The article explains the advantages of the vehicle scrapping policy announced in the Budget FY22.

Greenhouse gas contribution  steel industry

• Steel industry uses carbon as the main reducing agent as also as a fuel for steel production.
• GHG emissions of the Indian steel industry is 2.0-2.8 tonnes of CO2 per tonne of crude steel, against global average of 1.8 tonne of CO2.

Scrapping policy

• Two seminal announcements have been made in Budget FY22, viz. introduction of vehicle scrapping policy and doubling ship-breaking capacity to 9 million tonnes per year.
• This will minimise dependence on import of scrap and cause a reduction of the GHG footprint of iron & steel.

Producing steel using scrap

• Most steel-producing countries are trying to bring down emissions by shifting from iron-ore-based production to scrap-based production.
• This route can bring CO2 emissions down to below 0.5 tonne of CO2 per tonne of steel.
• Although most steel-producing countries are using Electric Arc Furnaces (EAF) for scrap-based production, in India, both EAF and Induction Furnaces (IF) are used.
• The main CO2 load in EAF-based steel production doesn’t come from the off-gas but from producing the electricity used in melting of the scrap.
• Thus, this can be further reduced if renewable power is used as a source of electricity.

Saving in forex spending

• Availability of ferrous scrap in India is very limited—around 25 million tonnes annually from domestic sources.
• In 2018-19 and 2019-20, the country imported nearly 6.5 million tonnes of scrap each year and thus large forex spending was incurrred.
• With the announcement of vehicle scrapping policy, steel industry can expect enhanced indigenous availability of ferrous scrap.

Strengthening the resource efficiency and circular economy

• The quality of the steel produced is dependent upon the quality of input material and hence any improvement made in ensuring quality of scrap will have marked influence on the steel produced.
• This shall strengthen the process of resource efficiency & circular economy as considerable natural resources shall be conserved with significant reduction in emission and it will help in moving towards a sustainable steel industry.

Consider the question “Discuss the advantages of vehicle scrapping policy announced by the government in Budget FY 22.”

Conclusion

The announcement of the vehicle scrapping policy couldn’t have come at a better time for steel industry in India, as well since the country lacks desired quality of coking coal and natural gas is also imported.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

The steel industry forms the backbone of the economy. This article highlights the difficulties of the industry magnified the pandemic. Ans suggest ways to revive demand.

BAT could help

• Introduction of a Border Adjustment Tax, known as BAT could help India’s steel industry.
• Many countries use BAT to protect local steel manufacturers.
• With economic pain unleashed by the pandemic and threat posed by Chinese state-subsidised steel imports, India hardly affords not to BAT.
• BAT would create a level playing field.

Why Indian steel industry is non-competitive

• Indian steel manufacturers bear multiple local taxes – electricity and cross-subsidy duties, clean energy cess and royalties on ore and there are more.
• These taxes make up 12% of the price of steel.
• In rival markets, these levies either do not exist or are comparatively lower.
• So Indian steel is non-competitive even before it leaves our plants.

Impact of Covid

• Impact of Covid on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 MT, was calamitous.
• During the pandemic, the mills’ massive blast furnaces continued to burn.
• Closure and reopening of furnaces can take up to 12 weeks; the process is complex, and maintenance costs are high.
• So, the furnaces were burning during the lockdown.
• India’s mills have continued to bear high fixed costs: firing furnaces but without making much steel.
• Because of this, smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.

Significance of Steel Industry

• Steel is front and centre in India’s recovery.
• The industry rests on mutual support – investment is made by entrepreneurs, the government offers supportive policies.
• Government will lend weight to India’s competitive and comparative advantages, especially in manufacturing, in a post covid-19 economic order.
• Indian steel’s guiding light is a steel ministry vision of 300MT of capacity by 2030, currently at about 138 MT.
• The pandemic will put pressure on this target.

Short term hurdles faced by Steel industry

• Government capital expenditure is diverted to public health.
• Real estate builders have an interest in large scale construction.
• Car manufacturing will not see upturn until the second half of the year.
• The pandemic has also hurt demand for capital utilisation, weighing heavily on capex.

How the demand can be improved

• Steel needs more infrastructure projects. Also, the fillip would be for the government to pay on time. Expedite the work.
• An initiative to consign old cars to the scrap heap would significantly lift demand for steel to build replacement cars.
• Improving the logistics chain would help transport finished goods and materials more quickly and less expensively.
• Make steel the material of choice in the construction of flyovers, roads bridges and crash barriers, improving their safety, durability and, as a result, their life-cycle cost.
• Indian mills possess world-class infrastructure and capacities and have integrated backwards by acquiring mining rights, partly to mitigate costs. As mentioned, one is high taxes on input materials such as energy.

Consider the question “Examine the issues Indian steel industry faces. Suggest the ways to make it more competitive.”

Conclusion

A revived economy means a revived steel industry. The government should provide the wider and deeper support to the government to bring this vital sector back on the track and make help achieve global competitiveness.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now