FACTORS INFLUENCING INDIAN IRON AND STEE L INDUSTRY

India has one of the richest reserves of all the raw materials required for the industry,
namely land, capital, cheap labour, iron ore, power, coal etc. Indian Iron and steel industry
with its strong forward and backward linkages contributes significantly to overall growth
and development of the economy. As per official estimates, the Industry today directly
contributes 2 per cent of Indias Gross Domestic Product (GDP) and its weightage in the
official Index of Industrial Production (IIP) is 6.2 per cent. India is 5th in the world ranking for
production of steel. India produced 66.8 million tonnes in 2010-11, while China, at the top
of the list, produced 626.7 million tonnes. The per capita consumption of steel in India (at
50 kg per annum) is well below the world average (at about 200 kg per annum) and much
below that of the developed world (around 350 kg per annum).

The National Steel Policy 2005 aims at increasing the total steel production of the country
to 110 million tonnes per year (in 2019-20) from 38 million tonnes (in 2004-05). As a
requirement, the compounded annual growth was supposed to be 7.3%. The total
production in 2010 was 66.8 million tonnes. The compounded annual growth from 2005 to
2010 has been more than 9% was is better than the expected growth

There are a number of factors which affect the iron and steel industry. The various factors
and how they affect the industry are discussed in the corresponding text.

Indian steelmakers have been banking on domestic growth potential. But, a slowdown in
manufacturing and a negative growth in the capital goods sector especially, have already a
caused some trouble for the industry reflected in the production figures for steel in the
corresponding months. Among many other factors, the drastic shortage of raw materials
and the rupee depreciation would affect the steelmakers by pushing up costs. I f such a
thing happens, the gap between international and domestic steel prices would widen
significantly which would result in a situation where domestic manufacturers would be
rendered uncompetitive. Also, a healthy demand from user industries, firmness in domestic
iron ore prices and a weaker rupee are some of the factors that aid rise in domestic prices.

Weather also plays an important role in the demand. During monsoons, as construction is
normally halted, the demand of iron and steel falls and production picks up after the end of
the monsoons as various activities affected by rain such as mining would resume.
Development of infrastructure and growth of complementary industries such as
automobiles, construction, etc., also aids consumption thereby increasing the growth of this
industry.

Along with this, implementing latest technologies for improving the quality and productivity
helps the industry immensely. Thus, manufacturers focus on improving customer delivery
times and also decrease cost of production and transportation. High transportation and
handling costs would consequently increase the price of iron and steel. These cost can be
lowered if the government spends additional resources in development of infrastructure
and roads. Low labour wage rates in India assist in keeping the prices low as well.