Punjab town's steel cluster is losing its lustre

Power and labour shortages, poor connectivity, low-level technology and state government apathy have combined to hurt the industry

Mandi Gobindgarh, better known as Punjab’s steel city, is rusting. A small town located on NH 1 some 60 km north-west of Chandigarh, it houses close to 500 induction furnaces and steel re-rolling mills.

Despite the brisk demand for steel owing to the ongoing expansion in infrastructure and the process of urbanisation in India, the steel cluster of Mandi Gobindgarh is languishing.

The cluster of small and medium-scale steel units that dates back 70 years is mired in problems such as acute power shortages, poor connectivity, labour shortages and the apathy of the state government.

Agriculture in Punjab gets precedence over industry, and the state electricity board provides free and regular supply to agriculture, and expensive, inadequate and erratic power to industry, said an entrepreneur.

He added that steel units cannot afford captive power, as their requirements are huge. A steel mill requires a 2,500 KVA generator at the minimum, but these are unviable to purchase and maintain. So, the mills are completely dependent on the state electricity board.

During the kharif sowing season (May through August) power is available 12 hours a day, three to four days a week. Production is suspended owing to power cuts but the industry has to bear labour costs and fixed costs during this period. Power supply becomes inconsistent in winters also owing to high consumption by the domestic sector.

SMEs are also unhappy over the introduction of E Trip, which requires entrepreneurs to inform the excise and taxation department of any transaction above Rs 3 lakh, prior to the transaction. This information is uploaded on the department’s website, to check VAT evasion. Entrepreneurs find this procedure cumbersome.

The average power tariff is about 5.50 paisa per unit, one of the highest in the country. The withdrawal of freight equalisation to units located away from the sea, followed by the ten-year tax holiday for hills states announced by the Centre, also hurt the industry.

In addition, the non-availability of labour due to the roll-out of the Mahatma Gandhi National Rural Employment Guarantee Scheme and frequent wage revisions to retain labour has squeezed margins.

Mahender Gupta, president of the Induction Furnaces Association of Mandi Gobindgarh, said steel mills were liable to pay Rs 2,000 per tonne as VAT per transaction. This is a double whammy, since the mills import raw material (steel scrap) from other states and sell finished products to neighbouring states.

Units located in Himachal Pradesh have in the last few years developed an edge over Punjab’s steel mills owing to tax benefits, and are catering to Jammu and Kashmir and Haryana.

The town is untouched by technological advancements, as entrepreneurs are averse to making investments in technology. “Due to uncertain government policies we fear we will lose our investments and are running on traditional technologies,” an entrepreneur said.

Mandi Gobindgarh provides direct employment to over 200,000 skilled and unskilled people and indirect employment to over 500,000 people. However, the town’s infrastructure has deteriorated in the past 10 years. The lack of modern facilities such as recreation centres, housing projects and educational institutes has also restricted the entry of engineers, who could have helped upgrade the industry.