Rural growth bumping into steel roadblock: Ministry

Domestic steel majors may be celebrating the withdrawal of export duty on flat products, but the Rural Development...

Domestic steel majors may be celebrating the withdrawal of export duty on flat products, but the Rural Development Ministry is seriously concerned that rising steel, cement and bitumen prices would derail the Rs 48,000 crore rural roads development scheme of the UPA government under its flagship Bharat Nirman programme.

At a review meeting last week in the Planning Commission, senior ministry officials noted that HYSD (high yield strength deformed) steel prices which stood at Rs 28,000 a tonne in January 2006 jumped to Rs 32,940 a tonne in January 2008. In the last five months, they have shot up to Rs 43,000 a tonne, 1.56 times the prices when compared with in January 2006.

The government has committed to invest over Rs 1,74,000 crore under the Bharat Nirman programme aimed at beefing the infrastructure and unleashing the growth potential of India’s villages. As part of the programme, the Centre is keen to ensure that by 2008-09, every village with a population of 1,000 and more, or over 500 such villages in hilly and tribal areas, has access to an all-weather road.

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To achieve the targets of Bharat Nirman, the government has targeted construction of 1,46,185 km of road length by next year. This will benefit 66,802 unconnected eligible habitations in the country. To ensure full farm-to-market connectivity, it has also proposed to upgrade 1,94,132 km of the existing ‘associated through routes’.

Steel, cement and bitumen are the basic inputs for road construction. Over the last two years, its not just the prices of steel but that of bitumen and cement too that have jumped significantly. Bitumen, a petroleum by-product, accounts for 15-20 per cent of the cost of a highway project. Its prices have more than doubled to Rs 30,189 a tonne from Rs 13,160 a tonne in January 2006.

Rural Development Ministry sources blame the continuous rise in global crude oil prices to the upwardly mobile prices of bitumen. The road sector’s growing need for bitumen has also partly contributed to such a sharp rise in bitumen prices. In fact, due to the spike, the price differential between concrete and bitumen roads has dropped to 20 per cent from 60 per cent two years back. Cement, another crucial ingredient for building rural roads and road infrastructure, too has become very dear today. The prices of Ordinary Portland Cement (OPC) have increased by 148 per cent during the past two years. OPC prices in January 2006 were Rs 3,250 a tonne and stood at Rs 4,700 in January this year. In June, it is up by another Rs 100 to Rs 4,800 a tonne.

Officials in the Rural Development Ministry also expressed concerns over land availability, the most critical factor affecting project implementation. “The Project Implementation Units in densely populated areas of Assam, Bihar, Madhya Pradesh and Orissa are experiencing difficulties in obtaining possession of private land required for projects,” an official said. He said states have now been asked to use the good offices of gram panchayats and local revenue functionaries to overcome this constraint. The government has asked states such as Assam, West Bengal, Bihar and Jharkhand with large connectivity backlog to deploy adequate number of dedicated PSUs.

28,000 Steel price in Rs per tonne in January 2006

32,940 Steel price in Rs per tonne in January 2008

43,000 Steel price in Rs per tonne in May 2008

Will production outgrow demand? In five years, maybe

The Future

124 mt Target steel capacity by 2011-12

110 mt Requirement by 2011-12

The Present

13 per cent Growth in annual demand

6 per cent Growth in annual production