Deep Dive. Steel sector faces a test of resilience

As the world’s second-largest steel producer, the steel sector in India is a force multiplier for economic progress, yet the journey ahead demands bold action. With sluggish demand, gaps in capacity utilisation, and ambitious targets for 2030-31, the industry faces a test of resilience and an opportunity to redefine its global standing.

The multiplier of steel industry is no secret. Steel has an output multiplier effect of nearly 1.4X on GDP and employment multiplier factor of 6.8X. It means for every ₹1 increase in steel production, the country’s GDP grows by ₹1.4, showing how steel production contributes significantly to overall economic growth. Similarly, for every single job created in the steel sector, 6.8 additional jobs are generated in related industries and the broader economy. Steel is a deregulated sector, and the government has to act as a facilitator by creating a conducive policy environment for its development.

National Steel Policy–2017: Targets and achievements

The data presented by the Ministry of Steel to the Rajya Sabha in December 2024 reveal that India’s dreams of becoming a global steel powerhouse faces hard challenges. The story of crude steel demand and consumption unfolds as a tale of untapped promise and pressing urgency. With per capita steel usage progressing at a crawl and infrastructure projects craving a stronger push, the industry finds itself in need of more than just policy tweaks — it demands a bold, transformative push to reclaim momentum. The government has set the targets for the steel industry in the National Steel Policy (NSP) 2017.

As per data, the total crude steel capacity, currently at 59.84 per cent of the 2030-31 target, indicate significant progress but requiring further acceleration. A shortfall of 120.49 million tonnes needs to be addressed to meet the 2030-31 target, while the sector requires a CAGR of 7.61 per cent annually from 2023-24 to 2030-31. An annual increase of 17.21 million tonnes is needed to meet the target of 300 million tonnes.

The total crude steel demand/production met 56.49 per cent of the target, showing a greater shortfall in demand/production compared to capacity. A gap of 110.96 million tonnes exists, requiring focused efforts to bridge the deficit and needs an annual growth rate of 8.50 per cent, the highest among all parameters, suggesting greater challenges in demand growth. The total crude steel demand/production requires an annual increase of 15.85 million tonnes to reach the target of 255 million tonnes.

About 60.36 per cent of the target has been achieved in the total finished steel demand/ production, reflecting moderate progress. The shortfall stands at 91.18 million tonnes, indicating a substantial gap in meeting finished steel requirements. A CAGR of 7.48 per cent is required and needs a growth of 13.03 million tonnes annually to meet the target of 230 million tonnes.

In the per capita finished steel consumption segment, India has achieved 61.83 per cent of the target consumption of 158 kg, indicating steady consumption growth. A shortfall of 60.30 kg per person highlights the need for improved consumption trends and market penetration. This segment requires an annual growth rate of 7.11 per cent, reflecting consistent but slower growth compared to production and needs an annual increase of 8.61 kg per person to achieve the target of 158 kg per capita.

According to the government data, 305 steel units have come up in the last five years across the State, with Gujarat leading the table with 68 steel units.

How it fared

India was once a modest player in global production, today the sector has evolved to become the world’s second-largest steel producer, a status achieved by surpassing Japan in 2018.

The industry’s growth, particularly between 2019 and 2023, has been notable. During this period, India’s steel output expanded at an impressive six per cent CAGR, significantly outpacing China’s one per cent and outshining global steel production, which saw a one per cent decline. The past five years have witnessed a global increase in steel capacity by nearly 62 million tonnes, with India accounting for six per cent of this growth. Notably, Asean and India are projected to account for nearly 89 per cent of Asia’s steelmaking capacity additions.

To enhance the global competitiveness of the steel industry, the government, in Budget 2024, reduced the Basic Customs Duty on ferro nickel, a key raw material, and extended the duty exemption on ferrous scrap until March 2026. Additionally, the Domestically Manufactured Iron & Steel Products (DMI&SP) Policy reinforces the ‘Made in India’ initiative by prioritising domestically produced steel for government procurement.

The challenges

The data reflects that achieving the ambitious targets is no mean task. Private sector has been dragging its feet in adding to capacity when there is uncertainty regarding growth. The large capital investment required for setting up, regular maintenance and operations of large steel plants has seen very few new entrants in the sector.

The government could take the lead here, expanding the scale and capacities in the PSU steel plants such as SAIL, RINL, NMDC, etc. Equally important is the expansion of domestic and international markets for finished steel products, which requires strategic investments and a keen focus on market development.

Innovation and sustainability must take centre stage, paving the way for eco-friendly production practices that not only reduce environmental impact but also attract global markets increasingly focused on green initiatives.