Steel Industry Issues

The steel industry is one of the core sectors of the Indian economy and plays a vital role in industrial development, infrastructure creation, and economic growth. As an essential material for construction, transport, defence, energy, and manufacturing, steel is often regarded as a barometer of a nation’s progress. India is the second-largest producer of crude steel in the world, after China, with an annual production capacity exceeding 150 million tonnes. Despite this strong position, the industry faces a range of structural, financial, and environmental challenges that hinder its full potential.

Historical Context and Structure

The foundation of India’s steel industry was laid during the early twentieth century with the establishment of Tata Iron and Steel Company (TISCO) in 1907 at Jamshedpur. After Independence, the government set up several public sector steel plants such as Bhilai, Rourkela, Durgapur, Bokaro, and Salem, with assistance from foreign countries. The industry was considered strategically important and placed under state control until the economic liberalisation of the 1990s, which allowed private and foreign investment.
Today, India’s steel industry consists of integrated steel producers (such as SAIL, Tata Steel, JSW Steel, and ArcelorMittal Nippon Steel India) and numerous secondary producers, including mini-mills, re-rollers, and sponge iron manufacturers. The industry’s growth has been driven by domestic demand from construction, automobiles, railways, shipbuilding, and engineering sectors.

Key Issues Facing the Steel Industry

Despite its impressive growth trajectory, the steel sector faces multiple challenges that affect its competitiveness and sustainability.
1. Raw Material ConstraintsThe availability and cost of essential raw materials—iron ore, coking coal, and limestone—are major concerns.

• India has abundant iron ore reserves but faces problems of logistics, environmental clearances, and illegal mining.
• Coking coal, a critical input for steel production, is largely imported from Australia and other countries, making the industry vulnerable to global price fluctuations and foreign exchange volatility.
• Dependence on imported coal raises production costs and reduces the industry’s self-reliance.

2. High Production CostsIndian steel producers face higher production costs compared with global competitors due to:

• Inefficient mining and transportation of raw materials.
• High electricity tariffs and logistics costs.
• Outdated technology in some secondary steel units.
• Heavy dependence on road transport instead of cheaper rail or coastal shipping.

The overall cost of steel production in India is estimated to be 10–15 per cent higher than in countries such as China or Japan.
3. Infrastructure and Logistics BottlenecksTransporting bulk raw materials such as iron ore, coal, and finished steel requires robust logistics. However, the industry faces inadequate rail capacity, port congestion, and poor connectivity between mines and plants. These bottlenecks lead to higher turnaround time, inventory buildup, and cost overruns.
4. Global Competition and OvercapacityThe international steel market is dominated by large players, particularly from China, which produces more than half of the world’s steel. Global overcapacity—estimated at over 500 million tonnes—has led to dumping of cheap steel in foreign markets, including India. Domestic producers often face price pressures due to low-cost imports, especially from China, South Korea, and Japan.The imposition of anti-dumping duties and safeguard measures by the Indian government has provided some relief but has not fully eliminated the problem.
5. Technological Obsolescence and Modernisation NeedsAlthough major integrated producers have adopted modern technologies, many smaller and secondary units continue to operate with outdated and energy-intensive processes, resulting in low productivity and poor quality output. The transition to energy-efficient technologies, such as electric arc furnaces (EAFs) and continuous casting, is slow due to high capital investment requirements.
6. Financial Stress and Debt BurdenThe steel industry is capital-intensive, requiring long gestation periods for investment returns. Many steel firms have faced financial distress due to cyclical downturns in demand and fluctuating prices.

• Several large companies, such as Essar Steel and Bhushan Steel, underwent insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).
• High leverage and interest costs have limited the industry’s capacity to invest in expansion and modernisation.

7. Environmental and Sustainability ConcernsSteel production is one of the most carbon-intensive industrial activities. The sector contributes significantly to greenhouse gas emissions, air pollution, and water consumption. India’s steel plants emit around 2.5 tonnes of CO₂ per tonne of crude steel, higher than global best practices.
Environmental issues include:

• Air pollution from dust and particulate matter.
• Disposal of slag and solid waste.
• Water pollution from effluent discharge.
• High energy consumption per unit of output.

With growing international pressure for decarbonisation and India’s commitment to net-zero emissions by 2070, the steel industry faces the challenge of adopting green technologies such as hydrogen-based steelmaking, carbon capture, and increased use of scrap.
8. Policy and Regulatory ChallengesFrequent policy changes, delays in project approvals, and complex environmental regulations create uncertainty for investors. In addition, variations in royalty rates on minerals, duties, and levies across states affect competitiveness.While the National Steel Policy (NSP) 2017 aims to increase crude steel capacity to 300 million tonnes by 2030–31, effective implementation depends on consistent policy support and infrastructure development.
9. Demand-Supply MismatchAlthough domestic demand for steel is growing, it has not always matched the rapid capacity additions. Economic slowdowns, fluctuations in the real estate sector, and weak capital investment cycles have led to periods of excess capacity and price instability.
10. Skill Shortages and Labour ProductivityThe steel industry requires technically skilled manpower for operations, maintenance, and innovation. However, skill gaps persist in areas like automation, data analytics, and process optimisation. Labour productivity in Indian steel plants remains below that of global leaders, affecting cost efficiency and competitiveness.

Government Initiatives and Policy Responses

The Government of India has introduced several measures to address challenges and promote sustainable growth in the steel sector:

• National Steel Policy (NSP) 2017: Aims to create a globally competitive steel industry, with a focus on domestic availability of raw materials, technological upgradation, and self-sufficiency. Targets include 300 million tonnes of capacity and 160 kg per capita steel consumption by 2030–31.
• Mission Purvodaya: Launched to develop eastern India—rich in iron ore, coal, and other minerals—into a steel hub by building integrated steel plants and industrial clusters in Odisha, Jharkhand, Chhattisgarh, and West Bengal.
• Scrap Recycling Policy (2019): Promotes the use of scrap-based electric arc furnaces to reduce energy consumption and carbon emissions.
• Production-Linked Incentive (PLI) Scheme for Specialty Steel (2021): Encourages investment in high-value steel products like coated, alloy, and electrical steel, aiming to reduce imports and enhance value addition.
• Anti-Dumping Measures: To protect domestic producers from unfair international competition, India imposes anti-dumping duties on certain steel imports.
• R&D and Green Steel Mission: Initiatives to promote the adoption of low-carbon steelmaking processes through hydrogen usage and carbon capture technologies.

Future Outlook

The outlook for India’s steel industry remains positive, driven by strong domestic demand, infrastructure expansion, and government initiatives such as ‘Make in India’ and ‘Atmanirbhar Bharat’. Rapid urbanisation, housing projects, and transport networks like Bharatmala and Dedicated Freight Corridors are expected to sustain long-term demand.
However, to remain globally competitive, the industry must focus on:

• Enhancing productivity through automation and digitalisation.
• Ensuring raw material security via domestic exploration and beneficiation.
• Transitioning to green steel technologies in line with global sustainability goals.
• Strengthening research and skill development.
• Improving logistics through multimodal transport infrastructure.