Government Policy and Foreign Direct Investment in Indian Steel Industry-Growth Opportunities

By Raju, B. S. N. | Indian Journal of Economics and Business, March 2012 | Go to article overview

Government Policy and Foreign Direct Investment in Indian Steel Industry-Growth Opportunities


Raju, B. S. N., Indian Journal of Economics and Business


Abstract

The New Economic Policy initiated in the 1990's influenced the Indian Iron and Steel industry in many ways: The system, therefore, underwent radical changes. For steel makers, economic reforms opened up new channels for their inputs at competitive prices from the overseas markets while unveiling new markets for their products. It also led to a greater access to information on global operations and techniques in manufacturing. The Indian National Government has been pretty liberal with their approach to the foreign direct investment being made in the country. The Indian government has also relaxed the various foreign investment laws. This has led to more international steel giants coming to India to tap the abundant resources present in the country. The increased interest shown by such companies has led to a growth in the steel industry of India.

India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India's economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years. The Researcher has made an attempt to know the review on Government Policy and FDI and its impact on Indian Steel Industry.

Keywords: Foreign Direct Investment, Economic Liberalisation, Gross Domestic Product, Memorandum of Understanding, Economic Development, CAGR, Five Year Plans, Quantitave Restrictions, Steel Policy, Capacity additions, Growth prospects.

INTRODUCTION

When India became independent as the biggest, but not the only, Successor State to the British raj, the three major iron and steel companies had a total capacity of only 2.5 million tons. At the time of independence, India had only three steel plants -Tata Iron & Steel Company, Indian Iron and Steel Company and Visvesvaraya Iron & Steel and a few electric are furnace-based plants. The period till 1947 thus witnessed a small but viable steel industry in the country, which operated with a capacity of about one million tonne and was completely in the private sector. From the fledgling one million tonne capacity status at the time of independence, India has now risen to be the 5th largest crude steel producer in the world and the largest producer of sponge iron. As per the official estimate the Iron and Steel Industry contributes around 2 per cent of the Gross Domestic Product (GDP) and its weight in the Index of Industrial Production (IPP) is 6.20 per cent. From a negligible global presence, the Indian Steel industry is now acknowledged for its product quality, reflected by trends of rising exports.

The Indian Steel Industry has responded to the challenges of the highs and lows of business cycles. The first major change came during the first three Five Year Plans (1952-1970) when in line with the economic order of the day, the iron and steel industry was earmarked for State control. From the mid 50s to the early 70s, Government thus set up large integrated steel plants in the public sector at Bhilai, Durgapur, Rourkela and Bokaro.

2. REVIEW OF LITERATURE

Dr. P. L. Agarwal, (1997) has stressed the need for new technology to improve the quality of steel and to reduce the cost of production and suggested that the steel production should be pushed up but not at the cost of ecology. Both the new steel plants in India have become environment conscious. Steel Tycoon Mr. Lakshmi Nivas Mittal (2001) advised to securing land and iron ore mining locations are issues that need to be solved by the state governments in India for further growth. He also suggested that the Indian government should not lift the qualitative and quantitative restrictions on iron ore exports.

Mr. K. Bhattacharya (2003) has that the entire steel world today looks mainly to India where huge investments have been announced for capacity increase of all major existing plants and installation of new plants. …

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