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A STUDY ON PERFORMANCE AND PROSPECT OF INDIAN STEEL INDUSTRY

FROM NATIONAL PERSPECTIVE UNDER GLOBALIZATION

Article · August 2013

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International Journal of Economics,
Commerce and Research (IJECR)
ISSN 2250-0006
Vol. 3, Issue 3, Aug 2013, 53-60
© TJPRC Pvt. Ltd.

A STUDY ON PERFORMANCE AND PROSPECT OF INDIAN STEEL INDUSTRY FROM

NATIONAL PERSPECTIVE UNDER GLOBALIZATION

SHRABANTI PAL
Assistant Professor, Department of Commerce, J.D. Birla Institute, West Bengal, India

ABSTRACT

The performance of Indian steel industry registered an impressive growth over the recent few years. The industry
got all the essential ingredients required for dynamic growth like strong domestic demand, infrastructural development,
demand from automotive sector, etc. Industrial reform also extended its help for development of the industry. Indian steel
industry was contributing around 2 percent to Gross Domestic Product (GDP) and its weight in the Index of Industrial
Production (IIP) is 6.2 percent. With an impressive track record India became a reputed name in the world steel industry.
Even during the tough times of recession, the industry was succeeded of recoding the positive growth rate. Global giants
from all over the world has shown their interest in the industry because of its phenomenal performance. The present study
was an attempt to examine the performance of the industry in terms of production, consumption and foreign trade and to
exhibit the trend of the industry for a period of twenty years since 1991-92 to 2010-11.

KEYWORDS: Indian Steel Industry, Performance of Indian Steel Industry, Trend of Indian Steel Industry, Growth of
Steel Industry in India

INTRODUCTION

Steel is crucial to the development of any modern economy and is considered the backbone of human civilization.
At present, developing countries lead the growth in world steel demand. Steel occupies this position because of its
versatility, strength and recyclability. India ranked as fourth largest crude steel producer (71.3 tonnage) in the world after
China (683.9 tonnage), Japan (107.6 tonnage) and USA (86.4 tonnage) in 2011.But the country slipped to fifth position in
terms of global steel production with 32.5 million tonnes output in the first six months of 2012. Between 2008 and 2011
India has recorded a growth of 29.2% in steel production. Indian steel industry has been predominantly serving domestic
market. Consumption of steel in India is less compared to other Asian steel majors namely China, Japan, and South Korea.
Thus, the industry has immense scope for growth in future. In recent times, India is the contributor of 4 percent to the
world’s crude steel production and is expected to hold and retain its position in coming years. The rapid growth of
population, increase in urbanization as well as increase in agricultural and industrial product along with enhancement of
standard of living, provide a good scope for the development of Indian steel industry. However, in recent past, global steel
industry has faced the brunt of economic slowdown; global crude steel production has declined by 1.1 percent in 2008
compared to 15.8 percent recorded in 2007.

LITERATURE REVIEW

India is considered to be a pioneer of iron and steel making and application which started as early as three
thousand years back. After independence Government of India took the control and reserved the capacity creation only for
public sector. Four integrated steel plants were established namely Durgapur, Bhilai, Rourkella and Bokaro by government
during1950s and 1960s. During that time Indian steel industry collaborated with former USSR, Federal Republic of
Germany and United Kingdom for technological support. In early 1970s Government of India issued licenses to more than
54 Shrabanti Pal

200 steel mills but in the second half of the decade many of those steel mills were forced to stop their operation due to
shortage of key inputs and acute power problem. In 1980s Government of India adopted three-pronged strategy (i.
expansion of existing steel plants, ii. setting up new capacities, iii. modernization and upgradation of technologies in
existing plants to achieve higher productivity) to revitalize the industry (Ghosh and Chatterjee (2008), Chadha (1989)).

In pre-liberalized era, Indian steel industry was characterized by capacity control measures, price regulation, and
restriction on additional capacity creation, foreign trade and foreign investment. During this period the industry suffered
from negative productivity growth because of technological obsolescence and wasteful use of resources. But in 1990s
Government of India introduced a liberalized industrial policy. The policy facilitated the withdrawal of public sector
reservation on capacity creation, elimination of export and import restrictions, reduction of import tariff, decontrol of
domestic steel price, and introduction of freight ceiling system in place of freight equalization scheme. With the
introduction of liberalized policy a large number of private corporate units entered into the competition. Moreover, the
devaluation of rupee by 30 percent in mid 1991 and decontrolling of the industry in 1992 helped to brighten the prospect of
the industry. [D’Costa (1999),( Mongia ,Schumacher and Sathaye (2001), Mitra, Mazumdar, Ghose (2003)].

But Indian steel industry went through a rough phase during 1997-2001 because of low demand and declining
steel price all over the world. Many steel firms were forced to exit from the competition. However, steel industry recovered
from such difficult situation owing to resurgence of demand in United States and turnaround of Asian economies.
Industrial recovery in India really began to be noted in 2002-03, consolidated during 2003-04, gathered momentum during
2004-05 and scaled a new height during 2005 to 2007.

During that period Indian steel industry registered a spectacular growth in crude as well as finished steel
production due to strong demand of steel from infrastructure, construction, automobile and power sector. But the world
wide recession in 2008 hit the industry badly. Indian steel producers were forced to cut down the production to keep the
steel price unaffected. High price of raw materials and demand-supply mismatch in the steel market affect the profit margin
severely. Capacity creation is largely affected by the land acquisition problem which could create a challenge for the
industry in near future [Government of India(2003), Sengupta (2004), Bagchi (2005), Banerjee (2005), Muthuraman
(2006), Research Bharti Bala and De (2009), Burang and Yamini (2010)].

OBJECTIVES

 To measure the performance of steel industry of India in terms of production, consumption and foreign trade.

 To study the prospect of the Indian steel industry in terms of production and consumption.

DATA AND SOURCE OF DATA

The study is empirical in nature and based on secondary data. The relevant data are collected from different
books, journals and articles, World Steel Association (2012), Joint Plan Committee (2012), annual reports of Indian steel
industry and Government of India (2012). The referred period of study is twenty years from 1991-92 to 2010-11.

RESEARCH METHODOLOGY

Data are presented in a tabular form along with column and line chart to facilitate the study. Column chart is used
in the study to show the data changes over a period of time and for illustrating comparison. Line charts are used to show
the trends of the data. Compound annual growth rate (CAGR) is also calculated to evaluate the performance of the
industry.
A Study on Performance and Prospect of Indian Steel Industry from National Perspective under Globalization 55

ANALYSIS
Production and Consumption of Finished Steel of Indian Steel Industry
After economic liberalization in India production and consumption of finished steel were spectacularly increased.
However, Indian steel industry has entered into a new development age during 2005-06. The main reasons for such growth
are boom in automobile industry, railway, real estate and construction and increased government expenditure in
infrastructural segment.

Table 1: Production and Consumption of Finished Carbon Steel

Production Growth in Consumption Growth in
Year
(Million Tonnes) Production (%) (Million Tonnes) Consumption (%)
1991-92 14.234 - 14.836 -
1992-93 16.886 18.6 15.811 6.6
1993-94 17.024 0.8 16.114 1.9
1994-95 20.085 18.0 19.55 21.3
1995-96 24.293 21.0 22.37 14.4
1996-97 26.324 8.4 23.294 4.1
1997-98 27.420 4.2 23.808 2.2
1998-99 27.558 0.5 24.71 3.8
1999-00 30.495 10.7 26.348 6.6
2000-01 32.356 6.1 27.649 4.9
2001-02 33.376 3.2 28.523 3.2
2002-03 37.166 11.4 30.677 7.6
2003-04 40.709 9.5 33.119 8.0
2004-05 43.513 6.9 36.377 9.8
2005-06 46.566 7.0 41.433 13.9
2006-07 52.529 12.8 46.783 12.9
2007-08 56.075 6.8 52.125 11.4
2008-09 57.164 1.9 52.351 0.4
2009-10 60.624 6.1 59.339 13.3
2010-11 68.621 13.2 66.423 11.9
CAGR (%) 8.18 - 7.78 -
(Source: Ministry of Steel, Government of India, 2012)

Table 1 exhibits the production and consumption of finished steel during the study period. Production of finished
steel in India follows a fluctuating trend and grew gradually during the study period. It produced finished steel of 68.621
MT in 2010-11 compared to 14.234 MT in 1991-92 registering a CAGR of 8.18 percent. During 1994-95 and 1995-96 it
grew by 18.0 percent and 20.1 percent. But a drastic downfall has been noticed from 1996-97 which continues till 1998-99.
In contrast, consumption of steel in India also increases gradually since 1991-92. The apparent consumption of finished
steel in India increases from 14.836 million tonnes (1991-92) to 66.423 million tonnes (2010-11) with a CAGR of 7.78
percent.

Figure 1: Production and Consumption of Finished Steel (in Million Tonnes)

56 Shrabanti Pal

The above diagram illustrates the production and consumption of finished steel. During 1994-95 and 1995-96 the
apparent steel consumption increased by 21.3 percent and 14.4 percent respectively. In fact it showed the fluctuating trend
in steel consumption. During the period of 2003-2005 production and consumption increases but the rate of increase in
consumption was higher than the rate of production which continues till 2005-06. Global financial crisis and abnormal
price hike of steel makes steel consumption turns down during 2008-09 and growth in consumption of steel attains a value
of 0.4 percent. In spite of downfall in global steel market India’s steel consumption rose to 8 percent in March 2010 due to
enhanced demand from automobile, real estate, construction and infrastructure sector. During that period steel consumption
in other countries registered negative growth trend since 2007-08 but India showed a positive growth rate of consumption
and production.

Figure 2: Growth in Production and Consumption of Finished Steel (in Percentage)

From the above graph it can be observed that in 1991-92 the production growth of finished carbon steel was less
compared to the growth in consumption of finished carbon steel in India. The growth of production recorded a value of
13.2 percent in 2010-11 compared to 7.0 percent in 2005-06, 6.1 percent in 2000-01 and 18.0 percent in 1994-95. But that
scenario changed very rapidly where the steel production became more during 1998 to 2000.The steel consumption was
remarkably increased in between 1994 to 1996 and drastically fall in 1997-98.

But it again started to increase in 1999-2000. In reality the percentage of growth of both production and
consumption are showing the fluctuating trend over the period of study. In 2006-07 the percentage growth in consumption
was higher than the percentage growth in production. During 2004 to 2006 the production and consumption both increases,
however the growth percentage in consumption is much more than the production growth. But in 2008-09 due to global
financial meltdown the consumption declined rapidly and came down to 0.4 percent and it recovered in the first half of
2009-10 by 7.9 percent where the growth percentage of the production at the same period of 2008-09 and 2009-10 was 9.0
and 3.2 percent respectively.

IMPORT AND EXPORT OF FINISHED STEEL OF INDIAN STEEL INDUSTRY

Global steel market has experienced unprecedented turmoil in recent years. The crisis in the international steel
market might be attributed to the excess capacity creation, volatility in market demand, production and consequent drop in
prices. Indian steel industry is going through an expansionary phase. The globally integrated domestic industry is now
vulnerable to exogenous disturbances in the global economy over which it has no control.

Indian steel industry at pre and post liberalized era reveals some exciting and significant structural changes. The
following table is showing the imports and exports of the Indian steel industry:
A Study on Performance and Prospect of Indian Steel Industry from National Perspective under Globalization 57

Table 2: Imports and Export of Finished Carbon Steel

Import (in Growth in Export (in Growth in
Year
Million Tonnes) Import (%) Million Tonnes) Export (%)
1991-92 0.970 - 0.368 -
1992-93 1.143 17.8 0.756 105.4
1993-94 1.119 -2.1 1.060 40.2
1994-95 1.775 58.6 0.944 -10.9
1995-96 1.617 -8.9 1.350 43.0
1996-97 1.632 0.9 1.662 23.1
1997-98 1.648 1.0 1.934 16.4
1998-99 1.194 -27.5 1.860 -3.8
1999-00 1.678 40.5 2.782 49.6
2000-01 1.491 -11.1 2.671 -4.0
2001-02 1.373 -7.9 2.709 1.4
2002-03 1.663 21.1 4.517 66.7
2003-04 1.753 5.4 5.207 15.3
2004-05 2.293 30.8 4.705 -9.6
2005-06 4.305 87.7 4.801 2.0
2006-07 4.927 14.4 5.242 9.2
2007-08 7.029 42.7 5.077 -3.1
2008-09 5.841 -16.9 4.437 -12.6
2009-10 7.381 26.4 3.251 -26.7
2010-11 6.664 -9.7 3.637 11.9
CAGR (%) 10.11 - 12.14 -
(Source: Ministry of Steel, Government of India, 2012)

Table 2 shows the import and export of finished steel together with growth of import and export for the study
period. Between 1991-92 and 1995-96 import was higher than the export which turned India into net importer. However,
the volume of export slowly but steadily went up and attained an export of 4.517 million tonnes in 2002-03 compared to
1.663 million tonnes in the same year. In 2010-11 the export of finished steel stood at 3.637 million tonnes compared to
5.242 million tonnes in 2006-07, 4.705 million tonnes in 2004-05, 2.709 million tonnes in 2001-02, 1.934 million tonnes in
1997-98, 0.944 million tonnes in 1994-95 and 0.368 million tonnes in 1991-92. The CAGR of import of steel for the
present study period is 10.11 percent. In contrast, the import of finished steel demonstrated a value of 7.381 million tonnes
in 2009-10 compared to 4.927 million tonnes in 2006-07, 1.753 million tonnes in 2003-04, 1.678 million tonnes in 1999-
00, 1.632 million tonnes in 1996-97 and 1.143 million tonnes in 1992-93. But global economic crisis has pushed the world
steel industry into recession. Indian steel industry also suffered such distress situation. Consequently it shows a result of
‘net import’ since 2007-08 till the end of study period. The CAGR of export of steel is 12.14 percent for the present study
period.

Figure 3: Imports and Exports of Finished Carbon Steel (in Million Tonnes)
58 Shrabanti Pal

Figure 3 shows that import of finished carbon steel is rising rapidly than export of the same. From 1999-2000 to
2006-07 export of steel was more than the import and India became net exporter for that period. But the scenario became
changed when global financial crisis hit the industry and foreign trade affected in a negative way. Steel exports of India
declined during the period because of substantial falling of demand and steel prices in global steel market and it becomes
‘net importer’ of steel since 2007. At the same time to satisfy the domestic consumption mainly driven by construction,
infrastructure and consumer durables India has to import more steel from abroad.

Figure 4: Growth of Import and Export of Indian Steel Industry (in Percentage)

From the above diagram it is clear that both import and export are on fluctuating trend. In 1992-93 export growth
of steel recorded a spectacular increase with 105.4 percent over the previous year (1991-92) but significantly decreased in
1993-94 and attained a value of 40.2 percent. However, from 2003-04 growth rate of import grew over growth rate of
export which continued till 2007-08. In 2005-06 the growth rate of import and export were 87.7 percent and 2.0 percent
respectively. Since 2007-08 to 2009-10 export of steel exhibited a negative growth rate while in 2010-11 it recovered and
confirmed a positive growth of 11.9 percent.

FUTURE PROSPECT OF INDIAN STEEL INDUSTRY

With its large steel industry and strong economy, India is poised to become a dominant player in the global steel
sector. India’s economy now accounts for almost 2.4% of global GDP, up from 1.6% in 2003, and is predicted to grow to
3.6% by 2015-18.

Figure 5: Estimation of Production of Finished Steel

The above figure shows the expected prodcution of finished steel for next ten years, i.e., till 2020-21 through
trend line equation based on linear regression analysis. The value of R-squared is 0.985 indicating that the model can
expain 98.5 percent variation in the data. It is expected that the production may reach to 77.230 million tonnes in 2013-14,
A Study on Performance and Prospect of Indian Steel Industry from National Perspective under Globalization 59

80.910 million tonnes in 2014-15 ,84.590 million tonnes in 2015-16, 95.630 million tonnes in 2018-19, and 102.990
million tonnes in 2020-21. Demand of steel in India is growing rapidly in the recent time but the supply is not growing
proportionately. The demand-supply gap makes India a net importer of steel. India’s average steel consumption (55.4 kg
per anuum) relative to its size of economy is very low by international standard (World 208 kg per anuum, developed
countries 350 kg per anuum). Therefore, there is an immense scope for Indian steel industry to grow further.

Figure 6: Estimation of Consumption of Finished Steel (in Million Tonnes)

The above figure shows the expected consumption of finished steel for next ten years, i.e., till 2020-21 through
trend line equation based on simple linear regression analysis. The value of R-squared is 0.978 indicating that the model
can expain 97.8 percent variation in the data. It is expected that the consumption may increase to 76.082 million tonnes in
2013-14, 80.266 million tonnes in 2014-15, 84.45 million tonnes in 2015-16, 92.818 in 2017-18, and 105.370 in 2020-21.

FINDINGS

 The steel industry of India has witnessed a spectacular growth since 2004-05 and it continues till the end of the
study period. The finished steel production grew at CAGR of 7.94 percent during the twenty years ranges
between1991-92 and 2010-11. The high share of major and secondary producers in finished steel production is
largely due to substantial supply of semis, the basic feed material from the main producers for conversion to
needed shapes by rolling.

 Consumption of steel exceeds production during the study period and grew at an annual rate of 8.13 percent from
14.836 million tonnes (1991-92) to 65.610 million tonnes (2010-11). Over the past few years steel consumption
has been driven primarily by infrastructure related investments. During the recent financial crisis, steel
consumption in India remains flat. There is tremendous potential for improvement in the domestic steel
consumption given the economy’s large untapped market especially in rural areas.

 India became a net importer of steel since 2007-08 as supply lags demand of steel. India imported 7.38 million
tonnes of steel in 2009-10 due to shortage of steel. Steel import may reduce over the next three years, as around
20 million tonnes of expected Brownfield expansions become operational. But most of the Greenfield projects
have been delayed because of land allotment laws and environmental clearance.

 Indian steel industry has to depend on import to satisfy the domestic demand. Import duty on capital goods were
reduced from 55 percent to 25 percent. Duties on raw materials for steel production were reduced. These measures
reduced the capital costs and production costs of steel plants. However, drastic reduction in import duties in iron
and steel materials along with sharp fall in international prices, the import of finished steel even in those sectors
where adequate capacity exists have shown an increasing trend.
 60 Shrabanti Pal

 At present, Indian steel industry is forth largest producer of crude steel in the world. However, in terms of techno
economic efficiency of operations steel making units are nowhere near their global competitors. India is set to be
on a higher growth path by the end of this decade. Because it is projected that production and consumption of
finished steel will increased to 102.990 million tonnes and 105.370 million tonnes by 2020-21.

CONCLUSIONS

In recent time steel industry is one of the fastest growing industry in India and as well as in the world. The
purpose of the study is to evaluate the actual condition and trend of steel industry in India. Result of the study found that
India has all potential to become top producer of steel in near future. The steady growth of production and consumption
indicates that India has set a higher growth path by the end of the decade. The CAGR of production, consumption and
foreign trade shows an impressive picture of the development of the industry for the study period. All the major steel
producers in world like Arcelor and Mittal, POSCO come to India to establish the steel plants which facilitate the growth
of Indian steel industry. According to Ministry of Steel, India is expected to become second largest producer of steel in
world by 2015-16.

REFERENCES

1. Bagchi, J (2005), Development of Steel Industry in India, NewDelhi:I.K. International

2. Banerjee, D., (2005). Globalisation, Industrial Restructuring and Labour Standards Where Indian Meets the
Global. New Delhi: Sage Publications India Pvt. Limited.

3. Bharti Bala, Y. and De, S. Steel Signs of Revival, The Analyst, November, 2009.

4. Burang, L.G., Yamini, S. (2010), “Competitiveness of the Firms in Indian Iron and Steel Industry”. Working
Paper UDE 33/2/2010. Department of Economics, University of Mumbai, India.

5. Chadha R. (1989), Key Sector of Indian Economy: A System View of Steel Industry, New Delhi: Concept
Publishing Company

6. D’Costa, A.P., (1999), “The Global Restructuring of the Steel Industry: Innovations, Institutions and Industrial
Change”, U.K: Routledge.

7. Ghosh, A., Chatterjee, A., (2008) “Iron and Steel Making- Theory and Practice”, New Delhi: Prentice Hall of
India Private Limited.

8. Government of India, 2003; Annual Report, Ministry of Steel, Government of India, New Delhi.
http://steel.nic.in/Annual%20Report%20(2002-03)/Chapter%20II.pdf

9. Mazumdar Mitra, S., Ghosal, T. (2003), “Stategies for Sustainable turnaround of Indian Steel Industry, Journal of
the Institutions of Engineers, 84(1):64-78
http://www.ieindia.org/publish/mm/1003/Oct03mm2.pdf

10. Mongia, P., Schumacher, K., Sathaye, J. (2001), “ Policy Reforms and Productivity Growth in India’s Energy
Intensive Industries”, Energy Policy, 29(4): 715-724

11. Muthuraman, B. (2006). Steel Steals the Show, International Trade Fair. New Delhi, India,
http://www.tatasteel.com/company/itf_06.asp.

12. www.steel.gov.in/development.htm

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