INDIA'S STEEL POLICY 2047: SHIFTING FROM PROTECTION TO COMPETITIVENESS

02 Nov 2026

Tags: Economy   Planning & Growth   Resource mobilization

Source: The Indian Express

Context: Draft National Steel Policy: Vision 2047 released by the Ministry of Steel to make India a globally competitive steel producer and increase steel exports to 45 million tonnes (Mt).

• India's Position: India has emerged as the world's second-largest steel producer, with production of approximately 170 Mt, compared to China's 961 Mt.
• Key Concern: India's steel industry enjoys high profitability, but this is partly driven by protectionist policies rather than genuine productive efficiency.

Performance of India's Steel Industry

• Profitability: Average industry profitability (Earnings Before Interest, Taxes, Depreciation and Amortisation as a percentage of sales) was around 15% during 2000–2025, 3–4 percentage points higher than the rest of Indian manufacturing.
• Global Comparison: Profitability of India's three largest steel firms was 3–4 percentage points higher than their major global counterparts during 2015–2024.
• Market Concentration: Three dominant players since 2000 are Steel Authority of India Limited (SAIL), Tata Steel and JSW Steel.
• Changing Market Shares (2000–2025):
  • SAIL's market share declined from 30% to 10%.
  • JSW Steel's market share increased from 1% to 12%.
  • Tata Steel maintained a relatively stable share of 11–13%.

How Protectionism Affects the Steel Industry

• Cheap Domestic Iron Ore
  • Export Duty: A 30% export duty on iron ore containing more than 58% iron content keeps domestic iron ore prices approximately 30–40% below global prices.
  • Economic Distortion: Mining resources are underpaid to benefit steel producers, reducing incentives for mining and causing economic losses in mineral-rich regions.
• High Import Tariffs
  • Import Protection: A 7.5% basic import tariff, combined with an 11.5% safeguard duty, raises effective protection to approximately 18%.
  • Global Comparison: Comparable tariffs in the Association of Southeast Asian Nations (ASEAN) are around 3–4%.
• Non-Tariff Barriers
  • Quality Control Orders (QCOs): Applied to 228 steel products, restricting imports through mandatory quality compliance requirements.
  • Gauba Committee: Recommended removing 122 steel products from the QCO list; however, only 59 products have been suspended so far.

Consequences of Excessive Protection

• High Domestic Steel Prices: Indian firms sell hot-rolled coil (HRC) steel at a 6–7% premium over Japan, despite Japan being a high-cost producer.
• Downstream Industries:
  • Construction: Steel accounts for approximately 15% of total project costs.
  • Automobiles: Steel and steel-related products constitute around 5% of raw material costs.
• MSMEs: Small and medium enterprises face higher input costs, weakening their export competitiveness.
• Resource Misallocation: Artificially cheap domestic iron ore discourages mining and exploration, while protection reduces incentives for steel producers to improve efficiency.

Impact of Reducing Protection on Steel Industry Profitability

• Alternative 1: Reduction in Import Tariffs
  • Tariffs are reduced sufficiently to bring domestic steel prices approximately 6% lower, broadly aligning them with Japanese prices.
  • Profitability Impact:
    • Largest private-sector steel firm: Decline of 25%.
    • Largest public-sector steel firm: Decline of 50%.
    • Fastest-growing large private-sector firm: Decline of 40%.
• Alternative 2: Removal of Iron Ore Export Duty
  • Domestic steel producers purchase iron ore at global prices following removal of the 30% export duty.
  • Profitability Impact:
    • Largest private-sector firm: Profitability falls to approximately 7%.
    • Fastest-growing large private-sector firm: Decline of 95%.
    • Largest public-sector firm: Profitability turns negative.
• Central Argument: High profitability partly reflects policy protection rather than international competitiveness. Gradual withdrawal of protection is necessary to improve efficiency.

Lessons from Other Industries

• Pharmaceuticals and Automobile Components: Import tariffs declined from around 40% in 2000 to 10–15% in 2023.
• Automobile Components: India's share of global exports increased from 0.2% (2003) to 1.5% (2024).
• Pharmaceuticals: India's share of global exports increased from 0.7% to 2%.
• Lesson: Reduced protection need not weaken domestic industries; it can encourage efficiency, innovation and export competitiveness.

Way Forward: Making Indian Steel Globally Competitive

• Gradual Tariff Reduction: Reduce import tariffs over five years to ASEAN levels of 3–4%, allowing domestic firms to adjust to global competition.
• Remove Non-Tariff Barriers: Rationalise and remove unnecessary QCOs, particularly for products identified by the Gauba Committee.
• Abolish Iron Ore Export Duty: Remove the 30% export duty on high-grade iron ore to improve mining incentives, unlock resource value and increase export revenues.
• Mining Policy Reform: Adopt practices followed by Australia and other mineral-rich countries to reward exploration and encourage new mine development. India's current auction framework requires discoveries to be surrendered for subsequent auctions, discouraging exploration.
• Unlock Mining Potential: Only around 10% of India's evident geological potential has been explored; reforms should encourage private exploration and increase mining's contribution to GDP.
• Public Sector Reforms: Consider privatising selected SAIL plants to improve operational efficiency, governance and fiscal outcomes while retaining strategic oversight.

Conclusion: India must shift from protection-driven profitability to efficiency-driven competitiveness. Gradual tariff rationalisation, mining reforms, greater competition and improved governance are essential to achieving the Draft National Steel Policy's Vision 2047 and establishing India as a globally competitive steel producer.