Steel sector set for a major boost through PSU investment

Government aims to take India's steel production to 300 million tonnes by 2025

The steel sector and experts have welcome Steel and Mines Minister N S Tomar’s announcement of setting up four steel plants. On Sunday, Tomar said the government has decided to set up plants in Chhattisgarh, Jharkhand, Odisha and Karnataka — the first state-owned greenfields projects to come up in nearly four decades. Experts believe this would give a boost to the sector with an addition of 24 million tonnes of capacity.

“If our GDP growth outstrips China’s, as is expected from next year, and as Make in India takes off, there is certainly room for additional capacity,” said Kalpana Jain, senior director, Deloitte in India. “We have decided to set up four steel plants with capacity of 5-6 million tonne each. Each project will be implemented via separate SPVs (special purpose vehicles) and the respective state government will partner in the projects,” Tomar had said.

The government has planned this new capacity addition in line with its aim of taking India’s steel production to 300 million tonnes by 2025 from the last year’s production of around 80 million tonnes. “The country has the capacity to absorb an additional 20-24 million tonnes per annum (MTPA),” said Niladri Bhattacharjee, director, infrastructure and government services, KPMG in India. “Given the low per-capita consumption of steel along with other programs – Nirmal Bharat, Bharat Nirman, Make in India — is expected to drive up domestic demand for steel.

According to the Section 17A of the recently amended Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015, the government can grant the prospecting licence or the mining lease to the government company concerned through an executive order.

“Given that the plants are proposed to be under public sector undertakings (PSUs), a better approach will be to allot captive mines to these plants,” Deloitte director Jain said.

The governments as well as the experts expect that there will be few problems in the land acquisition as the state government will be a partner in the project.

“Steel industry needs not only iron ore but also power, metallurgical grade coal and other resources,” said Bhattacharjee, pointing towards the need for better infrastructure and other raw materials.