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Indian Sponge Iron Industry : Growth Despite Constraints

- By Sanjay Sengupta (September 2000)

A renowned economist and social scientist Rosenstein Rodan has defined the role of infrastructure in an economy as an umbrella for many activities referred to as "Social Overhead Capital", The International Iron and Steel Institute (IISI), Brussels, maintains that infrastucture is a set of assets which underlines society and its economic activities - railways, roads, bridges, ports, water treatment plants, hospitals, schools and such facilities, The essential characteristics of infrastructure, according to IISI, is that it is for general rather than private use. It has generally been provided by central or lower levels of government, but can also be provided by parastatal bodies or private enterprises.

Inter - dependence of GDP growth and Infrastructure Development
The growth of infrastructure of a country depends largely on the growth of its gross domestic product (G.D.P.) For India, it has been ascertained after analysing the elasticity relationship between a composite index representing infrastructure sector and G.D.P. at 1980 - 81 prices, that elasticity relationship of 1.42 can be used to project, that for GDP to grow by 6-7 per cent, the infrastructure sectors are to increase by 8.6 to 10 per cent by 2000 - 01.

Growth of Steel Sector And Infrasturcture Development
The growth of steel industry of a country depends on the growth of its infrastructure sectors. By actively promoting infrastructure development, the steel industry can only serve its own cause, its customers and wider public benefits.
Highlighting the importance of infrastructure in steel marketing, IISI, Brussels, in a report says that a kilometer of high - speed railway line requires about 500 tonnes of steel products, and a subway system can use ten times that much. Road Construction was requiring about 80 tonnes of steel per US$ 1 million at 1993 prices. However, this can rise sharply depending on situations.

Report of The Expert Committee on Infrastructure
The " Infrastructure Report " by the Expert Group, setup by the Central government on the Commercialisation of infrastructure projects was published in January, 1997. The Expert Group observed that it was quite feasible for total investment of US$ 130 billion by 2002 to materialise. For this, the total investment in infrastructure has to rise from the 1996 - 97 level of 5.5 per cent of GDP to about 7 percent by 2000-01 and by 8 percent by 2005-06. In absolute terms this implies the annual level of investment on infrastructure rising from the 1996-97 level of Rs. 600 billion to about Rs. 1,100 billion in 2000-01 and Rs. 1,800 billion by 2005-06. This means that a total infrastructure requirement of Rs. 4,000 to Rs. 4,500 billion upto 2000-01, rising to about Rs. 7,500 billion by 2004 - 05 Crucially, such investments, feels the group, will take place if the policy framework in each sector is made investor - friendlyand transparent. CII had projected an investment of US$ 100 billion in infrastructure in 2001.
The economy has been projected by the group to accelerate its growth from 1996-97 level to 7.5 per cent by 2000-01 and 8.5 per cent by 2005 - 06. Such a growth rate would require a rise in investment from 25 per cent of GDP to about 29 percent by 2000 - 01 and 31.5 percent by 2005 - 06.
The Expert Group expected 30 to 35 percent of total external Capital inflows to go into the financing of infrastructure. This implies that about 15 percent of the total capital requirements for infrastructure to be externally financed and the balance 85 percent will have to be domestically financed. How far the recommendations of the Expert Group will be implemented is a million dollar question. In India, the non-plan expenditure is gradually increasing over the last decade at the cost of planned expenditure. Whenever the government decided to curb its expenditure, the axe fell on development work including the infrasturcture sector. Recently the government has decided to reduce subsidies on many items to help savings.
Investment in infrastructure sector up to the early nineties varied between 4.2 to 6.1 percent and between 18.2 to 24.7 percent of total Capital Formation in the country between 1997-98 and 1992-93 as willl be evident from table - 1 below

Table - 1 : Share of Capital formation In Infrasturcture ( in percentage)

1997 - 98
1982 - 83
1987 - 88
1992 - 93

In Total Capital Formation

Source : Various issues of National Accounts statistics as presented in Steel Seminar, 1995)

Growth of Economy And Industrial Production
The growth of India's GNP, GDP and IIP between 1995 - 96 and 1998 - 99 is shown in table - 2 below:

Table - 2 : Growth of India's GNP, GDP and IIP : 1995 - 96 To 1998 - 99. ( in Percentage)

Gross National Product (GNP)
Gross Domestic Product (GDP)
Index of Industrial Production (IIP)
1995 - 96

1996 - 97

8.1 (P)
7.8 (P)

5.1 (Q)
5.0 (Q)
1998 - 99

5.9 (A)
5.8 (A)
Source : Various issues of National Accounts statistics as presented in Steel Seminar, 1995)

P= Provisional, Q = Quick estimates A= Advanced Estimates * Apr-Dec. - 1998.
In 1999 - 2000, GDP growth is likely to reach about 6.5 percent. The expectation of the Expert group of 7.5 percent growth of GDP in 2000 - 01 may be a difficult proposition.

Growth of infrastructure Sectors
The growth of six major infrastructure sectors in india between 1995-96 and 1998-99 is tabulated in Table - 3

Table - 3 : Growth of Major Infrastructure Sectors : 1995 - 96 To 1998 - 99

1. Electricity Generations
2. Coal Production
3. Saleable Steel
4. Crude Oil
5. Refinery Throughput
6. Cement
Weight (IIP)









Overall 28.8 7.9 3.4 5.1 2.3
Other Infrastructure Sectors
(a) Railway Revenue Earning Goods Traffic
(b) Cargo Handled At Major Ports
c) Telecommunications (New Telephone Connections Provided.




* April - November, 1998.

It may be observed that of the six major sectors constituting 28.5 percent of the total IIP weightage, the overall performance was dismal in 1998 - 99 as compared to the previous year, 1997-98. The worst hit were the coal and crude oil production. The revenue earning from goods trafic by railways and volume of cargo handled at major ports were the lowest in recent years.
In case of service sector including construction, the share in the total GDP of the country was between 23.1 percent in 1996 - 97 and 23.4 percent in 1998 - 99 indicating almost zero growth.

Consumption Norms of Steel In Some Selected Infrastructre Sectors :
1. POWER :
For thermal power project of 500 MW capacity.
(i) For Generation :
(a) 10,350 tonnes of Reinforcement Steel ( including about 87 percent of TOR/TMT) (b) 10,350 tonnes of Structural Steel (80 percent Structurals, 20 percent Plates, H.R. Sheets, Gp/Gc Sheets)
(ii) For Generators:
CRNO / CRGO steel (as per norm)
(iii) For Transmission - 7,000 tonnes of structural steel (400 KV, 200 Km Stretch)
(a) Rail Track (double line) - 300 tonnes of steel including sleeper, signals etc.
(b) Sleeper (Steel) - 8.3 kg Net Per Sleeper
3. ROADS :
(a) 80 tonnes of steel per Rs 40 million spent
(b) Fly-overs - Vidyasagar Setu-Stay-Wire Bridge on river Ganga in Calcutta - 15,365 tonnes of wire rods and 3,000 tonnes of other steel products. Gariahat Flyover in South Calcutta - 2,350 tonnes of steel products
4. OIL :
For a 6 million tonne throughput Refinery
(a) 18,000 tonnes of Reinforcement steel
(b) 32,000 tonnes of structurals
(c) 35,000 tonnes of plates
(d) 1,000 km length of pipes
5. Gas Exploration (ONGC consumption) :
Each well platform requires 2,000 tonnes of structural Steel and each Process Platform consumes about 10,000 tonnes of steel products
6. Steel Plants
Stainless Steel - Construction only 0.5 percent of total consumption in 1998, that is about 3000 tonnes. Indian Railways have made prototype all-stainless steel passenger coaches and have plans to manufacture 300 all - stainless steel coal wagons. Delhi Metro Rail Corporation has recently tendered all-stainless steel coaches. It is expected that the development of roads, bridges, ports, airports, railway and bus stations will use more stainless steel in future.
Data Source for items 1 to 5 (Steel Seminar, 1995 and those compiled by the author)

Role of Construction in Infrastructure Development
Construction provides the core of all infrastructure development projects. Construction covers all sectors of the economy and forms the base of any industrial activity. The various areas of construction may be classified as under :
Agriculture and agro-based industries
Housing, office and establishments
Education, Sports and recreational facilities
Defence - industries, roads, bridges, airstrips, naval yards and housing for defence personnel.
Health Organisations
Infrastructure segments including :
(a) Power - its generation, transmission and distribution
(b) Non-conventional energy
(c) Community Development
(d) Road and Railway Transportation.
(e) Ports and Shipyards
(f) Irrigation and flood control
(g) Oil and gas pipelines, oil rigs etc.
(h) Steel Plants, Stockyards.
Construction builds the basic framework and infrastructure of a country, which stimulates further economic, commercial and industrial activities.

Steel - A preferred material in Construction
Steel has been accepted as a preferred material for use in construction due to the following advantages offered by it :
(a) offers considerable flexibility in design, ease of fabrication and faciliates erection.
(b) Speedy construction, better quality and aesthetics.
(c) Superior strength, toughness and ductitity.
(d) High strength to cost ratio
(e) Greater flexibility for maintenance, change of use and replacement and fully recycleable.
(f) Improved durability, resistant to corrosion, fatigue and fire.
(g) Permits large span construction - a modern trend in architectural design.
(h) It is an ideal material in earthquake prone locations due to high strength, stiffness and uniform quality. (i) It is enviornmental friendly
(j) Has a lower life cycle cost

Type of Steel Products Required in Construction Sector
The various types of steel products which are being used in the construction sector with their sepecific application are shown in table - 4

Table - 4 : Specific Application of Steel Products in Construction Sector

Sr. Products

1. Wire rods for Wire

2. Wire rods

3. Rebars

4. Section products and high strength structural steels

5. Universal beams, wide beams, H-shapes

6. Heavy beams / Jumbo beams

7. Hollow Sections (square or rectangular)

8. Rails and railways materials

9. High quality bars & Rods

10 Tubular Products

11. Plates

12. H.R. Coils / Sheet / Strips

13. Narrow CR Sheets

14. Wide CR Sheets

15. Galvanised Sheets

16. Organic Coated Sheets


Wire applications for reinforced netting, fencing etc.

Fastners, reinforcements, staywire bridges.

Buildings, Warehouse, LNG /LPG Storage, foundation of plant and equipment.

Building Construction, structures, bridges, ships and vessels, rails, transport industry, window frames etc.

Building columns,structural flange members (purlins, beams, frames, girders etc.)

Off-shore construction, high rise buildings, trusses etc.



Structural parts.

Water / steam / slurry piping, high pressure hydraulic system, structural construction, frames for light and medium buildings, pipes and pylons.

Construction of steel structures, industrial machinery, port construction, Oil and gas drilling rings, line pipes, LNG/LPG tanks, nuclear reactors, hydro-power plants.

Structural materials, tubes, welded pipes etc.

Welded pipes, cable armouring tapes, press-formed components used in construction

Tanks and Containers, industrial construction auto industry, furniture etc.

Roofing, clading fencing material, water tanks.

Building construction, interior decoration, roofing sheets, panellings etc.

Share of Construction in consumption of Steel Products
The extent of steel products consumed by the construction sector vary depending on the type of construction and the purpose of their application. Based on productwise despatches of various steel products between 1980-81 to 1998-99, the percentages of steel products used in the construction sector out of the total consumption are furnished in table - 5

Table - 5 : Trend of Steel Consumption In Construction Sector In India )

1980 - 81
1981 - 82
1982 - 83
1983 - 84
1984 - 85
1985 - 86
1986 - 87
1987 - 88
1988 - 89
1989 - 90
1990 - 91
1991 - 92
1992 - 93
1993 - 94
1994 - 95
1995 - 96
1996 - 97
1997 - 98
1998 - 99(P)

Consumption in construction('000t)


Share of construction in total consumption (%)


(P) = Provisional. Source : JPC 1998 -99 Compiled by the author.


According to trends, in 1999 - 2000, out of total finished steel Consumption of about 25 million tonnes the construction sector consummed about 9.71 million tonnes which is 38.84 percent of the total consumption.

Higher Growth of Infrastructure In 2000
The country's infrastructure has recorded a growth of 7.7 percent growth during January to April 2000 All major sectors excluding crude petroleum and cement have performed well.

Efforts To Boost Steel Consumption In Construction Sector
To boost the consumption of steel in the country, particularly in the Construction Sector, major Steel producers of the country along with the Government of India, has come together to establish the Institute for Steel Development and Growth (INSDAG) in Calcutta. The Institute primarily works towards the development of technology in steel usage and market for steel faternity. Some of the roles of the institute are:
(a) Creating an environment for better usage of steel by acquiring and disseminating knowledge about the best practices.
(b) Upgrading the skills of the work - force by offering better technical know-how.
(c)creating awareness amongst potential users about affordability and benefits of steel usage.
(d) Assisting in the development of ancillary industries which boost the usage of steel.
(e) Communicating the benefits of steel vis-a-vis other Competitive materials.
(f) Provide requisite thrust to increase steel consumption in rural areas. Under the National Campaign Programme, the following actions have already been initiated.
Distribution of metal bins at subsidised rates in different states of the country
Popularising steel scaffolding in place of bamboo.
Desigining of cycle driven trolly made of steel.
Fabrication and Commercialisation of stainless steel and Gp / Gc sheet water tanks.
Designing and propagating the use of steel trunk body etc.
Interaction with civil engineers, architects, designers, builders development agencies for more steel intensive construction.

Thrust on Infrastructure Development.
A major thrust has been given to develop the highways. The proposed 7,000 - Km North - South, East - West expressway project estimated to cost about Rs. 28,000 crore will link Srinagar with Kanyakumari and Silchar with Saurashtra. The North - South corridor has a total length of 4,006 Km, out of which 598 Km is already four - laned. The four - laneing of the reamaining 3,408km has been undertaken by NHAI. In the 3,287 km East-West corridor only 30km is fourlaned at present. The remaining 3,257 Km will be fourlaned at a cost of Rs. 12,650 crore. Another major project, the golden quadrilateral, will link the four metro cities - Delhi, Calcutta, Mumbai and Chennai at a cost of Rs. 21,000 crore by 2004.
Recently, the World Bank has sanctioned a loan of US $ 510.6 million for the development of the expressways in the golden qudrilateral and roadways leading to the important ports. Suggestions to corporatise Ports should be seriously considerd.
The Central Government is also toying with an idea to allow 100 percent foreign direct investment in the three major infrastructure sectors Power, Telecommunication and petroleum.

Conclusion :
India is yet to reach the consumption levels of steel in infrastructure attained by most of the Asian and American countries, India's capablity to compete in the global steel market depends to a great extent on the development of its infrastructure. Indian export of steel is handicapped by the poor road conditions as well as inadequate capacity and ineffeciency at the ports.
Foreign and domestic investment are influenced in a major way on the level of infrastructure in the country. The government at the centre and states have great responsibility in providing improved infrastructural facilities required by the industry and society. Private sector is yet to play its expected role in the development of infrastructure in the country.
Sustained efforts, overcoming the bureaucratic approach and political interference, are necessary to increase the consumption of steel in construction which holds the infrastructure of the country. It is expected that the activities of bodies like INSDAG will be of help in this regard.

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