Promote indigenous capabilities to meet rising steel demand

By: |
Published: November 28, 2017 3:45:12 AM

The capability of the domestic players to supply rails matching the quality and prices offered by the global players is a strong enough reason to give preference to them to meet the demand.

Make in India, Make in India initiative, indigenous capabilities, rising steel demand, steel demand, facilitate investment, skill development, GDP, manufacturing infrastructureThe capability of the domestic players to supply rails matching the quality and prices offered by the global players is a strong enough reason to give preference to them to meet the demand. (Image: Reuters)

The essence of the Make in India initiative announced by the Prime Minister is to facilitate investment, foster innovation, enhance skill development and build best in class manufacturing infrastructure in the country. This is a laudable objective and is considered as the most effective one in the context of the planned target of taking the share of manufacturing in GDP from the current 17% to 25% by 2022. This policy was earlier preceded by enhancing the FDI limit to 49% in Defence, opening up the defence equipment manufacturing to private players and converging railway budget with general budget of the country which was long overdue. An annual budget of Rs 1.31 trillion has been provided for railways in the current fiscal. The thrust on manufacturing sector was imperative and was considered as the need of the hour as the sector continued to exhibit a subdued performance year after year and many of the once-thriving manufacturing units, big or small, faced innumerable challenges for survival.

Imports of finished manufactured products or the semi knocked down (SKD) products to be assembled here became the predominant factor for suppressing the growth rate in Indian manufacturing sector as imports from China arrived at a much cheaper price. Indian export of engineering products which included mostly manufactured equipment and machines exhibited significant drop in the last few years. As regards steel, the encouragement to domestic manufacturing was provided by introducing the Domestic Manufacturing of Iron and Steel (DMI&S) policy to enable domestic steel producers to participate in all tenders for government projects worth more than Rs 50 crore with 15% value addition subject to matching the quality stipulations of the project authorities and the prices offered by the foreign suppliers. The provisions of this policy clearly demonstrate the intention of the government to boost domestic manufacturing which would cut down unnecessary imports.

In fact, India is not alone in promoting indigenous manufacturing. Earlier, the US had clearly spelt out that domestically manufactured products, especially steel, would be given precedence in all Centre-funded projects in infrastructure and it had proved highly beneficial in boosting indigenous manufacturing capability. Similar policy exists in Germany and other countries. Thus, when Indian Railways recently (Ocober 2017) issued a global tender for supply of 7.17 lakh tonnes of rails worth Rs 30 billion ($464 million), many eyebrows were raised. SAIL has been traditionally supplying rails to Indian Railways for the last so many years and it is rightly said that the total volume of rails supplied by SAIL could circle the globe 50 times.

SAIL supplied rails from the heavy structural and rail mill of BSP with an average supply of 8 lakh tonnes per annum against orders received from Railways for new tracks, doubling of tracks and renewal of tracks. It has successfully commissioned a Universal Rail Mill (URM) at a cost of Rs 1,200 crore and has been able to supply the longest rail of 130 metres from the URM with improved surface quality, less residual stress and improved straightness. With a single weld, SAIL is now able to supply 260 metre length of rails which can be further extended to 520 metres in future from its fully automated flush Butt Welding plant. The steel major has also supplied Nickel Copper Chromium Rails to SC Railways. In 2017-18, the company plans to supply 11.45 lakh tonnes of rails from the two mills.

Meanwhile, JSPL has emerged as an additional supplier of rails in the scene. It has produced rails from 13 metre to 121 metre length and is capable to roll UIC-54 and UIC-60 grades of rails. It has exported rails to Iran. Thus, massive investment have already taken place in the country to cater to the requirement of a single buyer. The additional requirement of rails by Railways is stated to meet the backlog of track renewal programmes and the shortfall for new lines, gauge conversion and doubling. Report shows that in 2014-15 the track renewal was 2,424 kms, 2,794 kms in 2015-16 and 2,487 kms in 2016-17.

However, the frequent spate of accidents due to overaged tracks in the recent past has hastened the track renewal programmes by the Railways. It is said that since last year the rails procured for new tracks by the Railways have been diverted for track renewal. Even taking this factor in account, the decision to import rails from global players like China, ArcelorMittal, Thyssen and others can hardly be substantiated as it largely negates the Make in India programme.

The capability of the domestic players to supply rails matching the quality and prices offered by the global players is a strong enough reason to give preference to them to meet the demand. There is no denying that the track renewal programme has become top priority for the Railways and rightly so as the question of safety to human lives is the topmost. Therefore, the indigenous availability of rails must be earmarked first for track renewal and then for new tracks and other purposes subject to the urgency and status of various projects. Indian Railways has been the pioneering agency in promoting domestic manufacturing in various areas of railway operations for the last few decades. It is thus quite capable of encouraging domestic procurement and avoids the route of imports in this critical phase of Indian manufacturing sector.

(Views expressed are personal)

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Bitcoin just $200 away from hitting $10,000 mark; will it make five-digit history today?
2Buy this midcap stock under Rs 150 to gain up to 20%: HDFC Securities
3India’s gold imports to jump to over 700 tonnes in FY18: GJEPC