I have very fond memories of a great patriot and politician (very few such men can be found amongst today’s lot in the country), Vasant Sathe. Apart from his very intelligent, practical and radical views on tax structure, I remember how he always compared South Korea to India to show how a small nation could surge ahead so fast while we kept cheating our countrymen.
When I went to South Korea recently, I couldn’t but help feel the same; I even wrote about this a few weeks ago in one of my editorials. In the week gone by, I had the opportunity to sit with a gentleman who is a consultant to a company called Electrosteel Steels Limited. He told me the most amazing story of a venture — for setting up a steel plant — by one Mr Kejriwal near Bokaro on about 1500 acres of land. It is a steel plant being set up with a capacity of 2.2 million tonnes. Hearing the fascinating story of this plant made me remember Sathe again.
Amongst various things, steel was of special interest to him — as should be to any politician with vision, for after the Stone and Bronze Age, it was the Iron Age that was decisive for building the comparative advantage for nations. And it was during the Industrial Revolution when the entire world saw and realised the power and economies that this metal could create. With the invention of steel, everything changed further.
Today, almost all industries ranging from automobiles to defence use steel and related products extensively. Steel has been one commodity that to a large extent has been pivotal for economic development and social prosperity, and thus has been a key ingredient in the nation’s future plans. Sathe would always compare the Indian productivity to Korean productivity to explain the rot in the Indian system — and then, of course, he would invariably talk about China too. So today I thought I’ll dig a little deeper into some facts and figures about this key aspect symbolising a nation’s development.
A recent Wall Street Journal report foretells decisive growth in China and India’s steel industry for 2012. The details are very interesting. India’s position in steel production is meek and lagging, mainly on account of Government control, bureaucratic hurdles and red-tapism, coinciding with poor planning, unprofessional functioning, and poor productivity. Not just Asian countries like South Korea, but even countries like Malaysia have productivity standards much better than India’s.
A research report titled, ‘Indian Steel Industry: Outlook to 2012’, predicts that Indian crude steel production will grow at a compounded annual growth rate of 10 per cent during 2010-2013. Still, India’s average consumption of finished steel is significantly less than that of its neighbours. Not only is India’s annual steel production capacity, in absolute numbers, far less than what nations like China and South Korea have; but the per capita consumption is also at a rock-bottom figure. A time-series analysis indicates that both India and China started their tryst with steel production approximately during the same time. Just after Independence, India’s and China’s annual steel production was at the same level.
However, by the end of 1990, where the per capita steel consumption in China increased by 65 kg and touched a figure of 160 kg, India’s per capita consumption languished at 29 kg (an increase of just seven kg per capita) by the end of 2003. The same goes for production too. China’s steel production increased by 105 million tonnes while that of India increased by just seven million tonnes. As per the World Steel Association, India’s annual production of steel in 2010 was merely 66.8 million tonnes compared to China’s 626.7 million tonnes and Korea’s 58.5 million tonnes.
Unlike India, which saw an increase in steel production by a shameful figure of 13.3 million tonnes, the Chinese steel production grew at a whopping 131.8 million tonnes in a span of just four years ending 2010. Putting this number in a different perspective: India’s population in 2010 was 17 per cent of the global population while the corresponding steel production was merely 4.5 per cent of global steel production.
The same was not true for China and Korea. China’s contribution to global steel production in 2010 was more than 44 per cent and Korea’s was 4.13 per cent in spite of their population being 20 per cent and less than one per cent of the world population respectively.
Steel production capacity and consumption capacity of a nation (especially per capita), speak volumes about any nation’s fundamentals. Both production and consumption have a direct correlation with infrastructure development. The steel industry, by any measure, forms the very foundation of almost all manufacturing units and acts as a backbone for industrial development.
With India growing demographically and the nation relying heavily on steel imports, it is imperative for our policy makers to increase steel production by leaps. However, our archaic and non-liberal industrial policies did not allow many steel plants to come up. Barring Tata Steel (that produced 23.5 million tonnes in 2010) and SAIL (13.6 million tonnes in 2010), there are literally no big names in steel production.
Most of India’s steel plants — that too, mind you, could be set up thanks to the then USSR which benevolently came and virtually donated most of the plants to us around 50 odd years back — are labour -intensive and over a million people are employed in the Indian steel industry either directly or indirectly.
However, this number has no correlation when measured against labour productivity. This huge number does not reap the desired results as the average labour productivity in the Indian steel industry is very low at 144 tonnes per worker per year. The productivity at India’s two biggest steel plants is more horrifying, with SAIL having a labour productivity of 75 tonnes per man per year while Tata Steel with has a labour productivity of 100 tonnes per man per year.
The average energy consumption in India is two million kilocalories per tonne, which is more than the global standard of four million kilocalories per tonne. This is a crying example of how outdated and inefficient our steel plants are.
The author is a Management Guru and the Honorary Director of IIPM Think Tank
