Government think-tank Niti Aayog
has favoured creating independent regulators for steel
sectors in the country in a bid to make both industries profitable.
The premier policy-making body has also pitched for a new and dynamic steel
policy to bring the over $100 billion industry back on track as well as meet the target of 300 million tonnes (mt) capacity by 2025.
is a deregulated sector, there is a need for an independent regulator for effective regulation, which the sector presently lacks," Aayog said in a working paper.
"Also in the mining
sector, though NMDC
(National Mineral Development Corporation) should act as a regulator, it itself is engaged in iron ore mining, which may create a conflict of interest. Therefore, a new independent regulator is required in the mining
sector as well," it said.
About the deteriorating financial health of steel
firms, Niti Aayog
said firms have a huge debt load over the past couple of years due to the combined effect of supply and demand factors.
"Situation is quite critical as they are not even able to service their interest cost. There was an aggregate debt of Rs 45,160 crore in the iron and steel
industry in 2014, according to the corporate debt restructuring cell progress report, which has increased to Rs 53,580 crore in March 2016," it added.
The working paper — prepared by Niti Aayog
Member V K Saraswat and Niti Aayog
professional Ripunjaya Bansal — said a share of stressed advances has reached 25 per cent, of which 19 per cent are restructured standard advances and 7 per cent are non-performing assets.
It said the government has provided financial support to steel
firms earlier in 1999 and 2003 while it is trying to support through the Reserve Bank of India's strategic debt restructuring scheme currently.
"Therefore, the steel
sector, which has a long gestation period, needs long-term finance like pension funds, which have the capacity to withstand cyclical volatility of profits unlike funding from banks, external commercial borrowing or capital markets," the paper suggested.
According to the think-tank, mere changes in the National Steel
Policy, 2012, will not benefit the sector, which over the last few years has been flooded with cheap imports from China, Korea
impacting its sales and profit. This has also impacted its capacity to repay debt.
"There is a need for a new and dynamic steel
policy. Seeing the current situation of the steel
sector, it may be unlikely to achieve the targets envisaged in the National Steel
Policy 2012 i.e, a capacity of 300 mt and production of 275 mt by 2025," it added.
"To bring steel
sector back on track, mere tinkering in the present policy would not bring out a transformational change that is required," Aayog explained.
Aayog feels there is a need to examine the entire value chain associated with the industry — from raw materials to production of finished products — to discover the bottlenecks in the sector.