People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
July 02, 2006
Indian Steel Industry In A Changing Global Scenario
M K Pandhe
THE steel industry in the world, which was characterised as a sunset industry two decades ago, is experiencing a vast change in scenario. The fast developing Chinese steel industry has far outstripped the world steel giants. United States, Russia and Japan, which were leading steel producers, are no more in a position to claim that position.
China, producing less than a million tonnes of steel prior to revolution in 1949, has now become the largest steel producer in the world. During 2005 the global steel production stood at 1132 million tonnes, showing a rise of 6 per cent over the last year. The countries in South America, CIS (former Soviet Union) Europe and North America have actually shown negative growth. The Asian continent for the first time produced more crude steel than the rest of the world combined. Major shift has taken place because during 2005 with China producing 349 million tonnes of steel, accounting for 32 per cent of the world steel production. During 2005, Chinese steel production increased by 69 million tonnes i.e. by 25 per cent. Chinese steel output was more than three times that of Japan and four times of USA during 2005.
Per capita consumption of steel in the world was estimated to be 170 kg during the year 2005. However in India it stood at only 35 kg during the same year. Indian steel production was 38 million tonnes, which accounted for only 3.4 per cent of the world steel output. In view of the fact that Indian population is 16 per cent of the global population, the production of steel is much lower in India. Although India is the second largest populated country in the world, it ranks eighth in steel production. Steel Authority of India Ltd (SAIL) is ranking 17th among the world’s largest steel producing companies.
With stiff competition in the global market, the formation of giant companies to reduce cost and add to profitability has become the regular feature in the industry. Merger and acquisitions have become the order of the day. The recent attempt of the Mittal Steel to acquire Arcelor, a Luxemburg based European company, if succeeds, will make Mittal Steel produce over 110 million tonnes of steel per year, i.e. about 10 per cent of the global steel output.
WORLD BANK ADVICE
Though India has objective conditions to become one of the major steel producers, in the world it continues to lag behind. Despite the fact that India has huge reserves of good quality iron ore and sufficient quantity of manganese, dolomite and coal, it is not producing higher quantity of steel. India produces more than 100 million tonnes of iron ore, of which only one third is utilised indigenously while two thirds is exported at a throw away price.
In 1980, the World Bank in its report advised the government of India not to go for any greenfield public sector steel plant. Inspite of Indira Gandhi laying the foundation stone for public sector steel plant at Daitari and Vijayanagar in 1973, the government of India made no investments. On the one hand adequate additional investments were not made by the government in SAIL and on the other hand the government scrapped the industrial policy resolution of 1956 which provided development of core sector of economy only in public sector. The government permitted private sector steel plants. As a result of this decision, Essar, Mittal, Jindals, Tata groups have taken steps to start more steel plants in the private sector. Recently, the government of Orissa even went to the extent of allowing South Korean company, POSCO, to take control over the iron ore resources of the state and export it for their requirement to South Korea. All this in the name of investing in its steel plant in Orissa.
The market share of public sector SAIL has now come down to around 34 per cent which is likely to decline further if the government of India’s policy of strengthening private sector continues. Disinvestments of SAIL has resulted in 14.18 per cent equity of SAIL going in to the hands of private sector companies as well as domestic financial institutions. Further disinvestments has been stopped for the time being only due to the pressure of the Left parties on the UPA government against disinvestments in navaratna PSUs.
After the acceptance of the policy of financial globalisation and WTO conditionalties by the government of India, the import duty on steel has been brought down gradually up to 5 per cent. Further, the excise duty on Indian steel was increased which made imported steel cheaper and domestic steel costlier in India. This has put the steel industry in great difficulties and SAIL, which was making profits earlier, had to incur losses to the tune of Rs 1700 crore in a year. The private sector companies like Essar, Mittal and Jindal could manage to survive only due to extremely low rate of wages paid to the workers, majority of whom were under contractors.
LOW CONSUMPTION OF STEEL
India has extremely low level of consumption of steel and the government of India has not made attempts to promote use of more indigenously produced steel. For example, in construction of a house even today more wood is being used than steel which is resulting in cutting down of our valuable forest wealth. The per capita consumption of steel in rural India is a mere 3 kg. The wrong thrust given on export of steel has also resulted in the utter neglect of developing rural market for steel.
The government of India adopted a wrong policy of drastic reduction of manpower on the plea of making the steel industry competitive. Voluntary Retirement Scheme (VRS) was recklessly implemented which resulted in large number of skilled workers leaving the steel plants. The management resorted to outsourcing of permanent and perennial nature of jobs by giving large number of jobs to contractors violating the solemn commitment given in the National Wage Agreements. As a matter of fact, the VRS route was not to reduce the surplus manpower in the industry but only a ploy to convert regular jobs into contractual jobs.
UNDERMINING OF PUBLIC SECTOR
The government of India, as a policy measure, systematically reduced the role of the public sector in steel industry. It forced the SAIL management to appoint Mckinsey, a World Bank sponsored MNC consultancy firm, to suggest restructuring of the organisation. Mckinsey recommended sale of Alloy Steel Plant Durgapur, Salem Steel Plant and Visweshwarayya Iron and Steel Co. Ltd. It also recommended privatisation of IISCO. It further advised SAIL to drastically reduce the manpower and increase the workload on the workers.
It was only due to the strong trade union movement in these plants that they were saved from privatisation and sale. Salem Steel Plant developed a big political movement to oppose selling it to Jindals and Tatas even as workers came on to the roads to resist the move.
Repeated attempts made by the central government to sell IISCO were resolutely opposed by the ‘Save IISCO Committee’, which was jointly formed by all the trade unions and officers associations. The committee organised a broad based, long drawn campaign opposing privatisation or dismantling of IISCO. After a bitter struggle, the central government was ultimately forced to merge IISCO with SAIL.
While undermining the public sector, the government of India encouraged Tatas, Mittals, Essar and Jindals to develop and expand their capacity. While SAIL management had to work under heavy restrictions by the bureaucrats and capricious ministers of steel, the private sector was completely free to take decisions. Despite SAIL acquiring the status of a navaratna company, lack of autonomy prevented it from developing faster while the private sector received every encouragement for increase in capacity.
Though IISCO has been taken over by SAIL, delay in modernising the age-old plant is adversely affecting the growth of the undertaking. The present condition of the plant is indeed precarious and any time there could be break down if the steps towards modernisation are not taken expeditiously. The production of saleable steel was only 74 per cent of the planned production due to frequent unscheduled repairs of twin hearth furnaces and operational problems in blast furnace. Even after repairs, merchant and rod mills faced several problems.
Though the SAIL management has chalked out a plan to invest over Rs 8000 crores, the progress of implementation is extremely tardy with the result that the plant is unable to contribute to increase of steel production despite good potential. Unless bureaucratic hurdles are overcome, the modernisation process will not be timely and escalation of cost will become unavoidable.
The government plan to develop steel production to 60 million tonnes by the year 2012 can be implemented only if domestic consumption is increased at a faster rate. The Indian steel industry however is extremely worried due to possible competition from the Chinese steel industry which is planning to increase steel production to 500 million tonnes and is likely to become a major exporter of steel in the forthcoming period. Even the SAIL management thinks, “China can derail our production and marketing plans.”
However, the Indian steel industry has nothing to worry if indigenous consumption is drastically increased by proper planning of developing national economy with higher consumption of steel. The industry has to become more efficient in production technology so that it can remain economically competitive without attacking the interests of the workers.
The development of special steel in public sector requires more attention. Both Alloy Steel Plant and Salem Steel Plant are not complete plants. Backward integration of Salem Steel Plant and forward integration of Alloy Steel Plant are important to make both these plants viable. However, SAIL has not paid adequate attention to this aspect as a result of which both these plants could not become viable in the long run.
The development of these plants on a priority basis is vitally important to develop the special steel industry in India. With introduction of new technology, the demand for special steel is likely to increase in India. The SAIL has to rearrange its priorities in proper development of these two plants so that they will be able to play an important role is making India self-reliant in the production of special steel.
NEGLECT OF SAFETY
The neglect of safety aspect is resulting in large number of fatalities in the steel industry. In SAIL alone during 2004, 20 workers lost their life in accidents while the number increased to 25 during 2005. During first five months of 2006, 13 workers died in accidents, which clearly reflects an increasing trend. About 49 per cent of the fatal accidents are caused in rail and road movements while the second largest killer is the hitting of a worker by any object in the plant. About 10 per cent of accidents are caused due to falling from height. Burns, explosion, metal spillage, suffocation, electrocution and gas poisoning has also led to loss of precious lives of the workers.
The neglect of safety is extremely severe in case of contract workers. The contractors do not supply proper safety equipment, and at many times the quality of safety equipment is very sub-standard. The violation of safety rules by the contractors is a matter of daily occurrence. During 2004, five contract workers lost their life while the number rose to 11 during 2005. During the first five months of 2006, five contract workers lost their life.
The concept of reportable accidents is resulting in underestimation of the accidents in the industry. If a worker is on leave due to injury for less than three days then the accident is not reportable. A dubious practice is prevailing in the steel industry to allow a worker to remain at home and mark him present to prevent reporting of the accident. Trade unions have therefore demanded that all accidents should be reported and proper record should be kept. Studying of non-reportable accidents may help in increasing the safety standards in the industry.
The question of occupational health needs more attention in the industry. Steel is notoriously known as a hazardous industry and workers are exposed to several health hazards. The managements of steel plants have not been paying sufficient attention to this aspect. There is an urgent need to identity these health hazards and take preventive measures. Due to prolonged exposure of working in hot conditions, noisy environment and vibration due to machines, workers are facing several health hazards which require urgent treatment. Gasses emitted while working in several departments also cause health problems for the workers.
Though Joint Committee on Safety in Steel industry is working for more than 25 years in steel industry, the functioning of the committee needs drastic improvement and special attention has to be paid for health and safety of contract workers, which is today sadly neglected by the unscrupulous contractors.
The steel industry in India is experiencing favourable conditions due to upswing in international prices. The cold rolled coils prices increased from $478 to $587 per tonne between January and April 2006 while hot rolled coil prices shot up from $368 to $469 per tonne during the same period. However one cannot be certain about the long term trend in these prices. It is imperative that the steel industry in India should mainly depend on domestic consumption and steps should be taken to boost the domestic market.
India must develop its own technology in production of machinery, which alone will result in making the country self-reliant in steel sector. Over-dependence on foreign machinery is making steel costlier. The central government must take steps to develop machinery production in steel so that its rate of growth can be further accelerated. Since this is contrary to what the World Bank has proposed in its roadmap for the development of steel industry in India, the government has to show some spine and ignore World Bank’s prescription.