Pivotal Role of Steel in Realizing $5 Trillion Economy Goal

Abhrasnata Das

The steel sector of India will play a crucial role in propelling India to a 5 trillion USD economy, says the new EY-CII analysis titled 'Steering India into a US$5 trillion Economy with Steel.' “The India steel sector has been vibrant and has been growing at a CAGR of about 5 percent-6 percent 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, and housing and changes in global supply demand equations, the industry has made record production and growth,” states the report.

Steel in developing India is significant for multifaceted applications concerning various segments. In fact, there are many sectors that are majorly reliant on steel like-- construction (62 percent); capital goods (15 percent); automotive (9 percent); intermediate products (6 percent); consumer durables (5 percent); and railways (3 percent) as of July 2021. But, how can a single metal shape the future of a nation with a 1.37 billion population? Let’s explore.

Steel and “Make In India”

Aligning with the government’s goal to “Make in India”, the nation is pushing to position itself as a manufacturing nation. Transforming this goal into reality requires huge infrastructural development in every possible aspect ranging from roads, railway lines, buildings and bridges, and more, that can match the international standards; which again is impossible without steel.

Research issued by the National Council of Applied Economic Research highlights the critical significance of steel in India's economy and future (NCAER). Its findings indicate that India's steel sector has a very high potential for contributing to the country's overall growth. Indeed, it is the one commodity that has a wide range of applications in many areas of the economy. It is used in the construction of buildings, the manufacture of automobiles, the production of everyday goods, and packaging. Special steels are rapidly being utilized in the packaging, fabrication, and engineering sectors, including power generation, petrochemicals, and fertilizers.

India: the steel exporter

Since FY11, there has been a massive development in the statistics of steel exports. Statistically speaking, the total import of steel in FY11 was 6.7 MT whereas in FY 21 the import of steel stood at 4.8 MT. However, the export of Steel skyrocketed in FY21 to 10.8 MT to 3.6 MT in FY21.

The rising global price along with low domestic demand is boosting the export of Indian steel. India is developing itself as a major exporter of hot rolled coils (HRCs) to countries like South Korea and Japan. Additionally, the rising price of HRC in the EU market is now a big factor for the surge in exports. Platts Metals Trade Review indicated that, as of 2021, India has shifted its "swing supply" attention to Europe. In early January, Northern European HRC prices were around $65/mt higher than Indian domestic HRC pricing. They were $300/mt higher as of April 12. Right now, India’s export has already surpassed its EU limit by roughly 40,000 mt.

The Government of India initiated PLI plan extends to help EEPC MSMEs for export promotion, hence broadening the scope of Quality Control orders on steel and establishing an Empowered Group of Secretaries (EGoS) and Project Development Cells (PDCs) in Ministries/Departments to attract investments and streamline inflows. These factors are incredibly boosting the exports of India’s steel industry and generating a chunk of revenue.

Employment creation

Another aspect that cannot be overlooked is that steel factories provide a lot of jobs, particularly in Tier III cities. Steel has a 6.8x employment multiplier impact and a 1.4x output multiplier effect. In addition, India has surpassed Japan as the world's second-largest producer of crude steel, generating more than 100 MT annually. Steel presently accounts for around 2% of India's GDP and employs about 6 lakh people directly and another 20 lakh indirectly.

Things to do in the coming days

In the coming days, Pro-steel initiatives of the government like steps to enhance export orientation and presence in attractive products and markets, strengthen the domestic steel industry through policy support, efficient resource utilization, achieve sustainable operations in the steel industry and research and development led production innovation can be decisive to uplift the steel industry of India.

“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 foresights of investing in the right technologies for expansion. The forces of global trade and sustainability would need to work in sync to execute existing strategic plans, update them basis emerging threats and opportunities which are unique and relevant to India, and draw up a collaborative game plan to nuture the future of a robust and sustainable steel industry,” Saurabh Bhatnagar Mining and Metals Consulting Leader at EY India said.