5 minute read 18 Jan 2022
Steel and Indian economy

How steel can play an integral role in steering India into a US$5 trillion economy

By Saurabh Bhatnagar

EY India Mining & Metals Consulting Leader

Committed to building lasting relationships and driving outcome-focused operational improvements. Passionate chemical engineer and advocate of increasing diversity among future STEM professionals.

5 minute read 18 Jan 2022

India’s economic development depends on performance of the steel sector to a large extent.

In brief:

  • While services will be a key growth driver of the GDP for India, steel, sourced from India for gross fixed capital formation will be the cornerstone of setting the foundations of long-term sustainability of meeting GDP growth targets of the future.
  • The India steel sector has been vibrant and growing at a CAGR of about 5%-6% y-o-y. With a V-shaped demand recovery post-COVID, policy announcements made by the government across sectors including rail, road, aviation, gas pipeline, housing, and changes in global supply demand equations, has resulted in the industry’s record production and growth.

For the steel industry to achieve the envisaged growth and to steer the growth of the economy, the stakeholders in the steel eco-system will need to put in concerted efforts towards generating domestic steel demand. It can be accelerated by identifying and catering to export opportunities, augmenting steel capacity, fostering sustainable operations, achieving quick evacuation and timely delivery to customers, utilizing resources efficiently and producing value added/high grade steel products.

With a V-shaped demand recovery post-COVID, policy announcements made by the government across sectors including rail, road, aviation, gas pipeline, and housing and changes in global supply demand equations, has contributed to the industry’s record production and growth. For the Indian steel sector to sustain the growth momentum and play an important role in economic growth of the nation, it needs to focus on:

  • Policy formulation and implementation for steel and other allied industries which are likely to impact demand of steel from India for India.
  • Preparation for making the most of export opportunities for Indian Steel.
  • Rapid execution of building the required logistics infrastructure to ensure speed of service and permit simplicity and scale of operations of steel making.
  • Increased investments in domestic R&D or sourcing technology through strategic partnerships of steel manufacturing for a significant uplift in quality, yield and reducing emissions.

The key interventions likely to support the growth in the steel sector and steer India into a US$ 5 trillion economy can be classified under the following:

  • Demand augmentation – Government of India has a plan to spend US$1 trillion (during FY22-25) under the National Infrastructure Pipeline which is expected to boost steel demand. However, this must be enabled through government policies and guidelines in project governance for reducing delays, increasing steel-based construction, rationalization of mining levies and import duties, and enhancement of infrastructure capacities to make and deliver envisaged production. 
  • Enhance export orientation – Steel export from India has been largely linked with domestic demand and realization, and export picking up whenever there is a fall in domestic demand and/or international markets offer better realization. Exports have been mostly of products which are on the lower end of the steel value chain.  While India has trade agreements with some of the countries, such agreements have not provided the desired benefits. Additionally, there exists trade barriers in some of the developed markets. Indian steel producers need to identify competitive products-markets and develop an export strategy for short, medium, and long term. Government of India should evaluate entering into trade agreements where exports are competitive or put in place reciprocatory measures where there exists trade barriers and review/monitor existing trade agreements.
    The production linked incentive (PLI) scheme announced for specialty steel is expected to help the steel industry to move up the value chain. Steel industry bodies should continue to engage with the concerned authorities in presenting the case for inclusion of steel sector under Remission of Duties and Taxes on Exported Products (RoDTEP) scheme which is likely to make Indian steel more competitive in the international markets.
  • Efficient resource utilization – Incentivizing iron ore beneficiation and focused R&D to improve coal blending ratio is expected to bring in more efficiency in raw material utilization. Some of the other measures include adoption of technologies for energy optimization and implementation of digital solutions aimed at optimizing consumption based on total cost of ownership.
  • Sustainable operations through research and development – Steel making contributes ~7% of total global emission of carbon dioxide. Reducing emissions in the steel making process remains a major challenge as it requires an informed choice of clean technologies while balancing business risks, quality of end products and capital cost. Faster absorption of such high-cost technologies will require a policy structure for financing the transition as well as collaboration for technology transfer. Adoption of circular economy principles (reduce, reuse, recycle, and re-manufacture) will also be crucial towards fostering sustainability in steel operations
The government is providing support to the steel industry for rapid growth through policy formulation and strict governance. Industry players will have to play their part in demonstrating discipline in capital spends and foresight of investing in the right technologies for expansion.
Saurabh Bhatnagar
EY India Mining & Metals Consulting Leader

Summary

While there are a few initial steps that have been undertaken by major Indian steel players for R&D, policy intervention by government and industry collaboration, there is a persistent need to engage and develop deeper levels of collaboration across different stakeholders within the steel ecosystem.

About this article

By Saurabh Bhatnagar

EY India Mining & Metals Consulting Leader

Committed to building lasting relationships and driving outcome-focused operational improvements. Passionate chemical engineer and advocate of increasing diversity among future STEM professionals.