Iron and Steel Industry in India

In this article we will discuss about the history and problems of the iron and steel industry.

History of the Iron and Steel Industry:

Iron and Steel, like the cotton textiles, was known to India from time immemorial. In-fact, the Iron age in India has been placed as early as 1500 B.C. Iron smelting was done in little Charcoal furnaces “scattered all over the country” and the steel thus produced “anticipated by many centuries the finest qualities of the modern European product.”

It was used for weapons, for decorative purposes, for tools and “even furnished the materials out of which Damasras blades with a world-wide reputation were made. The Indian steel once found considerable demand for cutlery even in England.”

The Agarias or Iron smelling caste, were widely dispersed and the name ‘Lohara’ was applied to a great many districts producing Iron ore. However, the introduction of cheaply-mad European Iron destroyed the industry and turned Agarias into unskilled labour to swell the ranks of those dependent on land.

Early Attempts:

Under pressure from the Home manufacturers, the govt., paid little or u attention to revive this industry on modern lines until the demands of the ‘age of steel’ began to outrun the supplies in Europe.

In 1777, Messers Farquhar and Matte sought permission “to bore canon and to cast shot and shell in the district of Jharia.” The enterprise left very little mark, having operated for only two years when a dispute with the zamindar about the royalties led to the abandonment of the project.

In 1808, Mr. Duncan, under the protection of the East India Company, established a small factory in Madras which soon came to naught. An outstanding name connected with these early efforts was that of Josiah Marshall Heath, a retired Madras civilian, who, having secured a grant from the East India company, established Iron works at Porto Novo on the Madras coast in 1830.

The project was destined to fail. His blowing engines were driven by bullocks; his operators lacked practical experience and his methods were ex­travagantly wasteful. The attempt proved a disaster and Mr. Health, broken in health and reduced to poverty, died a martyr to his own enthusiastic but ‘improvident’ experiment’.

It was, however, in Bengal that the industry was ultimately to be successfully established. The Barakar Iron works company was established in 1875 near Asansol on the Jharia coal fields. Neither its coal nor Iron ore v were of high quality. Failing to secure govt., backing, the work’s were shut down for four years.

The same works were worked by the govt., for 8 years when, in 188 , they were sold out to Bengal Iron and steel company. The concern produced an estimated 50,000 tons of pig Iron per annum although it failed to make steel profitably for a long time owing to the poor quality of the ore used.

In 1910, the company began to draw Iron ore from a much better field in Singhbhum and the results improved. The works were extended and re-modelled in the next ten years. According to the industrial commission, the company employed 10,000 persons and produced, on an average, 10,000 tons of pig Iron per month.

The Tata Iron and Steel Company:

The history of India’s steel industry really began when “against tremendous odds and with great tenacity of purpose, Jamshedji Tata realised his grandiose dream of erecting India’s First Steel Plant at Jamshedpur in 1911.” The successful establishment of this concern was “a happy historical accident” because the odds were formidable.

The earlier two attempts had failed; the task of organising finance and technical know-how was enormous; competition with British steel was going to be very keen; and the possibility of protection was very dim.

How­ever, Jamshedji Tata, who combined in himself “a broad imagination, penetrative insight, calculating and laborious study and high organising capacity”, showed the determination which was to be eventually crowned with success. The factory manufactured Pig Iron in 1911 and steel in early 1912.

The company might have still not made the grade but for the govt’s active assistance and generous help in the form of cheap land, construction of special railway lines for the transportation of machinery and raw-materials, concessional railway freight-rates etc. The company was also greatly helped in its early days by the Railway Board’s offer to purchase annually, for a period of ten years, 20,000 tons of steel rails.

How can one explain this change in Govt.’s policy from one of indifference to the overall economic development of the country to out of the way keenness to help the steel industry?

The explanation lies in the new found sense of importance of Iron and steel industry during Lord Curzon’s administration when foreign competition began to be increasingly felt in the Indian market. It is noteworthy that Germany and the U.S.A., on account of their remarkable advance between 1895 — 1913 in Iron and Steel production, had out-distanced England.

It is equally significant that the period 1896-1906 witnessed a steady increase in steel imports from Belgium and Germany. It was this fear of the Indian market falling in the hands of other European countries which prompted the govt., to change its policy, especially in relation to the Tata Iron and Steel company.

The I world war gave a double impetus to the industry: military requirements of the govt., greatly increased while the lack of transport facilities almost completely stopped foreign supplies.

With its order book ‘full to bursting’, the industry made rapid strides and production expanded. Before the war, India produced 40,000 tons of pig Iron—it was 1/20,000 of the world production—and for steel, she was entirely dependent on foreign countries.

By 1918, India was producing 1.98 lakh tons of pig Iron and 1.30 lakh tons of steel including rails. A ton of rails cost Rs.75/- but the railways paid the contracted price of Rs.125/- per ton.

Naturally, “money poured in the coffers of the company” Between 1914-1921, the company earned a profit of 4.15 million pounds. This enabled the concern, with the help of the Bombay industrialist, to build two hydroelectric stations in 1916 and 1919.

The heavy war demand and large profits created such a favourable outlook that the Tata’s planned new extensions to their original plant while four new concerns were floated, the chief being the Indian Iron and Steel Company Ltd. in 1918 at Hirapur, a few miles from Kulti.

The conditions of prosperity, however, came to an end after the war. After reaching a record level in 1920, price of steel declined heavily in 1921 and continued to fall thereafter. On the other hand, the cost of production increased considerably on account of the higher prices of coal and a substantial increase in wages. The industry, therefore, found itself in an extremely difficult position.

The new schemes were cither suspended or postponed. In order to help it out, the industry was granted protection in 1924 when duties averaging 33 ½ % ad valorem on steel ingots and a large number of Iron and steel goods were imposed.

In addition, bounties were granted on the production of steel rails, fish plates, and railway wagons. In the words-of R.P. Dutt, the granting of protection and bounty to the industry “represented the high water-mark of govt’s assistance to industrial development after the war of 1914—18.”

Conditions, however, further deteriorated. There was a slump in the world steel industry due to the coincidence of a great and sudden decrease in the world consumption of steel with a vast increase in the steel manufacturing capacity developed during the war.

The prices of imported steel fell to exceptionally low levels. The European firms could meet their losses out of their large war reserves but no such reserves were available to the Tata’s.

The situation was made worse by a sudden rise in the Sterling value of the rupee in the summer of 1924, which entirely upset the calculations on which the Iron and steel Industry (Protection) Act, 1924 was based. In 1925, on the representation of the industry, further investigations were help and additional assistance, by way of bounties, up to a maximum of Rs.60 lakhs, was extended to the industry for the next two years.

In 1927, the original period of protection for three years expired and a second enquiry as to the continuance of protection to the Industry was conducted by the Tariff Board. The Board recommended protection for a further period of seven years though at reduced rates.

The industry was yet struggling to find its way out of its difficulties when it was overtaken by the Depression. Not only did it hit the Iron and steel trade of the world as a whole, but the depression also led to a scramble for markets involving dumping of various types.

The situation was aggravated by the deprecia­tion of exchanges after 1931 in some of the continental countries, while the fixation of the rupee ratio at 1S.6d. gave an additional advantage of 12 ½ % not only to the British producers but also to the continental producers whose currencies were reduced in their rupee value to the same extent.

In this period of the struggle for survival, the steel industry, ‘the Prize-boy of Indian protection’, was greatly helped by the policy of protection, halting and mutilated though it was. The industry won laurels and justified the confidence reposed in it. In 1923-24, the company’s share of the Indian market was 17.6% in 1933-34, in-spite of a general fall in demand, the proportion rose to 76%.

In other words, the whole of the fall in demand was borne by imported steel. The factory maintained an output of 75% of capacity as against 24% in U.S.A. and 54% in the U.K. Cost of production declined by 25-40% between 1926—33 and was materially below those predicted by the Board in 1926. The company spent, between 1926—33, Rs.2 ½ crores on development.

This was reflected in increased steel production which rose from 1.31 lakh tons in 1922 to 5.91 lakh tons in 1932. The Tariff Board (1934) recommended a measure of protective duties which were more in the nature of anti-dumping measures than a step towards substantial protection of the industry.

The international situation considerably improved after 1934. With the returning tide of recovery, there were signs of normalcy of business.

The re- constitution of the continental steel cartel in 1933 led the way to control to steel prices and later on both owing to increased trade activity and armaments programme of various countries, the prices began to rise and production revived. In 1939, it stood at 10.42 lakh tons as compared with only 1.31 lakh tons in 1922—a nearly eight-fold increase.

Understandably, the profits index also moved up. Between 1933—38, the managing agents’ remuneration rose by 6644% while the average earnings of workers recorded a nominal rise of 16%. What is more, the wages of more than half the number of the Tata workers were such that the bare minimum requirements of living could not be met.

With the start of the Second World War, I he industry entered a new phase of prosperity. Imports were drastically reduced while demand for the products of the industry greatly expanded. The industry met large demand for many varieties of steels suitable for munitions production.

Among these, mention may be made of special bars for the manufacture of shells, bullet-proof armour plates, gun turrets, high grade steel, machine tools and stainless steel for surgical instru­ments. As a consequence, the production of steel ingots increased from 10.42 lakh tons in 1939 to 13.13 lakh tons in 1945-46 while that of finished steel rose from 7.26 lakh tons in 1938-39 to 9.49 lakh tons in 1945-46.

Increased production brought large profits. The Tata company alone earned a profit of Rs.45.6 crores during 1939-40 to 1944-45. These fabulous profits enabled the Tata concern not only to recover from the shock of the economic crisis of 1929—33 but also to strengthen its financial position as well.

An important war-time development was the imposition, under the Iron and steel order of August 1941, of rigid control on the consumption of steel produced in the country. By another order, issued in the same month, imports of wrought Iron and cuttings were also subjected to control. Further amendments virtually established rationing of Iron and steel products for civilian consumption.

The partition of the country and the communal riots adversely affected produc­tion as well as profits, but it was only temporary. Production revived in 1948 and profits also registered an upward trend.

At the last enquiry held in 1947, the industry did not press for the continuance of protection and, on the recom­mendation of the Board, protection was finally withdrawn. Thus, the industry enjoyed protection for a period of 23 years.

Post-Independence Period:

On the eve of the First Plan, there were three main producers of Iron and Steel in India, Tata Iron and Steel Company and the Indian Iron and Steel company were in the private sector while the Mysore State Iron and Steel works, started earlier in 1923, was in the Public sector.

The First Plan laid emphasis on “raising the output of existing industries to their installed capacities” rather than the creation of new capacity. Modest increases were, however, provided for in the case of the Tata’s as well as the Indian Iron.

It was during the second plan that the industry look a real leap forward. During the decade roughly spanning the second and Third Plan period, India’s steel industry attained a rate of growth which was rapid by any standard. Leaving out Russia and Japan, it is hard to find another example of such fast steel develop­ment anywhere in the world.

During the first half of the decade, i.e. the Second Plan period, the capacity of the steel industry was raised by four times from 1.5 million tons ingot to 6 million tons ingot. This was made possible by setting up three public sector steel mills of one million tons each with the aid of west Germany, Russia and the U.K. and through the doubling of the production capacity in the private sector.

The Tata’s went up from one to two million tons and Isco from 50,000 to 1 million tons.

In the next half of the decade, 1960-61—1964-65, the target was to raise capacity by another 4.2 million tons—raising the total to 10.2 million tons —through expansion of the three public sector plants and establishment of a new steel mill at Bokaro with an initial capacity of 1.7 million tons. In the Private sector, only the Indian steel was to raise its capacity by 3 lakh tons.

The rapid strides which the industry look in the Plans can be seen from the fact that the actual production of steel increased from 1 million tons in 1950-51 to 6.5 million tons in 1965—66, a six and a half lime increase. During the Second Plan, steel production rose by 84.6% and in the Third, by 87.50%.

Notwithstanding this substantial and rapid progress, India was still way behind other countries in respect of this vital industry. In 1966, per capita production of steel in India amounted to 13 kg. only as compared with 936 kg. in U.S.A., 592 kg in West Germany, 483 kg in Japan and 23 kg in China. This brings forth the great leeway that had still to be made up.

Mention may be made of the system of partial decontrol introduced with effect from 29 February, 1964. The working of controls, introduced since the second world war, was far from satisfactory and had given rise to numerous com­plaints.

The Raj Committee (1963) examined the entire system of controls and, recommended a dual policy of stricter control over the supply of steel for ‘primary needs’ and ‘controlled decontrol’ for the rest of the market.

It also recommended the setting up of a joint-plant committee, with the Iron and steel controller as Chairman, charged with the duty of planning production and fixing steel prices. Accepting these recommendations, the govt., partially decontrolled steel.

Profits in the Post-independence period continued to rule high so much so that between 1955—1964-65, managing agents of the two private sector plants alone earned a commission of Rs.5.62 crores. Wages, though increased in the post-war period, made only a marginal advance.

It was only in January, 1962 that the govt., appointed a wage Board for the industry. Which, in its report submitted in 1965, laid down minimum wages as well as a formula for D.A. revision.

Problems of the Iron and Steel Industry:

A major problem in the industry was the utilisation of the installed capacity. During the period 1955-56—1960-61, while installed capacity expanded four times, actual production was only a shade more than double of that in 1955-56.

Labour troubles and bad management certainly were responsible but only to an extent. In the main, it was due to the failure of the Indian economy to maintain its projected rate of growth. The demand for steel, therefore, failed to materialize.

Another problem was that of high costs. The rapid expansion of the industry necessarily led to much inferior raw-materials being used. Besides, labour productivity was low partly on account of the excessively large numbers which the mills carried on their rolls and partly because of its inefficient use.