CHAPTER-2

BRIEF HISTORY OF IRON AND STEEL INDUSTRY IN INDIA

2.1. Introduction

Iron and steel sector is the backbone of an economy. It is one of the

primary vehicles of economic development of a country. The per capita

production and consumption of steel is the index of the depth of a country's

economic infrastructure.1 Increase in the use of iron and steel leads to

infrastructural development and rapid industrialization of the country.

According to Pandit Jawaharlal Nehru, "Steel is a symbol of strength of the

economy and a portent of the glory of India of the future".

Iron and steel are basic requirements for all types of construction and

manufacturing activities. It is used as a basic material of manufacturing all

types of machinery, electrical and metal products, transport equipment,

agricultural equipment, capital goods, house building etc. So all industries have

to depend on iron and steel. If we want to trace the story of steel, we are to

traverse the history of our civilization. The course of our present civilization

comes across the landmark gained in the process of development of iron and

steel. In fact, in the Indian scene, the history of iron and steel is the history of

our civilization.

2.2. Historical Perspective

2.2.1. During Pre-independence Period

Steel industry, a core of the core industries of Indian economy, started

its journey since ancient times. We find romance when we look at the historical

record that around 1750 Alexander the Great was said to receive three tons of

crucible steel from an Indian king. We have also record of a Persian king who

bought crucible steel from India. Thus India has a long heritage of steel

making. Although steel production process started in India thousand years ago,

the modem steel production technology started functioning only at the

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beginning of the 19th century. In fact the growth of steel industry in India has

been spectacular only after independence.

The first successful attempt was made in 1875 in setting up an iron and

steel works at Barakar by Bengal Iron and Steel Company. This was taken over

by Bengal Iron Company in 1889. This was the first attempt to produce pig

iron in India through modern methods. But the iron and steel industry in India

had a real beginning in the year 1907 after the establishment of Tata Iron and

Steel Company (TISCO) at Sakchi in Bihar. It was the dream of late Jamshetji

Tata, the father of Indian steel industry, whose career was a true example of

industrial romance. His dream came into reality in the form of establishment of

TISCO, the first large scale industrial unit in producing iron and steel by using

latest scientific methods in India.

Setting up of Indian Iron and Steel Company Ltd. in the year 1918 at

Burnpur in West Bengal was another landmark in the history of iron and steel

industry in India. The Steel Corporation of Bengal Ltd. was set up in 1937 in

association with Indian Iron and Steel Company for manufacturing steel.

In 1923 the State Government of Mysore set up an iron works at

Bhadrabati known as Mysore Iron and Steel Works, thereafter named as

Visvesvaraya Iron and Steel Ltd.

So before independence iron and steel industry in India consisted of four

units viz. the Tata Iron and Steel Company, the Indian Iron and Steel Company,

the Steel Corporation of Bengal and the Mysore Iron and Steel Works. Out of

these four units, only one unit namely Mysore Iron and Steel Works was a

state-owned unit, the remaining three were in the private sector.

2.2.2. Mter Independence

After independence special attention was given for the development of

iron and steel industry in India and a series of plans and proposals were made

for the setting up of new steel plants. During the second plan period, it was

decided by the Government to set up three steel plants in the public sector with

an ingot capacity of ten lakh tons each per year at Rourkela, Bhilai and

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Durgapur. Plants at Rourkela and Bhilai started functioning at the end of

second plan and the Durgapur plant was completed within the beginning of the

third plan period. At the same time major expansion programme was

undertaken in two private sector plants namely Tata Iron and Steel Company

and Indian Iron and Steel Company to increase their productive capacity.

During the third plan period emphasis was given for the expansion of all the·

existing plants and the setting up of new steel works at Bokaro which was

commissioned in 1978. During the fourth plan period, steel development

programme has been initiated with a top priority of utilization of maximum

capacity and formulation of plan to establish three new steel plants at Salem in

Tamil Nadu, Vijaynagar in Karnataka and Visakhapatnam in Andhra Pradesh.

All these plants came into operation within the year 1982. In 1972 Government

took over the management of Indian Iron and Steel Co. and acquired its

ownership in 1976 with a view to improving its working.

Prior to the year 1973, out of four steel plants in the public sector, the

three plants viz. plants at Bhilai, Rourkela and Durgapur were owned and

managed by the Hindusthan Steel Ltd. and the remaining one i.e. the Bokaro

Steel Plant by Bokaro Steel Ltd. In 1973 the Government set up the Steel

Authority of India Ltd. (SAIL) as a holding company for steel. Hindusthan

Steel Ltd. and Bokaro Steel Ltd. became the wholly owned subsidiaries of the

Steel Authority of India Ltd. The management of Indian Iron and Steel Co.

(liSCO) was handed over to SAIL and liSCO became a subsidiary of the SAIL.

SAIL took over the Visvesvaraya Iron and Steel Ltd. in 1989. Thus SAIL is

now the main integrated largest steel company in India. Rashtriya Ispat Nigam

Limited, the Vishakhapatnam Steel Plant, a public sector unit commissioned in

1992 ]s the second largest steel company in the country. In the private sector

TISCO is the first integrated steel plant. Other important players joined in the

private sector are Jindal Iron and Steel Co. Ltd., Lloyds Steel Industries Ltd.,

Essar Steel Ltd., Mukund Ltd., Nippon Denro Ispat Ltd., Mahindra Ugine Steel

Co. Ltd., Mardia Steel Ltd. etc.

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2.2.3. Liberalisation Policy and the Iron and Steel Industry

In the early years, after independence, growth in steel industry was

accepted by the national leaders as a pre-requisite for rapid industrialization.

This industry was identified as one of the core sectors of the economy and

accordingly Government reserved setting up of new integrated steel plants for

the public sector only. It was stated in the Industrial Policy Resolution of 1956

that iron and steel industry had been reserved for the public sector only. But

due to shortage of steel production and increase in demand created by the re­

rolling, engineering and other allied industries, the Government liberalized the

steel policy in the 1980s. In 1986 the private sector was allowed to open new

units for producing steel using Electric Arc Furnace (EAF) technology.

Thereafter in the new industrial policy of 1991, the Government removed iron

and steel industry from the list of industries reserved for the public sector and

this industry was opened to the private sector. The trade policy has been

liberalized for this industry with the exemption of compulsory licensing and

with the abolition of pricing and distribution controls.

In fact, the process of globalisation has changed the basic focus of

business and industrial activities all over the world. Indian iron and steel

industry is not an exception to that. Since liberalization of economic and

industrial policy of the country, the scenario of Indian iron and steel industry

has been changed through a radical departure from the earlier public sector

dominated controlled economy to the present private sector dominated market

economy. A large number of private corporates have joined the iron and steel

sector in various parts of the country. The future availability of steel in the

country no longer depends on the public sector as it was a few decades ago.

The private sector has already started to take a dominant position leading from

the front in the Indian steel sector. Thus the industry responded magnificently

to the opportunities provided by the new policy regime and it has successfully

made a transition from a controlled economy to a market-driven economy. The

most remarkable achievement of this decade is that the Indian steel industry has

made rapid integration with the global market. The quantum jump in exports

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from India bears testimony to that. Globalisation has led to manifold expansion

in the marketing opportunities for the Indian producers and India has emerged

as a net exporter of steel at present.

2.3. Production and Present Position

India has now emerged as one of the significant steel producers in the

world. Presently total installed steel production capacity of India has been

raised to nearly 50 million tons. Domestic production of crude steel has grown

at an annual average compound rate of 6.1% and that of finished steel at the

rate of 6% to 8% between 1948 and 1980. During this period Indian crude steel

output grew from 1.5 million tons to 15.1 million tons. Crude steel capacity of

integrated steel plants rose impressively from 1.5 million tons in 1950 to 8.9

million tons in 1968 at an annual average compound rate of 11%. The annual

rate of capacity expansion of this sector, however, stagnated between 1968 and

1985. The seventh plan period showed an increase in ingot steel production

from 10.81 million tons in 1985 to more than 14 million tons in 1990.

The impact of economic reforms on the steel industry in India has been

tremendous. The total crude steel capacity of Indian steel industry increased to

27.38 million tons in 1995-96 registering a growth of 23.6% i.e., 5.22 million

tons over 1991-92. After liberalization the iron and steel industry in India has

made a considerable progress showing an increasing trend in production of

finished steel which reached to 31 million tons in 2001-02.

The year 2004-05 proved to be a fortunate year for the Indian steel

industry because many of the steel making units were able to earn profits or

reduce their previous debts due to the increased demand in steel consumption

and increase in steel prices. In 2004-05 the finished steel production was 40

million tons which was again increased to 49.39 million tones in the year 2006-07.

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The production statistics of finished carbon steel and pig iron during the

last fifteen years is given below:

Table-2.1 Table-2.2

PRODUCTION OF FINISHED CARBON STEEL (In million tonnes)

PRODUCTION OF PIG IRON (In million tonnes)

Total Total Year Production Year Production

1991-1992 14.33 1991-1992 1.59

1992-1993 15.20 1992-1993 1.85

1993-1994 15.20 1993-1994 2.25

1994-1995 17.82 1994-1995 2.79

1995-1996 21.40 1995-1996 2.80

1996-1997 22.72 1996-1997 3.30

1997-1998 23.37 1997-1998 3.39

1998-1999 23.82 1998-1999 2.97

1999-2000 26.71 1999-2000 3.18

2000-2001 29.7 2000-2001 3.11

2001-2002 30.63 2001-2002 4.07

2002-2003 33.67 2002-2003 5.29

2003-2004 36.19 2003-2004 5.22

2004-2005 40.05 2004-2005 3.23

2005-2006 42.64 (Prov.)

2005-2006 3.86

(Prov.)

Source: http://www.steelworld.com

Steel demands massive investments in asset creation and funding

working capital requirements. External factors such as infrastructure facilities,

international steel prices, exchange rate and import duties also influence the

profitability of steel sector. The most attractive opportunity available to the

Indian steel industry is the vast potential that exists for improving demand for

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steel. India has plentiful reserves of iron ore (13 billion tonnes) and present iron

ore production capacity is 150 million tonnes. Yet India's per capita finished

steel consumption is 30.3 kilograms as compared to the world average of 140

kilograms and developed country's consumption level of 600 kilograms.

India's present production of finished steel is about 49 million tons which is

much lower as compared to other developed countries like China, Japan, USA,

Germany, Russia and Korea. So the performance of the Indian steel industry

during the last decade, though spectacular, has not been altogether smooth.

The Indian iron and steel industry has a wide range of forward and

backward linkages with the rest of the economy. This industry has been treated

as a priority sector and it rose to the commanding heights of the economy. It

has tremendous growth potential. The domestic demand for steel will increase

significantly because of investment in infrastructure and in other core sectors.

The steel demand is directly related to investments in secondary sectors like

mining, manufacturing, transportation, construction, power, electricity, gas and

water supply. It will also generate employment of more than 2.5 million people

directly besides large indirect employment. Thus improved growth in steel

intensive sectors and rise in investment in infrastructure should result in

improved steel consumption.

Iron and steel industry in India, a century old industry has a strong and

rich heritage. This industry is on upswing stage because of strong domestic and

global market. Rapid economic development of our country along with soaring

demand by the sectors like infrastructure, real estate and automobile within the

country and abroad has placed the Indian steel industry in a position in the

global scenario. India is the eighth largest producer of crude steel in the world,

producing a share of 3.37% of world steel production in 2005. According to the

latest report made by International Iron and Steel Institute (ITSI), India is the

seventh largest steel producer in the world.

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2.4. Problems of Indian Iron and Steel Industry

Th(mgh there has been a considerable progress in iron and steel industry

in India particularly after liberalization, still it has been facing some problems.

These problems are discussed below:

(i) Shortage of raw material base: The iron and steel industry in India has

been facing severe problem of having adequate quantities and desired qualities

of basic raw-materials like coking coal, nickel, ferro-molybdenum etc. These

often force the steel plants to restrict their production. Coking coal available in

India has a high ash content which adversely affects the quality of iron and

steel produced. With regard to other items of raw material like fluorspar,

chromite and wolfram, India is not still self-sufficient.

(ii) Shortage of power : Power is an essential input required for each stage

of manufacturing iron and steel. Shortage in the supply of power disrupts the

production of steel.

(iii) Transportation problem : Poor quality of basic infrastructure like

road, railway, port etc. hampers the growth of Indian steel industry. Electrified

railway linkage among all production centres, sources of raw materials and

markets for convenient transport facilities is yet to be completed.

(iv) Increase in input cost and problem of administered price : Raw

materials, fuel and electricity constitute about 45% of the manufacturing cost in

steel industry out of which raw material itself accounts for nearly 35%. As iron

and steel industry is material intensive in nature, a small rise in material cost

has great impact on the cost of production. The prices of basic raw materials

like iron ore, coal, power tariffs have been rising considerably over the years.

Moreover the system of maintaining administered prices for some inputs has

put the Indian steel industry in a very tough situation.

(v) Under-utilisation of capacity : The Indian iron and steel industry has

been suffering from under-utilisation of capacity. Capacity utilization of all

steel plants was around 67 per cent in the year 1970-71, the highest was 86 per

cent in case of TIS CO. In 1977-78, capacity utilization increased to 84 per cent

with Bhilai Steel Plant attaining 94 per cent and TISCO attaining 98 per cent.

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Thereafter capacity utilization declined again. During the period of 1987-88 to

1989-90, average capacity utilization was nearly 82 percent in SAIL and 100

per cent in TISCO. In 1995-96 SAIL has attained full capacity utilization.

Except SAIL, other public sector units are operating below the full capacity

level. Inadequate supply of coal and power, extensive labour trouble,

transportation problem and inefficient management have led to under­

utilisation of capacity which in tum resulted in high cost of production.

(vi) Inefficient management : The major problem faced by Indian steel

industry is inefficiency in the functioning of steel plants particularly in the

public sector because of huge expenditure on social overheads, poor

management, poor industrial relation etc. The management often has to face

undue political interference, frequent labour disputes etc.

(vii) High cost of capital and low labour productivity : Steel, being a

capital intensive industry, requires huge investment of capital and cost of

procurement of such capital is high in India as compared to other developed

countries like Japan, USA etc. In India labour productivity is still very low.

Productivity of labour is more than five times higher in western countries as

against India. The low wage rate in India is mitigated by low labour

productivity. According to a survey labour productivity in Korea and major

steel producing countries is about 600-700 tonnes per man per year whereas in

India it is only 90-100 tonnes.Z

(viii) Lack of technological development: All Indian steel plants have not

yet c·ome under the preview of latest technology. The advantages of abundance

of raw material and cheap labour get offset by the lack of modem technology.

Indian steel plants are still using open-hearth process and electric process for

producing bulk of steel which requires excessive electricity consumption.

Power tariff in India is also very high as compared to other countries. This also

has an adverse cost effect on the production of steel. Modem technology in

production of steel includes Blast Furnace (BF) and Blast Oxygen Furnace

(BOF) route which cannot be made use of by all Indian steel plants, although

the developed countries have switched over the BOF route in almost all the

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steel plants. Besides, technological obsolescence is

a developing country like India where capital itself is costly.

Challenges Ahead

Indian steel industry is facing challenges in global steel scenario on

different aspects. Cheap import has become a great cause of concern for the

Indian steel industry. Ever decreasing import duty on steel has made it possible

to fulfill domestic demand by importing at abnormally low prices from steel

surplus countries. Again high quality products at very competitive prices are

available for import and this poses a threat to the Indian steel industry. On the

other hand, Indian steel exporters have been facing different non-tariff barriers

in the global market. They are also losing price competitiveness because of

high cost of production due to high raw material consumption, outmoded

energy intensive technology, high electricity charge and high transportation

cost.

Plastic in recent years has emerged as a substitute of steel in some cases

which causes a threat to the Indian steel industry. Because of cost factor, plastic

products are being used increasingly. As a result consumption of steel has not

increased. Use of substitutes of iron and steel in railway sleepers (RCC

sleepers), large diameter pipes (RCC pipes), small diameter pipes (PVC pipes)

and domestic water tanks (PVC tanks) in place of iron and steel products has

reduced the demand for iron and steel to some extent.

In addition to the above, Indian steel industry IS also lacking

international competitiveness in terms of quality and designing of product,

distribution channel, on-time delivery, post sale service, labour productivity,

technological development, managerial competence, research and development

etc.

2.5. Prospects of Indian Iron and Steel Industry

(i) Abundance of raw material and manpower resources : India is rich

in mineral resources. It has abundance of iron ore, coal and other raw materials

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required for manufacturing iron and steel. It occupies fourth position in iron ore

reserves in the world. Though natural resources are costly items, these are

available in India at comparatively lower cost. There is also abundance of

manpower and the wage rate is low in India. It has third largest pool of

technical manpower in the world. With such abundance of raw material and

manpower resources, iron and steel industry in India has a strong

manufacturing base and golden opportunity to grow.

(ii) Unexplored rural market : Domestic rural market has been identified

as a potential area for significant consumption of iron and steel in different

rural applications. But this market still remains unexplored as effective steps

have not yet been taken. Application of steel products in cost effective manner

in meeting rural needs will increase per capita consumption of steel. So Indian

steel industry should strive and adopt necessary measures to explore the vast

potential of the domestic rural market.

(iii) Market potentiality in other sectors : There is also vast potential of

increasing steel consumption in other allied sectors such as automobile,

construction, engineering, packaging and irrigation sector in India. Steel

industry, in fact, has achieved momentum with the rapid growth of automobile

and construction sector during recent years. Indian iron and steel industry

should enlarge its spectrum of products by enhancing its product range for

meeting the requirements of all these sectors. Latest technology must be

adopted by the Indian steel makers to improve the quality of products with

reasonable price for increasing the application of steel products. There is a need

for collaborative research between steel and other allied sectors for market

development.

Rise in the pnces of steel products has adversely affected the

consumption of steel and increased the consumption of plastic products as

cheaper substitutes during the last few years. Demand for steel product is price

sensitive for a country like India having low per capita income. So the domestic

steel prices should be fixed on the principle of 'what the market can bear'.

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Exploration of domestic market will lead to the future growth of iron and steel

industry in India.

(iv) Potentiality in global market: Apart from vast domestic demand, there

is a bright prospect in India to develop a global manufacturing and outsourcing

base for iron and steel products. In a study conducted by Kellogg School of

Business on the manufacturing competitiveness of 15 countries, it is revealed

that India is the most competitive place for metal based manufactured products.

There is ample scope to develop exports of steel products for the use of

automobi]e, construction, oil and gas sector. Massive thrust has been given for

exporting iron and steel. The Government of India has set up the 'Steel

Exporters Forum' as an interactive body to promote the cause of exports. As a

result of this, export has increased significantly. The recent development in

South East Asian economies has also provided additional marketing

opportunities for the Indian iron and steel industry. It is estimated that world

steel consumption will be doubled by 2025 and consequently Indian iron and

steel industry will acquire a substantial share in export market.

(v) Structural I Infrastructural advantage : There has been a structural

change in the iron and steel industry in India. Previously this industry was

reserved for the public sector. Many restrictions were imposed on the private

sector in setting up new plants. But after liberalization, this industry has been

opened to the private sector. It is now seen that this industry has successfully

made a transition from the public sector dominated controlled economy to a

market driven economy. The new steel plants assimilated latest steel making

technology like MBF-EAF, Corex, Romelt etc. Many steel plants have made an

advancement through massive modernization programme to crop up emerging

opportunities.

India has been playing a vital role in the production of steel by the use of

non-coking coal through Direct Reduction Technology. Considering the

abundance of non-coking coal in the country and considering the possibility of

utilizing it as a basic raw material in steel making, many sponge iron plants

have been set up in different parts of our country with the initiative of Sponge

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Iron India Limited, a Government of India enterprise. India has also been

playing a pioneering role in the production of steel by the recycling of scrap

generated during iron and steel making leading to considerable savings in

energy and natural resources. With these there is ample scope for the reduction

of production cost and thereby keeping selling price at a competitive rate to

stand in the global market.

Considering the strengths and weaknesses, it can be said that iron and

steel industry in India is required to pay much attention to remove the areas of

disadvantages like low labour productivity, high energy consumption,

unsatisfactory quality of coking coal, under-utilisation of capacity etc. There is

a need for the Indian iron and steel industry to adopt new technology,

modernize plant and machinery, intensify research and development, develop

customized products, improve quality and service, explore new markets and

develop work culture and organizational efficiency. It has to build upon its own

competitive advantages like abundance of raw material, cheap labour etc. With

such strength of raw material and manpower resources along with vast

unexplored domestic market and access to the global market, Indian iron and

steel industry has the potentiality to face the challenges successfully.

Footnotes: 1 Bight, R.S. and Namboodripad, M.P.N., "Iron and Steel Industry", in V.B. Singh edited Economic History of India: I857-1956, Allied Publishers Pvt. Ltd., New Delhi, 1975, p. 208.

2 Nair, M.R.R., "Steel: Exciting Phase in Offing", The Hindu: Survey of Indian Industry, 1996, p. 239.

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