Steel backbone

In any developing country,hungry for construction and infrastructure and industrialisation,the sector that is possibly the most crucial is steel. This has been known for decades; there is a reason why,even in the Nehruvian era,India pushed for steel plants. Demand for steel rises by about 10 per cent a year; by government estimates,that might rise to 12 per cent per annum. Indeed,when the recent disappointing industrial growth figures are decomposed,we discover that only steel is propping up the IIP. Without steel,growth would have been lower even than it was. Yet the industry is suffering massive supply side constraints. On Saturday,the Steel Authority of India Limited announced a 29 per cent dip in profits that emerged entirely from having to pay more for suddenly scarce coking coal. And now comes the order from the Supreme Court suspending mining in 11,000 hectares of the iron ore-rich Karnataka district of Bellary.

Bellarys mines provide,by steel industry estimates,the quite staggering amount of 110,000 metric tonnes of iron ore a day to the industrial belt of south India. Karnataka,with 18 million tonnes a year,itself contributes 30 per cent of Indias annual steel output. These are the states that have demonstrated an ability to create an urban,industrial workforce in a manner that has proved difficult for the rest of the country. This crucial endeavour will be set back considerably if the industrial complex that is being set up there grinds to a halt for the lack of raw material. It is not easy to substitute the Bellary iron ore; constraints elsewhere and Chinas galloping demand have caused iron ore prices to rise worldwide. Together with Coal Indias continuing inefficiency and its apparent inability to get coal off its pitheads and to its customers,the steel industry now has to deal with a catastrophic supply crunch.

The point is that this will go beyond the profits of steel producers and the jobs of steelworkers,though those should be criteria. Steel has linkages backward and forward through the industrial sector. If it becomes a bottleneck,overall growth will be hit and badly. The government cannot afford to leave steel producers hanging by postponing any further a clean-up of the mining sector.