India is currently a major export hub, exporting many goods to the developed countries. In financial year 2021, India exported 17.3 metric tonne (MT) of steel to the world, which accounts for a 56% rise over the previous years. However, the journey towards this has been a considerable one, with events like the financial crisis, which came two decades ago, gradually aiding India to export many products. Before that, India had put a lot of restrictions in the form of tariffs and quotas on the import and export sector. There was no globalization before 1991 and India had closed all barriers of trade.
What happened in 1991 and what was its impact?
In 1991, India suffered a financial crisis, with not having even enough funds to manage its import commitments for more than a fortnight. India suffered to even manage its debt payment to IMF. All this forced India to remove its trade restrictions and therefore integrating its economy with the world’s economy. India removed all the major barriers.
After opening the Indian economy to the world, India faced a lot of issues in the beginning as the domestic producers were not able to compete with the strong and affluent producers of the developed countries. Moreover, the developed countries exploited India by using their dominance and power. But all of that is now history and would not get repeated. How we’re so certain, you ask?
Well, gradually India has become one of the major exporters of a lot of products, with the domestic producers now able to compete with the world. India’s export orientation of steel and a few sectors in India are now reaping the advantage of being a part of the globalized economy. Let’s explore in detail this sector and its prospects.
India has a capacity of 144 MT of crude steel as well as a domestic demand of 95 MT in FY2021 and is still growing. Even after facing a setback in the year 2020 due to the pandemic and the tension created by it in the world during the third and fourth quarter, the export sector is again rising. The pandemic led to a high number of casualties, loss of employment and income opportunities.
There existed a prolonged lockdown. Steel manufacturing plants were working even during the lockdown but at a slower rate. As the world economy started to open again, the demand for end-user segments starting rising again starting from the third quarter of FY2021. But with the second wave of virus, the export sector started to suffer again, but the impact this was time was less than that of last year due to the arrival of the COVID-19 vaccine. The vaccine acted as a savior to the steel export sector.
When nearly all other sectors failed, the steel industry was able to maintain its exports in FY2021. There was an export of 17.3 MT, which nearly accounts for 56% more than previous years. The average capacity utilization of 72% is still maintained by Indian Steel Industry.
Other than exploring the steel export market in the name of subdued domestic demand, another thing that is helping the producers is the price differentiation of steel exports. HRC is available currently ex-Mumbai @67,500 per tonne while recent export of Indian mill @1030-1050/tonne CFR UAE. The merchant trader’s price in the market prevails around 1500-2000/tonne lower than the price of OEM supply or to a government project and therefore the price depends on the demand of end-using sectors.
Steel and Indian economy:
Undoubtedly, infrastructure development is very important for the progress of any economy. Developing infrastructure augments a country’s economy. Evidently, steel consumption is widely taken as an indicator of economic growth. The crucial role of steel in the development of our economy has been explained in a report by the National Council of Applied Economic Research(NCAER). It stated that the steel sector in India has a great potential of contributing to India’s overall development. It has multilateral demand, from the country itself as well as from other countries as well in the form of exports.
India has witnessed a very high growth rate in the export of steel, year on year. It is currently one of the largest exporters of steel to the world, all of this started after globalization. It has created ample opportunities and has helped India to maintain as well as increase its reserves of foreign exchange. Not only the export but steel manufacturing plants are also labor-intensive. It means that they absorb a lot of the labor force of the country and therefore provide them employment, hence contributing to the rise in national income of the country as well.
Future prospects of the steel industry
As per the Indian Steel Association (ISA), the steel sector is going uphill and it’s domestic as well as foreign demand will rise further in the upcoming years. The infrastructural development in any country automatically increases the steel demand. Huge scope for the growth of steel industries in India with the rise in infrastructural development. Countries all across the globe are today making enormous progress in infrastructural development as it helps to boost their economy.
The steel industry in India is benefitting from it due to its good quality and comparatively low price. The automobile sector as well as the railway sector has also on the rise currently. This has also created high steel demand and its by-products, hence directly contributing to the growth of the steel industry.
Current situation and opportunities:
However, the current condition led by the COVID-19 pandemic has created a lot of uncertainties. Even though the consumer demand for durables has not exhibited a seasonal impact, the domestic demand for steel till now is low. The automobile manufactures have been concerned about the much lower sales as people are now concerned about the uncertainty of the pandemic and are not currently demanding these durables.
However, the export of steel has not been affected much. In the first two months, India has exported 2.96 MT of steel worth rupees 17,812 crores and it has exceeded last year’s export by 86%. Speaking about the domestic demand, clear data will be known after consumers exhibit the seasonal demand.