International Journal of Economics, Commerce and

Research (IJECR)
ISSN (P): 2250–0006; ISSN (E): 2319–4472
Vol. 11, Issue 1, Jun 2021, 11-22
© TJPRC Pvt. Ltd.

PROBLEMS AND PROSPECT OF SPONGE IRON INDUSTRY IN THE JAMURIA

INDUSTRIAL ESTATE

Dr. BIJOY BHATTACHARJEE1, Dr ARVIND MISHRA2, & KUNDAN RAJAK3

1
State Aided College Teacher, Department of Commerce, Durgapur Govt. College, India
2
Associate Professor, Department of Commerce, Kulti College, India
3
Research Scholar, Department of Commerce Kai Narul University, India
ABSTRACT

Asansol – Durgapur Industrial Belt located in the district of Paschim Burdwan is an important industrial hub, not only
for the state but also for the entire country. The huge availability of raw materials and coal mines has attracted the
major industrial units, which have set up the base of industrial development and made the Asansol – Durgapur zone an
industrial belt. The performance of public sector units has been started to decline from the mid of 1980’s. Many public
sector units in Asansol, Durgapur industrial belt were facing difficulties and some are operating with sickness, some are
shutters down their units. After the economic reform of 1991, Indian economy has started to improve. To promote the
private sector involvement and industrial infrastructure ADDA was formed in the year 1980, and since then it has been

Original Article
leading the industrial infrastructure spread within 1615.9 sq. km of urban and rural area to provide them a platform for
industrial growth and to help the population of around three million above. ADDA formed three industrial estates in
Durgapur, Raniganj, Jamuria to promote the industrialization growth in these sectors. This initiative really provided
succour into the growth of this area and also provides employment to the huge amount of jobless people in this area.
Due to the close proximity of coal, iron and power producing areas most of the investments were taken place in Iron
and Steel sector. Many stimulus packages by the WBIDC and other development agencies and boom period in
international steel and iron market helps these industries to do progress. All of these units were formed in early nineties
and now it will be a right time to do the critical analysis of their financial performances. The main objective of this
paper is to have a closer view at the financial condition of one of the oldest iron producing unit of Jamuria Industrial
Estate – (Shyam Sel and Power Limited) and to highlight the problems and prospects of sponge iron producing units of
this Estate.

KEYWORDS: ADDA, Sponge iron & Jamuria Industrial Estate

Received: Jan 15, 2021; Accepted: Feb 05, 2021; Published: Feb 19, 2021; Paper Id.: IJECRJUN20212

1 INTRODUCTION

Steel is one of the world’s most vital and very important materials. It is hard to find an alternative of steel because
of its ideal composition of strength, workability and comparatively high cost of its substitute materials. Iron and
steel sector reflect the economic position and strength of any country. The per capita consumption of steel may be
treated as an indication of growth and evaluation of a country. Increase in the consumption of steel and iron
indicates the rapid growth in industrialization of the country. Moreover, steel industry contributes a lot in income
generation and employment creation. Hence, economic profitability and development of an economy is very
closely related to the quantity of steel consumed by it.

After independence, the government of India adopted mixed economy system in India, where both public

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12 Dr. Bijoy Bhattacharjee, Dr Arvind Mishra, & Kundan Rajak

and private sector would work together. Many heavy industries and industrial growth were started under the leadership of
public enterprises. Many steel plants emerged in our country including West Bengal, the extension of steel industry was
mainly focused in the Asansol, Durgapur industrial belt. The performance of public sector units has been started to decline
from the mid of 1980’s. Many public sector units in Asansol Durgapur industrial belt were facing difficulties and some are
operating with sickness, some are shutters down their units. After the economic reform of 1991, Indian economy has
started to improve. Globalization of Indian economy gives momentum to the Indian business environment. Globalization
also resulted in two consequences i.e., Liberalization and Privatization in Indian business environment. These three factors
influenced the complex Indian business environment which created pressure on local and new business units. A new
business unit may have a lot of problems such as finance, labour, government policy, business environment, competitors,
lack of demand etc.

The present study has been conducted to determine the problems and prospects of the sponge iron units in Asansol
Durgapur Development Authority (ADDA) area in Paschim Burdwan District of West Bengal. ADDA was formed in the
year 1980, and since then it has been leading the industrial infrastructure spread within 1615.9 sq. km of urban and rural
area to provide them a platform for industrial growth and to help the population of around three million above. ADDA
formed three industrial estates in Durgapur, Raniganj, Jamuria to promote the industrialization growth in these sectors.
This initiative really provided succour into the growth of this area and also provides employment to the huge amount of
jobless people in this area. Due to the close proximity of coal, iron and power producing areas most of the investments
were taken place in Iron and Steel sector. Many stimulus packages by the WBIDC and other development agencies and
boom period in international steel and iron market helps these industries to do progress. All of these units were formed in
early nineties and now it will be a good time to do the critical analysis of their financial performances. With keeping this
objective in mind, one of the oldest iron producing unit in the area- Shyam Sel and Power Limited was selected to have a
closer view at the financial condition of the sponge iron industries in Jamuria Industrial Estate.

At the prior stage sponge iron units grew in this area very quickly with the help of various favourable factors such
as low pay back period, limited fixed cost investment and higher returns. However, after the commencement of 2009 these
units have been facing different kind of problems i.e., financial or non-financial. Many researchers have done their
research on sponge iron units and incorporated the environmental problems and the problems of technology in the
production process. In this paper the researcher has tried to focus on the problems (financial and non-financial) of the
sponge iron units in ADDA area because the growth and development of this area is highly depends on the growth and
development of steel industry.

2. OBJECTIVE OF THE STUDY

Flowing are the specific objectives of the present study:

 To evaluate the overall financial & physical performance of the selected sponge iron unit for the period of ten
years from 2005-06 to 2014-15.

 To examine the problems faced by the sponge iron industry in the Jamuria Industrial Estate and also look into the
future prospects of this industry.

Impact Factor (JCC): 6.9424 NAAS Rating: 3.27

Problems and Prospect of Sponge Iron Industry in the Jamuria Industrial Estate 13

3. RESEARCH METHODOLOGY

To meet the objective of the study different analysis has been used. All the necessary data is collected from the annual
financial reports of the selected unit to analyse the financial performance for the period of ten years from 2005-06 to 2015-
16. To evaluate the financial position of the selected unit definite ratios has been used. Some graphs and tables are used to
analyse the past financial performance of the selected unit. Apart from that an intensive and constructive discussions has
been held with the stakeholders of the selected units to highlight the problems and prospects of the sponge iron units of this
Estate.

4. SPAN OF THE STUDY

The time period of the study covers the years 2005-06 to 2014-15. The overall performance of the selected unit has been
analysed for this period.

5. PERFORMANCE EVALUATION OF THE SELECTED UNIT: -Shyam Sel and Power Limited is one of the
oldest sponge industry in our study area which established at the time of economic liberalization i.e., in the year 1991. It
involved in the activities like manufacturing of basic iron and steel.

Financial data of Shyam Sel and Power Limited over ten years from FY 2005-06 to FY 2014-15 (in million of INR)
Table No. 1
Financial Year 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15
Sales 2321.22 4107.37 5397.46 5356.47 4688.73 6451.52 7723.10 7887.37 12878.77 12562.45
Other Income 20.25 11.54 16.02 18.19 306.81 69.71 152.33 60.70 113.86 109.59
Total Revenue 2341.47 4118.91 5413.47 5374.66 4995.54 6521.23 7875.42 7948.07 12992.63 12672.04
Less- Cost of
205.73 3687.24 4459.72 4525.90 4304.70 5718.47 7042.73 7160.44 11485.82 11028.52
Sales
EBIDT 135.74 431.67 953.75 848.76 690.84 802.76 832.69 787.63 1506.81 1643.52
Depreciation 55.31 173.32 209.78 278.22 272.68 312.49 338.91 391.96 734.80 921.70
EBIT 80.43 258.35 743.97 570.54 418.16 490.27 493.78 395.67 772.01 721.82
Borrowing Costs 13.73 18.74 116.76 321.24 128.91 159.18 177.58 188.82 451.41 387.36
EBT 66.70 239.61 627.21 249.30 289.25 331.09 316.20 206.85 320.60 334.46
Tax Provision 11.74 37.50 84.00 42.50 47.50 69.80 47.64 12.85 22.89 34.38
PAT 54.96 202.11 543.21 206.80 241.75 261.29 268.56 194.00 297.71 300.08
EPS 4.25 NA 29.11 11.08 10.86 10.80 9.73 5.75 8.13 7.74

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14 Dr. Bijoy Bhattacharjee, Dr Arvind Mishra, & Kundan Rajak

Now Financial Information is analysed with the help of Charts and Graphs

It can be seen in the above diagram of sales (Graph I) that till F.Y 2013-14 sales are increasing with a steady rate
after that it starts to decline. After all, till F.Y 2007-08 sales increased wisely without any loss. The same thing can be seen
in the diagram of total revenue (Graph II). A huge improvement in the sales and total revenue can be seen in the F.Y 2014-
15.

If we look at the diagram of EBIDT, EBIT, EBT, PAT, & EPS a constant trend of decline can be seen in both of
EBIDT & EBIT up to F.Y 2012-13. After that EBIDT begins to increase though EBIT falls.

Impact Factor (JCC): 6.9424 NAAS Rating: 3.27

Problems and Prospect of Sponge Iron Industry in the Jamuria Industrial Estate 15

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16 Dr. Bijoy Bhattacharjee, Dr Arvind Mishra, & Kundan Rajak

After watching the above diagrams it can be said that financial risk exists during our study period because interest
on borrowings is present in every Financial Year of our study period.

In case of EPS if we meticulously analyse the EPS of the industry during our study period we can clearly observe
that there is an upward motion of EPS from FY2006-07 to 2007-08. In the FY 2007-08 which was the initial stage of our
study period the EPS was approximately 29 which was highest but in FY 2014-15 which is the end of our study period EPS
is 7.74. So we can say that the financial solvency position of the industry is gradually declining.

6. PROBLEMS FACED BY THE SPONGE IRON INDUSTRY IN ADDA AREA

At the present time, the sponge iron industry which is one of the most important sections of the steel industry is passing its
tough time. After a proper discussion with the different stakeholders of the selected unit, some major problems and
challenges are being determined. These problems are discussed below:

Impact Factor (JCC): 6.9424 NAAS Rating: 3.27

Problems and Prospect of Sponge Iron Industry in the Jamuria Industrial Estate 17

A) Threat from the Import of Steel Melting Scrap

sponge iron is a lower cost substitute of scrap of steel making. But at the time of recession huge amount of steel melting
scrap was imported from different countries into India. Lower cost of import duty on steel melting scrap attracts the Indian
steel making industries. Due to lower rate of import duty on steel melting scrap an increase in its import was seen, as a
result there was a competition between Direct Reduced Iron (DRI) and availability of imported scrap. In the year 2012-
2013 import of scrap broke all the previous records of import. Though huge import of scraps resulted in the outflow of
valuable foreign exchange, it has affected India’s foreign trade balance and created current account deficit.

Lower rate of import duty in India on steel melting scraps will enhance the import of steel melting scrap. This is a
not a good sign for DRI industries. A yearly comparison between DRI and scrap import has been shown in the given table.

From the above table and line diagram it is clearly seen that production of DRI has been decreasing from the
financial year 2010-2011 to 2012- 2012 due to the increase in the import of scrap. In the financial year 2013-2014 DRI
production has increased and the import of scrap has decreased. Again from the financial year 2014- 2015 when the
production of DRI has been decreasing an increase in the import of scrap can be seen. After the analysis of the graph and
line diagram there is no doubt that a negative correlation exists between domestic DRI production of India and import of

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18 Dr. Bijoy Bhattacharjee, Dr Arvind Mishra, & Kundan Rajak

scrap in India. So to protect the domestic DRI industries government should create some barriers on import of scrap as
soon as possible.

B) Increase the Price of Raw Materials

After 2011 more than 80% of Karnataka sponge iron units remained closed. Due to the scarcity of raw materials and its
high price many sponge iron units were badly affected. Non - cooking coal and iron ore are two main raw materials which
are basically used in sponge iron industries. Sometimes Indian sponge iron industries are dependent on the imported raw
materials, which leads to increase in the cost of production, and hence it increases the price of sponge iron.

Reason for Increasing the Price of Raw Materials

I) Insufficient Availability and Price Unpredictability of Iron Ore

The requirements of iron ore in this area is mainly fulfilled by National Mineral Development Corporation (NMDC).
NMDC has created a monopoly in the supply of iron ore. Thus, there was a lack of transparency created in pricing system
of iron ore. NMDC has also faced some allegations of taking advantage of their dominant position. Due to this inadequate
availability and import of iron ore increases the price of iron ore. India who is one of the top suppliers of iron ore has been
importing iron ore from last few years due to some restrictions on illegal mining in major producing areas of Karnataka
and Goa. The scarcity of iron ore has increased more when government ordered to close some mines of Jharkhand and
Odisha after the expiry of their license. The import of iron ore is increased to 15 million tons in 2014-2015 which was just
3,20,000 tons in 2013-2014.

II) Insufficient Availability of Coking Coal

The sponge iron producers in India are also facing the scarcity of coking coal. They required around 30-35 million tons of
coal but they are getting only around 10 million tons from CIL sources. Rest of the requirements they are satisfying from
local markets or through e- auction. Some units are meeting their requirements and demands of coking coal through their
own coal mines and some units are importing non coking coal to meet their requirements but imported non coking coal is
too costly specially for small and land locked unit.

C) Import of Direct Reduced Iron (Dri), Hot Briquetted Iron (Hbi)

The import history of DRI and HBI in India shows an alarming rate. DRI and HBI are easily available in foreign countries
with lower custom duty which will encourage the import of DRI and HBI. This circumstance is negatively affected the
evolution of Indian sponge iron industries.

Till financial year 2010-2011, there was almost zero import of DRI but this was increased to 7.56 lakhs tons in
financial year 2012-2013 which negatively affected the production of DRI. The table mentioned below is showing the
imports history of DRI for last 7 years

Financial Year Import of DRI (lakh tons)

2006-07 0.01
2007-08 0.08
2008-09 0.05
2009-10 0.30
2010-11 0.02
2011-12 0.42
2012-13 7.56

Impact Factor (JCC): 6.9424 NAAS Rating: 3.27

Problems and Prospect of Sponge Iron Industry in the Jamuria Industrial Estate 19

D) Technical Issues

Identification of suitable technology and equipment to enhance the performance of sponge iron industries was a biggest
challenge for the manufacturer. If any technology is being successful in one industry then it was accepted by the other
units. These things happen just due to lack of technical information, financial limitations and lack of skilled human
resources.

Second generation technology were developed mainly based ON SL/RN (Stelco-Lurgi/ Republic steel National
lead) process to reduce the cost of capital. This technology was installed by all the units of our study area due to the use of
low quality of iron ore and coal to minimize the cost. Some of sponge iron units belong to our study area are suffering from
the frequent breakdown, which increases its maintenance cost and total cost of production.

E) Financial Issues

At the initial stage of its establishment any industry needs some financial assistance from banks or from any financial
institutions to do invest in fixed assets and in working capital requirements. Sponge iron industries owners of our study
area are able to get financial assistance from the banks because of their credibility and their good relation with the banks.
Some sponge iron units are financed by SIDBI or through Government industrialisation development scheme. An
important problem of sponge iron units in this area is the lack of fund for the modernisation of machinery and also
Commercial banks are not allowing them any long-term loan.

7. PROSPECTS

After 2012 a decline can be seen in the production of crude steel. Low-cost import and easy availability of raw materials
from countries like Korea and Japan have slowed down the production rate of domestic iron industries. Afterwards due to
cheap import all the EAF (Electric Arc Furnace) units were badly affected. A continuous decline could be seen in all EAF
steel production units. The domestic sponge iron of our study area also got affected with the slowdown of EAF in steel
production. The production of iron ore also affected due to the ban over several states i.e., Karnataka (July 2011) and Goa
(September 2012) for mining of iron ore. This ban was imposed on Karnataka and Goa because of some environmental
concern and land uses for other purposes. As a result, a downfall of 23% could be seen in the production of iron ore
between 2011 and 2013. The price of sponge iron ore was increased in compound annual growth rate of 22.5% in 2010-
2012. The production of iron ore was improved after the ban withdrawn from the Karnataka (April 2013) and from Goa
(April 2014) with a production cap. In the 2014 the production of iron ore was increased by 20% on a year over year (Y-O-
Y) basis. Due to unequal of demand and supply of sponge iron its price was increased up to 2%. In the same period 8% of
growth was observed in the EAF steel production as compared to double digit growth in the production of sponge iron.

In the year 2015 the production of domestic crude steel industry was badly affected due to low-cost import from
China, Korea and Japan. An inactive steel market converted into still demand for sponge iron. Its production was decreased
by 20% in 2015. Furthermore an 11% decrease shown in the price of sponge iron in 2015. As a substitute of scrap, the
demand of sponge iron was increased as the price of scrap was increased by 47%.

The demand of steel in India should increase in future for that more investment in automobile and infrastructure
sector is required. If Indian government imposes anti-dumping duty on import of steel melting scrap to counter the cheap
import then it will become helpful for the domestic sponge iron units and steel production. A recovery in the price and

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20 Dr. Bijoy Bhattacharjee, Dr Arvind Mishra, & Kundan Rajak

demand of steel will also increase the demand of sponge iron. The government should plans to do the auction of some new
coal blocks and increase the production cap of iron ore, this will meet the requirements of raw materials to the
manufacturer. In future the sponge iron industries are going to set an example for better business environment either in
terms of volume or in terms of margin.

CONCLUSIONS

A brief history of steel and iron industry has been discussed before of the economic liberalization, after that we have
selected ADDA industrial belt as our study area. we moves ahead with an objective to have a closer view at the financial
condition of one of the oldest iron producing unit of Jamuria Industrial Estate –(Shyam Sel and Power Limited) and to
highlight the problems and prospects of sponge iron producing units of this Estate. To evaluate the financial position of the
selected unit definite ratios has been used. Some graphs and tables are used to analyse the past financial performance of the
selected unit. After analysing the available financial data of the selected unit it can be said that it is not admirable. A
structural discussion has been held with the stakeholders of the industries to determine the problems faced by the sponge
iron units of our study area. After the examination some major problems has been found and we would like to suggest that
the government should put some barriers on the import of steel melting scrap and DRI because the low-cost import duty
enhancing the overall import of steel melting scrap which is obstructing the development of domestic sponge iron
industries. And we would also like to suggest to the owners of Jamuria industrial Estate that they should do more
investments in the infrastructure and technological enhancement of the industry and they should recruit more skilled
labour. There are some important prospects we can see among of them like the demand of steel in India should increase in
future for that more investment in automobile and infrastructure sector is required. If Indian government imposes anti-
dumping duty on import of steel melting scrap to counter the cheap import then it will become helpful for the domestic
sponge iron units and steel production. A recovery in the price and demand of steel will also increase the demand of
sponge iron. The government should plans to do the auction of some new coal blocks and increase the production cap of
iron ore, this will meet the requirements of raw materials to the manufacturer. In future the sponge iron industries are going
to set an example for better business environment either in terms of volume or in terms of margin.

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Impact Factor (JCC): 6.9424 NAAS Rating: 3.27

Problems and Prospect of Sponge Iron Industry in the Jamuria Industrial Estate 21

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