Steel industry in China began in 1950s with a production level of 1.5 million tonne which was the same as that of India which commenced its tryst with steel since the beginning of twentieth century. But six decades later, China produces 10 times more than India. A common question is asked that evokes a multiple of answers.

First and foremost, Chinese economy is investment led, while India is consumption led. Fixed asset investment as a percentage of GDP reached around 50% in China against 32-35% in India and steel intensity in fixed capital formation in China is 1.8 times more than India.

To top it all, steel intensity in GDP is 2.3 times more in China than in India and as Chinese GDP is a hefty 2.5 times (PPP terms) that of India, no wonder India consumed 64.5 million tonne of steel in 2010 against 576 million tonne by China.

It is primarily the sheer size of the market serving domestic and export requirements and the market also embraces indirect trade of steel in the form of machinery, equipment and a host of consumer durables containing steel that China exports, the size of which is several multiples of what India sends abroad. Currently industrial production is growing at a rate of 13.5%in China as opposed to 8.2% in India. Manufacturing segment contributing nearly 80% of industrial production in India has been witnessing a stagnant share of 15-16% in GDP, while China boasts of 32% share. A comparison of monthly production data of a few steel intensive items brings out the differentials.

A roadmap towards enhancing the share of manufacturing in GDP to at least 25%in India has been drawn up. This entails creation of industrial clusters at various parts of the country by developing the basic infrastructure and thrusts have been laid on PPP mode of investment.

This would continue to remain a big challenge as apart from the road sector, PPP model has not met with any success in other sectors. Thus the clue to bridge the gap in the growth of steel industry in China and India is to be found in the wide disparity in the quantum of capital formation in construction and manufacturing sectors through internal funds, market borrowings, FDIs which necessitate a whole gamut of institutional reforms. Time is fast running out and the differential is widening.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal