Low Steel Consumption Hits Industry: Cii

A recent study on the Indian steel sector, conducted by the Confederation of Indian Industry (CII), has observed that the decline in steel consumption in relation to gross domestic product (GDP) growth is the main factor constraining the industrys growth.

Between 1989 and 1995, the growth in annual consumption of steel in India has been around 4.4 per cent.

Comparing this with the GDP growth rate of 5.5 per cent during the same period, shows that the elasticity of steel consumption with respect to GDP growth in India is approximately 0.8 per cent.

The study says there is a need to increase the elasticity factor with respect to gross domestic product to around 1.5-2.0 per cent for growth revival.

Making a comparison between India and China, the CII paper points out that between 1994 and 1995 per capita consumption of steel in China increased 56 per cent from 51.2 kg to 79.7 kg, whereas in India, per capita consumption of steel in the post-reform period increased only 8 per cent.

The strategy, according to the paper, is to increase steel consumption, develop steel-intensive sectors such as infrastructure, construction industry, capital goods, consumer durables (mainly automobiles and white goods).

The poor steel demand is mainly due to fall in infrastructure investment (power, ports, roads and railways), low rate of capital formation and drop in the average annual growth of the construction industry, from 5.5 per cent to 3.5 per cent, during the eight plan. The study points out that much of the demand constraint for steel is exogenous to the steel industry, and in the short run, the paper suggests that the solution lies in boosting the overall industrial growth. In terms of technology standards, the study says, Indian steel is at par with that of China.

The current situation the steel industry faces is not due to technology constraints and technology will not be a barrier to growth, the study says. Main steel producers have undertaken significant technological steps by modernising their plants; there has been entry of dynamic secondary steel producers in the period.

The paper suggests networking with steel industries of the developed countries to access newer technology and recommends outlining strategies to penetrate global markets.