Sources in the company declined to confirm the figures. However, a senior official said a new voluntary retirement (VRS) scheme is being worked out and is likely to be announced in a month. Although the figure is large, SAIL insiders said a large chunk of its employees were recruited during the early sixties and are due to retire soon.

Currently, the steel major has 170,000 workers on its rolls, with average manpower productivity at around 90 tonnes per man per year. Analysts said that in the face of stiff competition from new domestic producers and foreign manufacturers, older players like SAIL and Tata Steel have to increase their manpower productivity to around 170 tonnes to survive.

In the SAIL family, Bhilai Steel Plant (BSP) has the highest manpower productivity (130tonnes), followed by Bokaro with 95 tonnes. The recently modernised Durgapur (DSP) and Rourkela (RSP) plants have a productivity of 55 to 65 tonnes, which will go up to 95 tonnes once the modernised facilities stabilise and run at full capacity. SAIL subsidiary Indian Iron & Steel Co, one of the oldest operating integrated steelmakers, has a staff strength of around 18,000 and produces about 300,000 tonne. Iisco also has its own coal and ore mines.

Rashtriya Ispat Nigam Ltd (RINL), another government-owned steelmaker which runs the Vizag steel plant, has a productivity of 230 tonnes. Tisco's figure is around 90 tonnes.

Company insiders said RSP and DSP face the brunt of the job cuts, and may have to trim the workforce by 5,000. Both plants were saddled with excess manpower and had to absorb large numbers of contract workers during their modernisation when the older units continued to produce.

Once the modernised units stabilise, SAIL plans to close down the older units. "Considering that RSP producessuperfinished materials from a large complex of finishing shops, while DSP's products are semi-finished steel, DSP may have a much lower manpower component than RSP," a company insider said.

According to an analyst, SAIL should ideally reduce its workforce to around 100,000. "It would be logical if SAIL downsizes by around 70,000 and goes down to around 100,000. For Tisco, a figure of around 25,000 would be ideal, calling for a reduction by almost 40,000," he said. But none of the targets can be achieved overnight, he admitted.

The private sector Ispat Industries' Dolvi plant in Maharashtra, which is uses modern technology, has only 1,500 people for its 1.5 million tonnes first phase. This figure is strictly not comparable with those of integrated steelmakers like SAIL, Tisco or RINL, "but it does highlight the fact that older technology has got to be replaced sooner or later with modern technology, because labour cost is an important element of the cost of production of steel," the analyst said.

Hesaid RINL's manpower is a more appropriate reference point for the older plants. RINL was designed to employ 15,000 people for an annual production capacity of 3 million tonnes of crude steel. It has added some more people in due course, but the figure is still very low for the Indian steel industry. "Both SAIL and Tisco should have this a benchmark," he said.

A steel ministry official was sceptical about the logic of such benchmarking ratios. "For the time being, it may work, but in the long run -- maybe in a decade -- it will not help in the face of stiffer competition."

A veteran trade union leader at SAIL concurred, and said huge job cuts will lead to social tensions. "Downsizing is no panacea. If all the companies opt for that it would only bring misery to millions of people. We can't allow it. We should fight tooth and nail to protect the workers," he said.

The union leader said SAIL's management should improve its performance, pointing out that SAIL had earlier cut its workforce to 200,000. "WhenKrishnamoorthy was SAIL chairman, he reduced the manpower to 200,000. Did it help improve SAIL's performance?" he asked.

The ministry official said things have changed dramatically since Kirshnamoorthy's time. "Back then we had a protected regime. Now we are faced with growing competition. If the steel industry fails to take drastic measures, it will be ruined. If the industry dies, how can jobs be protected?" the ministry official asked.

"Instead of protecting a few thousand jobs, our duty should be to create many times more jobs in the general economy. Protecting existing jobs has been carried too far at the expense of not only the industry, but also the country," the official said.

At the same time, he cautioned, "we should not carry this downsizing too far. It is bound to provoke social tensions leading to destabilisation of economic and political processes."

He said government should step up policy intervention, and not leave the job to individual industries.