Making Indian Steel Competitive

Mains Syllabus: GS III - Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Why in the News?

Despite the US-China trade deal in Geneva, the imposition of 55 per cent duties on Chinese steel exports to the US significantly increases the risk of large-scale steel dumping from China into India.

What is the recent change in US – China Steel trade?

• US – China Trade Agreement – It is a temporary agreement to reduce the tariff between the countries.
• The U.S. has agreed to temporarily lower, for 90 days, its overall tariffs on Chinese goods from 145% to 30%, while China will cut its tariffs on American imports from 125% to 10%.
• Steel Duty - Despite the deal, the US  imposed 55 %  duties on Chinese steel exports.
• Impact on India – This increases the risk of large-scale steel dumping from China into India.
• India’s Proactive Measures - India has swiftly set-up an import-surge monitoring group and has imposed safeguard duties on steel.

Why is Chinese steel competitive than India’s?

• Production Capacity Difference– China and India are the world top 2 steel producers with 1,050 million tonnes (mt) and 150 mt in 2024 respectively.
• Large Scale of Economy – A single Chinese steel company Baowu’s produces 130 mtpa ( metric tonne per annum) output, almost matching India’s total steel production.
• High Productivity - Chinese plants have achieved 3,000-4,000 tonnes per worker annually, compared to just 800-1,200 tonnes at Indian plants.
• Technology Edge – Chinese steel plants have adopted advanced technologies like Advanced automation, Industry 4.0 technologies, AI-driven operations, where India’s Steel Inc. is lacking.
• Efficient Resource Use - Chinese plants maintain over 95% utilisation rates, supported by superior infrastructure and reliable power supply.
• In contrast, Indian plants face frequent maintenance shutdowns, high industrial power tariffs, supply disruptions, and greater reliance on manual operations.
• Superior Infrastructure - Over 70% of China’s bulk cargo, including iron ore, moves efficiently through inland waterways and rail, compared to less than 30% in India.
• Integrated Supply-Chains – China’s dedicated freight corridors and port-centric clusters ensure seamless raw material flow.
• Meanwhile, Indian plants sourcing from distant mines, like those in Odisha and Maharashtra, face higher costs and delays.
• Strong Government Incentives & Cheap Financing - Manufacturers enjoy subsidies, 13% export rebates, and loans at 3-5% , while Indian firms face borrowing costs of 8-12% .
• Better Monetary System - China’s managed float of yuan, backed by large forex reserves, stabilises inflation and financing costs, keeping steel exports competitive.
• In contrast, India’s floating exchange rate triggers currency volatility, inflating production costs despite protective duties and limited PLI schemes.
• Quality Coal - While India has abundant iron ore, it lacks coal with the required carbon-content, necessitating expensive imports.
• These structural disadvantages make Indian steel more expensive and vulnerable to cheaper Chinese dumping, especially amid escalating trade-tariff-tech and currency war(s) fragmenting the global industrial and trading order.

What are the impacts of Chinese steel dumping into India?

• Cripples Indian manufacturers - China’s relentless steel dumping depresses the consumption of domestic steel.
• SMEs, in particular, have reported revenue declines of 15-20% due to import competition.
• This financial strain and depressed margin pushed several smaller players to the brink, while larger producers are deferring critical capacity additions.
• Stalls Future Investments - The influx of cheap Chinese steel erodes profit margins for Indian manufacturers, making the domestic market less attractive for new investments.
• Limits Specialised Steel Initiatives under PLI - Persistent dumping of low-priced Chinese steel restricts the success of these initiatives by making it difficult for Indian producers to compete, particularly in higher-value segments
• Disrupts Supply-Chains - Dumping creates volatility in the steel market, which disrupts established supply chains.
• Harms Downstream Industries – If domestic producers are forced to cut production or shut down, downstream industries like construction, engineering, and automotive face increased vulnerability to global price shocks and supply disruptions.
• Reduces Employment - The financial pressure from dumped imports can lead to job losses in the steel sector as companies cut costs, reduce production, or shut down operations.
• Threatens Economic Development - Steel is foundational to infrastructure, manufacturing, and defense sectors.
• A weakened steel industry undermines broader economic development goals.

What needs to be done?

• Surging imports of flat-rolled steel, stainless steel, and ferro-alloys have exposed deep-rooted structural vulnerabilities, contributing to a $7.33 billion trade deficit in the iron and steel sector.
• These imbalances call for an urgent review of trade provisions under existing FTAs.
• Simultaneously, structural reforms needs to be launched to dismantle oligopolistic control, improve cost-efficiency, and attract credible foreign players.
• Safeguard measures must be matched with merit-based incentives to upgrade in specialty steel, improve quality, and enable sustainability.
• Protection is only meaningful if it drives long-term competitiveness, industrial sovereignty, and a fair, future-ready steel ecosystem.

Reference

BusinessLine | Making Indian steel globally competitive

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