"We have to move from making crude steel to value addition"
The government has unveiled the National Steel Policy (NSP) 2017 that lays out ambitious goals.
- May 13, 2017,
- Updated May 17, 2017 12:09 PM IST
The government has unveiled the National Steel Policy (NSP) 2017 that lays out ambitious goals. These include increasing per capita consumption of steel to 160 kg from the current 61 kg and achieving production capacity of 300 million tonnes per annum by 2030/31 from the current 100 mt-plus through investments of nearly Rs 10 lakh crore. Soon after the NSP was announced, Steel Minister Chaudhary Birender Singh spoke with Business Today's Sumant Banerji and shared his long-term vision for the sector and views on the problem of stressed assets that plagues it currently. Edited excerpts:
Your targets for the steel industry appear too ambitious given the track record. How will you achieve them?
This steel policy sets a different path for the industry. If you are not ambitious while formulating a policy, you cannot progress fast. Being successful or not is a different matter. The targets we have set may look ambitious but are achievable.
Where will the demand come from?
Our government is aware about the country's infrastructure requirements. In the 2016/17 Budget, a big amount was earmarked to boost the rural economy and infrastructure. This year's budget also focused on strengthening infrastructure - Rs 4 lakh crore was allocated for this - in railways, roads, shipping, urban housing and the Pradhan Mantri Awas Yojana (Grameen). Yet, it will take us a lot of time to build sufficient infrastructure in the country. If infrastructure development happens in a time-bound manner, consumption will multiply. We should be able to match that with our domestic production. So, I have no doubt that the targets are achievable. And as consumption grows, so will the production.
Given this government's stress on Make in India, do you think Indian steel can make a mark in other markets?
Along with India, the South East Asian region is also deficient in infrastructure. Demand will come from there too. We have a chance to exploit that opportunity to emerge as an export hub for steel, at least for infrastructure purposes, in that region. The other area where infrastructure development will happen is Africa. We should service that too.
How will you convince the industry to invest for the future when there is excess capacity of 26 million tonnes?
We have to change the mindset from making crude steel to value addition. There is no dearth of demand. In the recent past, even when the industry was under stress, there was a consistent increase in demand of between 5.6 per cent and 8 per cent. The end user looks at only price and quality. We have emphasised on both these aspects in the policy. We have applied BIS standards and covered about 33 product categories, which is more than 70 per cent of the products of secondary steel manufacturers. The perceived supply constraint is not because of lack of production. There is a mismatch in steel production. Crude steel is no more that important.
How will you ensure that the industry moves towards producing value-added steel instead of just crude steel?
We are giving preference to Made in India steel. Just like the US encourages use of steel made there, we also proposed that, and the Cabinet approved it. So, instead of importing steel, companies should use steel made here. Even if you import steel, you can sell in India after value addition of at least 15 per cent. Naturally, the industry will be keen to make quality steel. By that I mean the steel used by our automotive, consumer durables sectors. Even now we have to import such steel. Once we make such steel, not only will our exports go up, our domestic industry won't need to spend foreign exchange on imports. The volumes for such steel may not be that big. But compare the cost. If you are exporting 10 lakh tonnes now, then by value addition, you can get the same revenue by exporting just one lakh tonnes. The net gain is the same but you have gone up the value chain and become specialists.
Raw material is a big factor. How can you ensure availability to the industry at a price that makes it globally competitive?
Raw material has a major role to play. Coking coal is a major input; 80 per cent of our requirement comes from outside. There is a lot of fluctuation in prices, which hurts us. So, my thrust is to make the industry competitive, not domestically but internationally. We must set up washeries at the pit head from where we get coking coal. Through that alone we can reduce coking coal imports by 20-25 per cent, leading to a saving of `8,000-10,000 crore. Washeries do not require a lot of investment. A small washery can be set up at a cost of `80-100 crore. We want the private sector to also invest in them. If nobody comes forward, at least our PSUs should do it.
India has abundant reserves of iron ore but sizeable quantities are exported. Do you think it should be conserved for the steel industry instead?
We should use our own raw material as much as possible. We want that all iron ore fines be consumed here by pelletisation. Otherwise these fines are a dump. No one else has the kind of iron ore reserves that India has. At the same time, the demand for steel will only go up. So, we should explore ore only based on the demand for steel in the country. At one point in time, when there was no production of steel in the country - only Tata used to make it here - our iron ore used to be exported widely. And we used to say look our ore is going to Japan and then coming back into the country as steel. I believe the move to impose 30 per cent export duty is correct. In times to come, we have to ensure some reserves for the future. But yes, in cases where the ore is considered waste due to lack of technology, we can look at exports. But as much as possible, iron ore should be linked to the demand for steel and explored accordingly.
The steel industry is a major source of the problem of non-performing assets. Do you think banks will lend for NSP targets?
The situation is improving. In the last six-seven months, loan repayments have been getting smoother. The international prices are rising. We have also asked banks for restructuring of loans. More than `40,000 crore loans have already been restructured. Ultimately, banks should identify if companies make inflated projections in draft project reports. If a secondary steel producer claims that it has set up a steel plant at `2,000 crore while a primary producer does that at `6,000 crore, then either there is an anomaly or there is something fishy.
One long-standing grouse of the industry is high interest rates that make projects less competitive. Do you think there should be some interest subvention for the sector?
We cannot tell banks to lend at a lower rate. That is not our job. But rates will gradually come down. Demonetisation will have a big impact in this and is one of the solutions to this problem. Almost `15 lakh crore worth of currency was deposited in banks. A bulk of the amount was in savings accounts, where banks have to pay an interest of 4 per cent. If banks sit on this cash, they will have to pay interest of `40,000 crore every year. So, they will have to start lending. Now, we cannot tell them to reduce interest rates. But due to demonetisation, the banking system will undergo a transformation. My opinion is that when they have to lend, rates will come down to 6, 5 or even 4 per cent. Banks will also realise that that they cannot have a commercial loan at 14 or 15 per cent. It may take six months or two years. That is the time when India will be more competitive.
Where does India stand in terms of competitiveness in the sector?
We have a long way to go. We are not even 1.5 per cent of the total export market. If things are speeded up, we have the potential to catch the best of the countries as far as exports or competitiveness is concerned. The wage component in the cost of per tonne steel for our PSUs is 20 per cent; for the private sector, it is 6-8 per cent. So, even today, our production per tonne cost is lower compared to China, which is the largest steel producer. But if we can modernise our technology and reduce our dependence on coking coal, which we import, we will become more competitive. Things are not that bad.
A lot of big-ticket investments in the sector did not materialise. How will it be any different in future?
A steel plant requires raw material and land. As mines are now allotted in auctions, the process is transparent. Any company can bid and the highest bidder wins it. There is no discretionary power with anybody. Land is a problem, especially for large steel projects. But we have good land banks with PSUs like SAIL. So, we can facilitate a joint venture with anybody who brings in new technology. We have sufficient clean land available with PSUs and will provide all help.
@sumantbanerji
The government has unveiled the National Steel Policy (NSP) 2017 that lays out ambitious goals. These include increasing per capita consumption of steel to 160 kg from the current 61 kg and achieving production capacity of 300 million tonnes per annum by 2030/31 from the current 100 mt-plus through investments of nearly Rs 10 lakh crore. Soon after the NSP was announced, Steel Minister Chaudhary Birender Singh spoke with Business Today's Sumant Banerji and shared his long-term vision for the sector and views on the problem of stressed assets that plagues it currently. Edited excerpts:
Your targets for the steel industry appear too ambitious given the track record. How will you achieve them?
This steel policy sets a different path for the industry. If you are not ambitious while formulating a policy, you cannot progress fast. Being successful or not is a different matter. The targets we have set may look ambitious but are achievable.
Where will the demand come from?
Our government is aware about the country's infrastructure requirements. In the 2016/17 Budget, a big amount was earmarked to boost the rural economy and infrastructure. This year's budget also focused on strengthening infrastructure - Rs 4 lakh crore was allocated for this - in railways, roads, shipping, urban housing and the Pradhan Mantri Awas Yojana (Grameen). Yet, it will take us a lot of time to build sufficient infrastructure in the country. If infrastructure development happens in a time-bound manner, consumption will multiply. We should be able to match that with our domestic production. So, I have no doubt that the targets are achievable. And as consumption grows, so will the production.
Given this government's stress on Make in India, do you think Indian steel can make a mark in other markets?
Along with India, the South East Asian region is also deficient in infrastructure. Demand will come from there too. We have a chance to exploit that opportunity to emerge as an export hub for steel, at least for infrastructure purposes, in that region. The other area where infrastructure development will happen is Africa. We should service that too.
How will you convince the industry to invest for the future when there is excess capacity of 26 million tonnes?
We have to change the mindset from making crude steel to value addition. There is no dearth of demand. In the recent past, even when the industry was under stress, there was a consistent increase in demand of between 5.6 per cent and 8 per cent. The end user looks at only price and quality. We have emphasised on both these aspects in the policy. We have applied BIS standards and covered about 33 product categories, which is more than 70 per cent of the products of secondary steel manufacturers. The perceived supply constraint is not because of lack of production. There is a mismatch in steel production. Crude steel is no more that important.
How will you ensure that the industry moves towards producing value-added steel instead of just crude steel?
We are giving preference to Made in India steel. Just like the US encourages use of steel made there, we also proposed that, and the Cabinet approved it. So, instead of importing steel, companies should use steel made here. Even if you import steel, you can sell in India after value addition of at least 15 per cent. Naturally, the industry will be keen to make quality steel. By that I mean the steel used by our automotive, consumer durables sectors. Even now we have to import such steel. Once we make such steel, not only will our exports go up, our domestic industry won't need to spend foreign exchange on imports. The volumes for such steel may not be that big. But compare the cost. If you are exporting 10 lakh tonnes now, then by value addition, you can get the same revenue by exporting just one lakh tonnes. The net gain is the same but you have gone up the value chain and become specialists.
Raw material is a big factor. How can you ensure availability to the industry at a price that makes it globally competitive?
Raw material has a major role to play. Coking coal is a major input; 80 per cent of our requirement comes from outside. There is a lot of fluctuation in prices, which hurts us. So, my thrust is to make the industry competitive, not domestically but internationally. We must set up washeries at the pit head from where we get coking coal. Through that alone we can reduce coking coal imports by 20-25 per cent, leading to a saving of `8,000-10,000 crore. Washeries do not require a lot of investment. A small washery can be set up at a cost of `80-100 crore. We want the private sector to also invest in them. If nobody comes forward, at least our PSUs should do it.
India has abundant reserves of iron ore but sizeable quantities are exported. Do you think it should be conserved for the steel industry instead?
We should use our own raw material as much as possible. We want that all iron ore fines be consumed here by pelletisation. Otherwise these fines are a dump. No one else has the kind of iron ore reserves that India has. At the same time, the demand for steel will only go up. So, we should explore ore only based on the demand for steel in the country. At one point in time, when there was no production of steel in the country - only Tata used to make it here - our iron ore used to be exported widely. And we used to say look our ore is going to Japan and then coming back into the country as steel. I believe the move to impose 30 per cent export duty is correct. In times to come, we have to ensure some reserves for the future. But yes, in cases where the ore is considered waste due to lack of technology, we can look at exports. But as much as possible, iron ore should be linked to the demand for steel and explored accordingly.
The steel industry is a major source of the problem of non-performing assets. Do you think banks will lend for NSP targets?
The situation is improving. In the last six-seven months, loan repayments have been getting smoother. The international prices are rising. We have also asked banks for restructuring of loans. More than `40,000 crore loans have already been restructured. Ultimately, banks should identify if companies make inflated projections in draft project reports. If a secondary steel producer claims that it has set up a steel plant at `2,000 crore while a primary producer does that at `6,000 crore, then either there is an anomaly or there is something fishy.
One long-standing grouse of the industry is high interest rates that make projects less competitive. Do you think there should be some interest subvention for the sector?
We cannot tell banks to lend at a lower rate. That is not our job. But rates will gradually come down. Demonetisation will have a big impact in this and is one of the solutions to this problem. Almost `15 lakh crore worth of currency was deposited in banks. A bulk of the amount was in savings accounts, where banks have to pay an interest of 4 per cent. If banks sit on this cash, they will have to pay interest of `40,000 crore every year. So, they will have to start lending. Now, we cannot tell them to reduce interest rates. But due to demonetisation, the banking system will undergo a transformation. My opinion is that when they have to lend, rates will come down to 6, 5 or even 4 per cent. Banks will also realise that that they cannot have a commercial loan at 14 or 15 per cent. It may take six months or two years. That is the time when India will be more competitive.
Where does India stand in terms of competitiveness in the sector?
We have a long way to go. We are not even 1.5 per cent of the total export market. If things are speeded up, we have the potential to catch the best of the countries as far as exports or competitiveness is concerned. The wage component in the cost of per tonne steel for our PSUs is 20 per cent; for the private sector, it is 6-8 per cent. So, even today, our production per tonne cost is lower compared to China, which is the largest steel producer. But if we can modernise our technology and reduce our dependence on coking coal, which we import, we will become more competitive. Things are not that bad.
A lot of big-ticket investments in the sector did not materialise. How will it be any different in future?
A steel plant requires raw material and land. As mines are now allotted in auctions, the process is transparent. Any company can bid and the highest bidder wins it. There is no discretionary power with anybody. Land is a problem, especially for large steel projects. But we have good land banks with PSUs like SAIL. So, we can facilitate a joint venture with anybody who brings in new technology. We have sufficient clean land available with PSUs and will provide all help.
@sumantbanerji