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'Delays holding up industry expansion'

Prolonged delays in land acquisition and inadequate infrastructure are holding up capacity expansion and execution of new Tata Steel plants, a top company official said.

business Updated: Oct 18, 2008 11:12 IST

Prolonged delays in land acquisition, allotment of captive iron ore and other raw material, and inadequate infrastructure are holding up capacity expansion and execution of new Tata Steel plants, a top company official said.

"There is a huge demand-supply gap to meet the growing requirement. The government has to support our efforts in adding new capacity or setting up greenfield projects by facilitating quick land acquisition, allotting captive raw materials such as iron ore and coal and providing proper infrastructure," Tata Steel managing director B. Muthuraman told IANS here Friday evening.

To meet the growing demand even during the current economic downturn, India continues to import steel though prices in the domestic market are lower than in the international markets.

As against six million tonnes of finished steel products imported last fiscal (2007-08), imports this fiscal (2008-09) are projected to go up by 33 percent to eight million tonnes.

"As demand will continue to grow faster than supply, India will remain a net importer of steel for a long time to come. At the rate the economy or per capita consumption is growing, we will need an installed capacity of 300-400 mtpa (million tonnes per annum) over the next decade as against about 50 mtpa presently," Muthuraman said on the sidelines of a conference.

Referring to his company's capacity expansion programme, the head of India's oldest steel firm said plans to set up greenfield plants at Kalinganagar in Orissa and at Bastar in Chhattisgarh were on hold due to delays in land acquisition and government approvals for captive mines despite earnest efforts by the company.

"We are certainly on expansion mode. At Jamshedpur, we are expanding installed capacity to 10 mtpa by 2010 from 7 mtpa currently. We are able to do it because it is a brownfield expansion. It is our greenfield expansion that is dragging due to other delays though we are keen to execute them," Muthuraman said.

For instance, though the company entered into an agreement with the Orissa government in November 2004 to set up a 6 mtpa integrated plant at an estimated cost of Rs.180 billion at Kalinganagar, inordinate delays in land acquisition (of about 2,000 acres), clearances for captive mines and other approvals are holding up its execution.

Similarly, the company is still in the process of land acquisition, getting prospecting licence for captive mines and other clearances to put up a 5 mtpa integrated steel plant at Bastar, with an upfront investment of Rs.100 billion, though it signed an agreement with the Chhattisgarh government in 2005.

Expressing reservation over export of iron ore, especially fines, when there is no let-up in demand for raw materials, Muthuraman said the need for fines was greater than lumps to increase steel production for domestic consumption.

"We should not export iron ore in the national interest. It is not logical to export when we don't have sufficient stocks to make steel. No country allows export of iron ore when there is a shortage and steel consumption is increasing. We have asked the central government to ban iron ore exports to ensure steel prices do not increase again, as shortage results in the cost of raw materials going up," Muthuraman said.

On the outlook for the steel industry in a period of slump, the Tata executive said temporary blips in the economy should not deter steel firms from planning for the future, including capacity expansion to meet domestic demand and increase exports.

"Cycles of ups and downs will not sustain itself for long. Progress will get impeded if we don't push up manufacturing and plan for future," he observed.

Admitting that export duty on steel products and import tariff on basic steel would impact margins, Muthuraman said the government would have to take measures to ensure steel prices do not rise.

"Though the industry is going through difficult times, it is resilient enough to do well even in a downturn, as demand for steel will continue. Our order book for this fiscal is commensurate with our production capacity," he added.

Earlier, in a keynote address at the conference on "Manufacturing Competitiveness: Technology, Outsourcing and Innovation", organised by the Confederation of Indian Industry (CII) and global consultant KPMG, Muthuraman told about 100 delegates that the manufacturing sector was fundamental for any country's GDP (gross domestic product) growth.

As against 10-15 percent contribution to India's GDP over the last five decades, manufacturing sector's contribution to GDP in the US has been about 30 percent, 32 percent in South Korea over the last three decades and 30-40 percent in China over the last six decades. Even in Japan, the sector accounted for 30 percent of the GDP for a long time before declining to about 20 percent presently.

"We must get worried about the stagnant rate of contribution by our manufacturing sector in contrast to the increasing share of the services sector to the GDP. There is no country the world over without having the manufacturing sector contributing to its national GDP. In the chain or hierarchy of value creation, manufacturing sector preceded the services sector. Manufacturing sector is the genuine creator of wealth," Muthuraman pointed out.

Calling for making India a global hub for sourcing capital goods, the Tata official said though infrastructure, investment, skills, good policies and practices were equally important, a manufacturing mindset was an essential prerequisite.

"Unfortunately, Indian firms are lacking in such a mindset. We cannot succeed without a manufacturing mindset, which means standardisation, improvement and innovation. All processes need to be standardised in a manner in which they run," he added.