchi (renamedJamshedpur) in Bihar, started pig iron production in December 1908 and rolled out itsfirst steel the following year. TISCO had expanded its production capacity to onemillion tonnes ingot by the time the country achieved freedom. The Tatas, as Gandhijisaid, represented the "spirit of adventure" and Jamsetji Tata, in the words of Jawaharlal Nehru," laid the foundation of heavy industries in India". The British rulersdisfavoured this and other attempts to start indigenous industry. It was chiefly with thehelp of American experts that the Tatas started their industry. Its childhood was

precarious but the war of 1914-18 gave it a fillip. Again it languished and was indanger of passing into the hands of British debenture holders. But nationalist pressuresaved it. In 1918, soon after the war, Indian Iron and Steel Company (IISCO) wasformed. The then Mysore government also decided to start an iron works atBhadravati. While IISCO started producing pig iron at Burnpur in 1922, the MysoreIron and Steel Works took about 18 years to start its plant. Meanwhile, the BengalIron Works went into liquidation and merged with IISCO. The Steel Corporation of Bengal (SCOB) formed in 1937, started making steel in its Asansol plant. Later in

1953, SCOB merged with IISCO.

Prime Minister Nehru firmly believed that "no country can be jpolitically andeconomically independent unless it is highly industrialised and has developed itsresources to the utmost". Nehru¶s ideas about India¶s development were broadlyincorporated in free India¶s first Industrial Policy Resolution adopted by theContituent Assembly in 1948. The resolution officially accepted the principle of mixed economy. Industries were divided into four categories. In the first categorywere strategic industries which were made the monopoly of the Government. In thesecond category were six industries which included, among others, coal, iron andsteel.

It was decided that new units would be started exclusively by the government in the public sector without disturbing the existing ones in the private sector. Eighteenindustries, including heavy castings and forings of iron and steel, ferro alloys and toolsteel were covered by the third category and the rest of the industries by the fourth. Insum, the government committed itself to the development of basic steel industry whilethe private sector was to benefit through the establishment of downstream units whichwould use pig iron, billets, blooms and flat products to be made by the public sector steel plants.



In keeping with the spirit of the resolution the Government decided to start a chainof steel plants all over the country in the public sector. The first such plant was set upat Rourkela in Orissa. The second came up at Bhilai in Madhya Pradesh. It wasfollowed by a third at Durgapur in West Bengal. Each of these three plants had aninitial production capacity of one million tonne ingot. Durgapur was followed by a

steel plant at Bokaro in Bihar. The onward march of Indian steel did not stop atBokaro. The fifth public sector steel plant was set up at Visakhapatnam in andhraPradesh. As a matter of fact, the country was dotted with steel and steel-related plantsin public and private sectors, like Alloy Steel Plant, Salem Steel Plant, Kalinga IronWorks, Malavika Steel Ltd., Jindal Vijaynagar Steel Ltd., to name only a few. About

the same time TISCO launched its two-million-tonne expansion programme.

The Government¶s Industrial Policy had undergone changes ____ once in 1956 andthen in 1991. The resolution modified in 1956 brought changes in the category patternand listed more industries for the public sector than did the earlier one, though it wasnot harsher towards the private enterprise. In the new industrial policy announced in1991 iron and steel industry, among others, was included in the list of industriesreserved for the public sector and exempted from the provision of compulsorylicensing. With effect from May 24, 1992 iron and steel industry was included in thelist of µhigh priority¶ industry for automatic approval for foreign equity upto 51%(now 74%). Export-import regime for iron and steel has also undergone major liberalisation. The freight equalisation scheme was withdrawn removing freight

disadvantage to States located near steel plants.

The new policy has already borne fruit. The finished steel pdroduction in India hasgone up from mere 1.1 million tonnes in 1951 to 23.37 million tonnes in 1997-98

despite overall economic slow-down in the country.

It has been estimated that the demand for finished steel in 2001-02 would touch38.68 million tonnes and the projected availability of 38.01 tonnes is almost adequateto meet the domestic demand along with export of six million tonnes. Similarly, by2006-07, the final year of the tenth plan, the demand for finished steel would bearound 48.80 million tonnes, providing adequate surplus for meeting the projectedexport potential of nine million tonnes.

However, there is hardly any scope for complacence over the fact that Indiacontinues to be the 10th largest steel producer in the world. In 1997 India¶s per capitasteel consumption was only 22 kg which was much below the world average of about126 kgs. Even if the domestic demand grows up from 34.5 million tonnes to 100million tonnes in 2025 the industry is unlikely to catch up with the production in the

developed countries.



The redeeming feature is the cost competitiveness of Indian steel in the globalmarket. According to World Steel Dynamics, the total cost of steel production in theUSA is $510 per metric tonne while in Japan it is $550, in Germany $557, in Canada$493 and in India it is $497. This is because of high material cost due to high exciseand import duties. Reduction of cost on these accounts will make Indian steel more

competitive in the world market. Indian steel can reasonably expect a good market inthe neighbouring countries now that the Asian economy is looking up.

In conclusion, it can be said with a certain measure of confidence that India¶s ironand steel industry which had a glorious past and has an uncertain present may nowlook forward to a bright future.

Steel Industry in India is on an upswing because of the strong global and domestic demand.

India's rapid economic growth and soaring demand by sectors like infrastructure, real estate andautomobiles, at home and abroad, has put Indian steel industry on the global map. According to

the latest report by International Iron and Steel Institute (IISI), India is the seventh largest steel

producer in the world.

The origin of the modern Indian steel industry can be traced back to 1953 when a contract for

the construction of an integrated steelworks in Rourkela, Orissa was signed between the Indian

government and the German companies Fried Krupp und Demag AG. The initial plan was an

annual capacity of 500,000 tonnes, but this was subsequently raised to 1 million tonnes. The

capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL (Steel Authority of India Ltd.)

group, is presently about 2 million tonnes. At a very early stage the former USSR and a British

consortium also showed an interest in establishing a modern steel industry in India. This

resulted in the Soviet-aided building of a steel mill with a capacity of 1 million tonnes in Bhilai

and the British-backed construction in Durgapur of a foundry which also has a million tonne

capacity.

The Indian steel industry is organized in three categories i.e., main producers, other major

producers and the secondary producers. The main producers and other major producers have

integrated steel making facility with plant capacities over 0.5 mT and utilize iron ore and

coal/gas for production of steel. The main producers are Tata Steel, SAIL, and RINL, while the

other major producers are ESSAR, ISPAT and JVSL. The secondary sector is dispersed and

consists of: (1) Backward linkage from about 120 sponge iron producers that use iron ore andnon-coking coal, providing feedstock for steel producers; (2) Approximately 650 mini blast

furnaces, electric arc furnaces, induction furnaces and energy optimizing furnaces that use iron

ore, sponge iron and melting scrap to produce steel; and (3) Forward linkage with about 1,200

re-rollers that roll out semis into finished steel products for consumer use.

Structural Weaknesses of Indian Steel Industry



y Although India has modernised its steelmaking considerably, however, nearly 6% of its

crude steel is still produced using the outdated open-hearth process.

y Labour productivity in India is still very low. According to an estimate crude steel output

at the biggest Indian steelmaker is roughly 144 tonnes per worker per year, whereas in

Western Europe the figure is around 600 tonnes.

y India has to do a lot of catching in the production of stainless steel, which is primarily

required by the plant and equipment, pharmaceutical and chemical industries.

y Steel production in India is also hampered by power shortages.

y India is deficient in raw materials required by the steel industry. Iron ore deposits are

finite and there are problems in mining sufficient amounts of it. India's hard coal deposits

are of low quality.

y Insufficient freight capacity and transport infrastructure impediments too hamper the

growth of Indian steel industry.

Strengths of Indian Steel Industry

y Low labour wage rates

y Abundance of quality manpower

y Mature production base

y Positive stimuli from construction industry

y Booming automobile industry

Outlook

The outlook for Indian steel industry is very bright. India's lower wages and favourable energy

prices will continue to promise substantial cost advantages compared to production facilities in

(Western) Europe or the US. It is also expected that steel industry will undergo a process of

consolidation since industry players are engaged in an unfettered rush for scale. This is evident

from the recent acquisition of Corus by Tata. The deployment of modern production systems is

also enabling Indian steel companies to improve the quality of their steel products and thus

enhance their export prospects.

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