Nerves of steel

As the 50s central planners knew,steel is the backbone of industrialisation.

As the 50s central planners knew,steel is the backbone of industrialisation. And as we,more humble observers of the market economy a half-century on,know,steel is the industry that best reflects how the larger manufacturing sector is doing. And the answer,for India,is good: industry as a whole is doing well. The steel ministry was in fact forced to send a note to the finance minister urging against tariffs for imported steel; there was concern that the finance ministry would respond to a sharp increase in steel imports with tariffs to protect domestic producers. As the note pointed out,this would be an error: the imports are Indias industry responding to an inability to expand domestic steel production. An even worse idea is restricting iron ore imports so that the domestic steel industry benefits. Such output fixing inevitably leads to price fixing and helps no one. Capacity needs to be beefed up all along the line.

It is clear,however,that the steel-making sector is not growing to potential. The note made this point quite starkly: it pointed out that the demand for steel from manufact-

uring was growing at 10 per cent annually but usable steel was not keeping up,with the amount being produced domestically increasing at only half that rate. Resources,land and coal in particular,are indeed acting to constrain the growth of production; but there are no quick fixes. Whats crucial is to expand the efficiency and scale of domestic steel production. We need better connectivity,better ports,more openness,and a more flexible supply chain: for the industry in particular and manufacturing in general. But this doesnt mean that smart trade policy reduces the need for smart domestic extraction policy. Its absurd that mining doesnt contribute much more to Indias economic activity. We need to work on ensuring that our coal and iron ore resources are mined more effectively,efficiently and transparently.

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Fortunately,some producers are ahead of the government here,responding to the changed situation swiftly. The countries of southern Africa,for example,have vast

untapped coal reserves,and underutilised steel mills,and Indian companies are leading the bidding for those resources. In some cases,they might wind up bidding against each other leading the state-owned Steel Authority of India Limited to suggest that Indian companies searching for outside resources coordinate their efforts and form a consortium. SAIL is also looking for innovative ways to use land it already has,in Bokaro,as well as land controlled by the fertiliser ministry in Sindri. Innovatively using domestic land and external resources will,eventually,help production match demand.

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