RESTRICTED

FILE COPY Report No. AS - 1 1 la

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

CERTAIN ASPECTS

OF THE

INDIAN STEEL INDUSTRY

June 29, 1966

South Asia Department

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CURRENCY EQUIVALENTS

U.S. $1 Rs. 4. 76 until June 6, 1966Rs. 7. 5 from June 6, 1966

Rs. 1 U. S. $0. 21 until June 6, 1966U. S. $0. 133 from June 6, 1966

WEIGHTS

Most of the tonnage given in this report are expressed in metric tons.Some of the data are also expressed in long tons but as the differenceis small no attempt has been made to distinguish between the two or toconvert to a uniform basis.

FINANCIAL YEAR

The Indian financial year begins on April 1.

TABLE OF CONTENTS

Page

PREFACE

SUMMNARY i

I. HISTORY 1

II. PLANT PERFORMANCE AND PROBLEMS ARISING 4FROM RECENT EXPANSION

III. THE CONTROL SYSTEM 11

IV. SUPPLY AND DEMAND 20

V. PLANNING FOR THE FUTURE 25

VI. CONCLUSIONS AND OUTLOOK 30

ANNEXES

I. DATA ON INDIAN STEEL PLANTS (includingDetails on Plant Performance)

II. RAW MATERIALS AND TRANSPORT

III. STEEL CONTROLA. Government Directive of Feburary 29, 1964,

regarding the revisions in the ControlSystem

B. History of the Retention Price

IV. STEEL SUPPLY

V. STEEL CONSUMPTIONA. Consumption in 1960B. Forecasts

MAP

PREFACE

This report is based on the findings of a missionconsisting of Mr. Hans Pollan of the Bank, who made several

visits to India in the period 1963-1966. Mr. George Thomas(Consu:Ltant to the Bank) also contributed to its preparation.While in India, the mission had the opportunity of visiting

the country's five large-scale integrated steel works.

The object of the report is to provide a perspectiveand an assessment of the context in which the projects of the

two private Indian steel companies, which the Bank has beenasked to help finance, are expected to be carried out. Thereport contains a review of the industry's recent expansion,the problems that arose, the effects of the steel control system,

and the outlook over the remainder of the decade with particular

reference to the further expansion of the Indian steel industry.

SUV24ARY

i. The authorities responsible for the planning of India's economicdevelopment have been preparing a program for another major expansion of thecountry's steel industry to be carried out during the Fourth Five-Year Plan(April 1, 1966 - March 31, 1971) and beyond. During that period of time, twoof the Bank's borrowers in India, the Indian Iron and Steel Company and theTata Iron and Steel Company, are expected to participate in this effort throughthe execution of expansion and balancing works. Since some of the companies'additional facilities, which the Bank is considering for financing, would beerected in the context of a further expansion of the Indian steel industry,it would be desirable to review the present intentions in this regard.

ii. The next round of expansion would follow on a major capacity build-upundertaken a few years ago and still underway at some plants. Between 1956and 1962, India nearly quadrupled her steel-making capacity to a level ofsix million ingot tons. This was done by building three new government-ownedplants and substantial capacity expansion in the two older private plants,previously the only steel producers of importance in India. Carrying outa capacity build-up of that order in about six years, in a country which hadonly limited experience in constructing and operating large steel plants, wasa major accomplishment, indeed. However, the massive capacity additions alsoled to many costly strains, including the need to ensure a stable supply ofappropriately prepared raw material, and the building up of a staff, suffi-cient in number and experienced in depth, to meet the industry's present andexpanding requirements. Considerable progress has, however, been made,especially recently, in resolving these problems. The principal problemswhich the industry will face in the years ahead are to carry out a majorexpansion at a time when it has to consolidate the recent advances in itsoperations, and to reduce substantially its production costs. The area ofraw material preparation seems to offer considerable scope for the latter.

iii. The industry has also suffered from the limitation on its freedom ofmaneuver, stemming mainly from governmental influence over decisions which inother countries are normally within the power of steel companies, and fromthe steel control system in force since World War II because of chronicsteel shortages. They have served as disincentives to make the industry'soperations more efficient. About two years ago, the industry was given moreleeway by participating, together with Government representatives, in a bodythat has responsibility for establishing production programs and for thesetting of prices of several steel categories in which the supply position hasimproved. Since the supply position has become increasingly comfortable sincethen, except for persisting scarcities of certain flat products, directGovernment controls would no longer seem necessary, except for ensuring the

supply of narrowly defined high-priority requirements. There are recent signsthat a competitive situation is developing in respect of sales of sectionsthat are relatively plentiful. This will probably help most to focus theindustry's attention on the quality and the cost of its output. A furtherimpetus may come from various consumers' easier access to imported flat andspecial steel sections, expected as a result of the import liberalizationmeasures which have just been announced.

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iv. Indian requirements of finished steel have been growing steadily andfurther substantial increases are expected. Against apparent consumptionof about 5.4 million tons in 1965/66, the Indian forecasts, which guidedinstrumentally the planners in framing a further steel expansion, put steeldemand in about five years (the end of the Fourth Plan) in the range of about12 million tons. These forecasts were based on expectations of economicgrowth which seem over-optimistic in light of recent performance. There isno doubt, however, that there is a need for a further expansion, especiallyin the capacity for flat products.

v. The Government is now contemplating an expansion program with under-standably strong emphasis on flat products. It is thinking in terms ofbringing the industry's capacity to over 12 million ingot tons in about fiveyears with most of the Fourth Plan additions involving flat products. Con-sideration is also being given to starting work during the Fourth Plan onfurther capacity for nearly 6 million ingot tons which is hoped to becomeoperational in the Seventies. The achievement of a capacity of over 12million ingot tons rests on an expansion of the three Government plants, andto a lesser degree of IISCO's, and on the construction of a new public sectorplant. Although a series of arrangements have yet to be made for procurement,personnel and financing, this achievement would not appear unrealistic.Output near that level could, however, only be expected in the early yearsof the Fifth Plan. The human factor would also seem to impose a limitationon an early successful operation of new facilities.

vi. Since the existing plants are likely to have better prospects formmeeting the additional requirements for experienced manpower and since,moreover, additional output can be obtained more quickly and with a smallerinvestment than through the construction of new plants, the decision toexpand the present plants seems to offer the best scope for obtaining sub-stantial additional steel output by the end of the Fourth Plan. There alsoappears to be room for starting the construction of additional flat capacityduring the Fourth Plan. However, if all the new flat capacity now beingcontemplated yields substantial output in the mid-Seventies, it is possiblethat supplies will temporarily exceed Indian requirements. This shouldstrengthen the challenge to reduce the industry's production costs in orderto make possible sustained exports in the future without the help ofsubsidies.

vii. Better planning than in the past will be needed if the industry'sexpansion is to be undertaken on sound lines and at minimum cost.

I. HISTORY

1. India has five large-scale integrated steel works today with atotal capacity of over six million tons of ingots per year. The plantsare located in the eastern part of the country where coal and iron oredeposits principally occur. Two of the plants are privately owned andthree are owned by the Indian Government. The private producers are theTata Iron and Steel Company (TISCO) which operates a two million ingotton plant at Jamshedpur, and the Indian Iron and Steel Company (IISCO)which has a one million ton plant at Burnpur. Hindustan Steel Limited(HSL), a government enterprise, owns and operates three one million tonplants located at Durgapur, Rourkela and Bhilai in which expansion worksare underway. The plant locations are shown on the attached map.

2. TISCO was the first to produce steel on a substantial scale inIndia. It began producing steel in 1911, and almost until the outbreak ofWorld War II was India's only significant steel producer. The company'sinitial capacity was about 100,000 tons of finished steel; successive ex-pansions raised it to about 800,000 tons by 1939. IISCO's Burnpur plant!/began making steel only in 1939, after having produced pig iron for abouttwenty years, and produced at an annual rate of 250,000 tons for someyears. The only other integrated plant in existence before World War IIwas a small plant (30,000 tons capacity) built in 1936 at Badhravati bythe Mysore State Government. Besides the integrated plants, there were anumber of small steel-making units with electric furnaces, foundries andre-rolling mills which sprang up in the Thirties and Forties, mainly inthe hinterland of Calcutta and Bombay.

3. Prior to World War II, the Government's role in the industry waslimited to being an important customer and to providing tariff protection.On the outbreak of the war, however, in order to ensure the use of thelimited supplies of steel for essential purposes, the Government intro-duced controls over distribution and prices of steel. In 1941, the controlsystem was tightened with the issuance of the Iron and Steel (Control ofDistribution) Order: it authorized the Government to fix prices and toregulate the production, distribution and consumption of steel; it alsoestablished the office of the Iron and Steel Controller. Since steel con-tinued to be in short supply, the system remained in effect for over twentyyears without any significant change in its aims or basic features. A dis-tinctive aspect of price control was the existence of two prices for steel--the "retention price", the amount the producers were permitted to retainfrom the sales proceeds, and the higher "selling price" which the consumer

1/ IISCO's Burnpur steel plant was originally owned by the Steel Corpora-tion of Bengal (SCOB). This company and IISCO were closely inter-locked through common managing agents, a profit-sharing arrangement,and physical integration of facilities. SCOB was merged into IISCO in1952 pursuant to the Iron and Steel Company Amalgamation Act.

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paid. The difference, except for taxes, was paid into the Iron and SteelController's Equalisation Fund, which was used initially mainly to makepossible the sale of higher priced imported steel at the lower domesticprice. In March 1964, Government controls were modified significantly andthe industry was given considerable responsibility in the pricing and dis-tribution of those steel categories (mainly structurals and bars) in whichthe supply position had become more comfortable. Direct Government con-trols have been reduced further since then.

4. In 1947, when India acquired independence, it was apparent thatpent-up needs unsatisfied during the war, and the development works whichthe Government was proposing to carry out, would lead to a considerablegrowth in demand for steel. Since imported steel was expensive and diffi-cult to obtain on a regular basis in the post-war period, the Governmentdecided that domestic production must be substantially expanded so thatIndian steel needs could be met from domestic sources as far as possible.The Government's intention was to enter steel production itself in orderto strengthen its influence over the pace and pattern of economic develop-ment. However, the Government was unable to begin building steel plantsat that time because of the many claims on its investment resources. Since,moreover, capacity could be increased at less expense by expanding exist-ing facilities than by building entirely new plants, the provision of addi-tional capacity fell to TISCO and IISCO. The Government assisted themfinancially, since neither could raise the funds required for expansionfrom their retained earnings (limited by government-fixed retention prices)or through borrowings from financial institutions. The Government's as-sistance included advances with no fixed maturities of Rs. 100 millionmade to each of the companies from the Equalisation Fund. IISCO's programwas intended to raise its finished steel capacity to about 700,000 tonsand substantially increase its production of pig iron, partly for sale.TISCO's capacity was to be raised to 930,000 tons. Work on TISCO's programstarted in 1951 and on IISCO's in 1954, but well before their completionboth companies were asked by the Government to expand their capacity fur-ther - TISCO to about 1.5 million tons and IISCO to about 800,000 tons offinished steel. Both expansions formed part of India's Second Five-YearPlan (1956/57-1960/61) and were assisted by IBRD loans.

5. At the same time that the Government asked the private producersto undertake their second rounds of expansion, the Government itself beganto carry out its plan to build its own steel plants. In 1956 it signedcontracts for the construction of three one-million ingot ton plants. Pre-paratory work at the Rourkela site had already begun in 1955. Plant con-struction at all three sites began in 1957. German credits were providedfor Rourkela, U.K. credits for Durgapur and U.S.S.R. credits for Bhilai.The Government's decision to build new steel capacity of its own had itsroots in pressures of demand, which built up rapidly in the mid-Fifties,and also in policies relating to industrialization which evolved afterindependence. These policies, as stated in the Industrial Policy Resolu-tion 1956, are as follows:

"It is essential to accelerate the rate of economic growth andto speed up industrialisation and, in particular, to develop

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"heavy industries and machine-making industries, to expand thepublic sector, and to build up a large and growing cooperativesector. These provide the economic foundations for increasingopportunities for gainful employment and improving livingstandards and working conditions for the mass of the people.Equally, it is urgent to reduce disparities in income andwealth which exist today, to prevent private monopolies and theconcentration of economic power in different fields in the handsof small numbers of individuals. Accordingly, the State willprogressively assume a predominant and direct responsibility forsetting up new industrial undertakings and for developing trans-port facilities. It will also undertake State trading on anincreasing scale. At the same time as an agency for plannednational development in the context of the country's expandingeconomy, the private sector will have the opportunity to developand expand ..... "

6. The expansion program begun in the mid-Fifties was practicallycompleted in 1962, about two years behind schedule. India's steel-makingcapacity was almost quadrupled and the range of its products broadened.Each of the two private plants has a fairly wide range of output, produc-ing both heavy and light sections and flat products. The HSL plants aremore specialized; Bhilai concentrates on heavy structurals and rails;Durgapur on light structurals, merchant sections (including bars and rods)and railway materials; Rourkela, the only plant in India to use the L.D.steel-making process, is an all-flat plant with the first wide strip milland cold rolling facilities in India.

7. In addition to the expansion of the two existing large-scalesteel works and the construction of three new ones, there was a consider-able growth of the re-rolling industry, especially during the Second Plan;this development enjoyed strong government support. At the beginning ofthe war there were 40 re-rollers, including some in areas now included inPakistan; there are now 191 registered units with most of the new capacityhaving been built up during the Second Plan. The re-rollers roll mainlymerchant sections. About WO%a of the units, for the most part small familyundertakings, are in the Punjab; the balance is concentrated in West Bengal,Maharashtra and Uttar Pradesh.

8. As part of the Third Five-Year Plan (1961/62-1965/66), furtherexpansions has been undertaken at the HSL plants. Bhilai's ingot capacityis being raised to 2.5 million tons, Durgapur's to 1.6 million tons andRourkela's to 1.8 million tons. In addition, IISCO is to begin work soonon a balancing scheme to increase its production of crude steel by 300,000tons a year to permit greater utilization of existing rolling capacity.These programs, when completed, will give the five main producers an aggre-gate annual capacity of 9.2 million tons of ingots, or about 7 million tonsof saleable steel. A construction of at least one new steel plant, andfurther expansion of the HSL plants, and possibly TISCO's, are planned forthe Fourth Plan (1966/67-1970/71).

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II. PLANT PERFORMANCE AND PROBLENS ARISING FROM THE RECENT EXPANSION

9. The build-up of steel capacity under the Second Plan program isviewed with pride in India and rightly so. But plunging into steelproduction on a massive scale also produced many costly strains, some of

them still evident. There had been little time to learn from experienceand problems of advance planning, personnel and coordination of raw materialsupplies and transport facilities were therefore particularly difficult.A review of the principal problems which arose in connection with the recentexpansion may provide a useful starting point for an evaluation of theplans for a further expansion of the industry. Responsible circles in Indiaare quite aware of these problems and their implications for the future of theindustry.

10. Plant Performance: The Government's original assumption that, asa result of the Second Plan expansion, the industry would be able to operateat close to capacity level (4.3 million tons of saleable steel) by 1960/61proved completely unrealistic. Production did not reach that level untilearly in 1963, when the initial teething problems of the new plants were over-come. The break-in was particularly troublesome at Rourkela, the mostsophisticated plant in India; it was less difficult at Durgapur and relativelysmooth at Bhilai. There still exist considerable variations in the operatingrates of the individual plants. Rourkela produced until about a year agoconsiderably below rated capacity, but has shown significant improvementssince then. IISCO, which has previously achieved capacity output, and

Durgapur now operate below that level. TISCO's output at capacity levelsdates only from 1963/64. Bhilai has produced in excess of rated capacity forabout three years. However, the strides towards increasing the plants'

output were made at the expense of quality of output and, at times, ofconsiderable wear of equipment.

11. The Third Plan expansion at the HSL plants have been delayedbecause of the time required to secure foreign exchange financing and thecompletion behind schedule of the three plants' "one-million ton" phase.Except at Bhilai, which is ahead of the other two plants, production of

saleable steel from the new facilities cannot be expected to be nearcapacity levels before 1967/68, the second year of the Fburth Plan.Details on the recent performance of each of the five plants and their outputestimates for 1967/68 are given in Annex I. The Annex also includes data

on plant facilities, Third Plan and balancing works, as well as a summary ofthe position of the re-rolling industry.

12. Investment Cost: The original estimates of construction costs wereconsiderably exceeded, particularly at the new HSL plants. The cost of thethree plants' "one-million ton" phase had originally been estimated at Rs. 3.5billion ($735 million). Actual costs to March, 1962, when the plants werepractically completed, amounted to Rs. 4.8 billion (roughly $1 billion).With towns and ancillaries, which had to be built for the new plants, total

investment amounted to about Rs. 6.2 billion ($1.3 billion); the foreignexchange component was nearly $700 million. The actual costs of TISCO's

Second Plan expansion were about 23 percent higher than the original estimate.

Part of the cost overrun was attributable to modification of the original

plans, but the main cause appears to have been the significant underestimation

of construction and civil works costs. Furthermore, any advantage of com-

petitive bidding could not be realized at Bhilai and Durgapur because the

sponsoring arrangements made that procedure impracticable. In connection with

the Third Plan expansions which are still underway, the original projectestimates are being exceeded again, though the overruns are unlikely to be

of the proportions which characterized the Second Plan program.

13. Plant Desig: Foreign organizations were largely responsi le fordesign and construction supervision for the Second Plan program.- Only

IISCO's consultants had had prior experience in building steel plants in

India. On the whole, the works were competently engineered except fcr cer-tain plant units. The original layout and some of the facilities of the HSL

plants provided for further expansion of blast furnace, steel-makimng andfinishing capacity. The three plants, as well as IISCO, now have excessrolling capacity. Indeed, the size of the Third Plan expansion of the HSLplantf. was primarily determined by their surplus blooming mill capacity. The

plant designs naa, however, been based on ratner definite expectations, partlydue to unverified assumptions regarding the quantity, quality and timing ofthe availabilities of raw materials, transport and other facilities. Varia-

tions in these, and delays in planning for complementary activities, especiallythe coal washeries program, therefore had repercussions on operating the newfacilities.14. Raw Materials and Transport: India has the base for an expandingsteel industry, but her resource position is not free of problems. Thereare extensive iron ore deposits of good quality, but deposits of limestone

and coking coal are more limited in magnitude, at least on present findings.

Moreover, most of India's coking coal has too high an ash content to be

used in its raw state without affecting the performance of blast furnaces

on present operating practices. Since the coal washeries program hasbeen delayed, coking coal of suitable quality has been in chronic shortsupply. In the case of iron ore and limestone, the great increase inrequirements necessitated the introduction of mechanized mining which,

unless performed competently, results in the extraction of material with

impurities, undesirable sizes, and other unfavorable characteristics.

The delivery of raw materials of poor and uneven quality has led, in terms

of iron output, to the use of blast furnaces below their available poten-

tial. Work is now underway to put up agglomeration and beneficiation

facilities for iron ore and limestone to ensure that delivered materialwill be more consistent in quality. However, though considerable research

in raw material preparation to find ways to improve iron output has been

going on in India for some time, the endeavor to determine the most

economic solutionsfor each plant, and to translate them into actual instal-lations, still has a long way to go, Raw material problems were compounded

1/ Design and construction supervision of the Third Plan expansion of the

HSL plants is now the responsibility of HSL's Central Design Bureau in

respect of Durgapur and Rourkela, and of a special Design Cell of HSL

as to Bhilai.

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a few years ago by the irregularities in the railway transport. Aggregatecarrying capacity now meets the plants' requirements. Although there are

still occasional complaints of the plants about inconveniently timed train

arrivals and the type of wagon furnished, this situation has noticeablyimproved. Further details on raw material problems and on transport are

given in Annex II.

15. Personnel: Staffing three large new steel plants at the same time was

a crucial problem, and although a good deal of progress has been made, the

problem still exists. The Government estimated the combined needs of the new

plants at about 2,000 engineers (including 350 senior engineers), and approx-

imately 19,000 skilled workers. A number of these positions still have to be

filled. Moreover, the expansions now underway at these plants are expected

to increase requirements for engineers and skilled workers by about 30 and

60 per cent respectively.

16. TISCO and IISC0 were virtually the only Indian sources for experienced

steel personnel, and well over one-third of the senior production personnel

at the HSL plants today are veterans of the two companies. However, the

companies could not possibly meet all the requirements. Extensive training

programs were initiated abroad and in India at the beginning of the Second

Plan. About 1,600 engineers anj,over 500 operatives were sent abroad, the

Soviet Union taking nearly 800.- But these programs could not produce the

experience in depth, the 8-10 years' practice it takes to make a good "steel

man", by the time the plants were completed. It was clear from the outset

that foreign personnel would be needed to help./ in both construction and

plant operations. The record of operational assistance has been varied. It

has probably been best at Bhilai. The Russians sent in about 200 experts at

the beginning of production; furthermore, at Bhilai the proportion of Indian

personnel who had been trained abroad was higher than at either of the other

two new plants. At Durgapur, and particularly at Rourkela, which is the most

sophisticated Indian plant, there were probably too few foreign experts at

first, about 60-70 at each. Arrangements materialized only after the plants

had been running for some time to increase the number at Durgapur to about120 and at Rourkela to about 210. The peak involvement of foreign expertsassisting in operations has meanwhile been scaled down to the numbers shown

in Annex I. The degree to which the foreigners' advice or direction has

produced act;ion greatly depended on the personalities of the indivicual

experts.

1/ Foreign training in connection with HSL's Third Plan expansion is

expected to involve only about 220 persons.

2/ This repeated the private plants' experience. At one time, TISCOemployed 250 foreigners; it has only one today. IISCO's senior

plant management still includes several foreigners.

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17. To help in building up a qualified staff, HSL has been operating amanagement training program for four years, so far with about 700 partici-pants ranking from foremen to superintendents (department heads). I/lorerecently, HSL has instituted a technical training scheme capable of pro-cessing about 300 trainees per year and designed to attract and prepareupperclass students and graduates in engineering with a view to joining thecompany's staff. (The private companies also operate training programs,IISCO's mainly addressed to junior and middle-level technicians.) The par-ticipants in HSL's program, have, by all accounts, responded well and theseactivities may be broadened.

18. While these programs are very useful and the proficiency in steelproduction of HSL's staff has increased, the company will continue havingpersonnel problems for some time. The need to strengthen senior managementat the new plants is still a critical factor. Several top positions arestill filled by civil servants whose performance would require a strongerorientation to the task of running an industrial enterprise. There is alsoconsiderable room among senior ranks for a wider and deeper spread of reso-luteness and attitudes favoring cost-consciousness and the willingness totake quick, and at times risky, decisions. Shortages are also likely tocontinue in experienced technical staff in the middle grades. There has, how-ever, been an encouraging growth of competent Indian staff at this level -engineers of 35-45 years who have shown a high degree of conscientiousness andadaptability tjo modern steel-making and rolling processes - but more time isneeded to build up a middle level management force sufficient in number andexperience. The same applies to the skilled work force. Skilled maintenanceworkers are particularly scarce, since maintenance, as in the private plants,is apparently less highly regarded and requires longer t-raining than directproduction activity. The imbalance between the need and availability of ex-perienced Indian personnel will continue, possibly sormiewhat beyond the Sixties.It may be accentuated in the meanwhile as a result of the present expansions.This may be offset by further employment of forei.ners, but the understandabledesire to make use of Indian manpower is an elem-at to be reckoned with in themaking of decisions whether or not outside expertise is required.

19. Although experienced personnel are scarce, the Indian plants carrya high proportion of unskilled labor. This has helped inflate employment incomparison to plants of similar size outside India. Employment in the HSLplants ranges between 14,000 and 19,000; IISC0 employs nearly 18,000 andTISCO 32,000. Surplus labor, generally unskilled, has been difficult to dis-miss. The expansions now underway at the HSL plants should, however, reduceover-employment of unskilled or semi-skilled labor at these plants. Manage-ment-labor relations have been precarious at times, especially at Rourkela,and discipline is not easily enforced.

20. Management: In addition to the shortage of qualified managerialpersonnel, HSI, had problems in its early years attributable to the fact thatthe Government and HSL's Board of Directors retained too much responsibilityfor the plants' management and day-to-day operations. After an initial stepin 1962, considerable powers were vested into the plant managements abouttwo years ago, starting with Durgapur and then extended to the other twoplants. The plant managements received authority to appoint, promote anddismiss personnel, and greater maneuverability in setting remuneration of

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workers. A move in this direction was important because morale had beenaffected by cases where workers were hired or promoted as a result of pressuresfrom outside the plants. However, elements of this remain in evidence, as wellas the influence of external, mainly governmental, salary and promotion schedules.The plant managements were also given greater discretion over purchases and otherexpenditures for which they previously had to obtain the consent of higherauthorities in HSL, the Steel Ministry or the plants' Financial Advisers wholook, to a considerable degree, for guidance to the Ministry of Finance. Thesystem now in effect has certainly laid the ground for the exercise of greatermanagerial freedom, and in fact there are indications that plant managers haveat times over-reacted to its possibilities, especially in respect of relationswith the HSL head office in Ranchi. It still suffers on the plant level fromthe fact that the Financial Advisers and the resident staff of the AuditorGeneral remain involved in the regular operations. Also, the word of New Delhistill carries great weight at HSL's head office, and at the plants. The roleof the company's top management at Ranchi is complicated by the fact that theGovernment exercises more than the usual rights and responsibilities of ashareholder, for instance by retaining the power to appoint the general managerof the plants, and by its important influence over HSL's financial affairs.Within these limitations, the key to the success of HSL's present managementsystem is the sagacity with which it is being, and will be, used by thecompany's principal officers and the individual plant managers. The managementproblems at the private plants consist mainly of achieving a smooth transition,'when replacements have to be made in the present experienced top cadre, membersof which have in several instances carried responsibilities for a considerablelength of time.

21. The managements of all Indian plants, public and private, would behelped greatly if they had recourse to a better cost accounting system. Inpresent circumstances, the plants have difficulties, though in varying degrees,in ascertaining with precision those of the several hundred sections now beingrolled by them which they produce most economically and, conversely, those whichare their high-cost items. This is partly an inheritance from the times whennearly all steel sections were scarce in India and from the costing proceduresunderlying the steel price fixation system in effect until recently. Furthermore,the available cost data, based on actual performance, reach the managements,especially at the HSL plants, often with delay. It is therefore difficult to makethe decision in time which the analysis of the data would suggest. HSL is awareof these problems and has already taken some steps to strengthen its plants' costaccounting system. Further efforts will be needed at all plants, especially inlight of the upward pressure in production costs which the Indian steel industryhas experienced in the past few years, and the recent appearance of a morecompetitive situation in the marketing of certain steel sections.

22. Production Costs: When the Bank made its first loan for an Indiansteel project to IISCO in 1952, the company's average net works costs (includingcost of labor, raw materials and spares) for one ton of ingot steel wereestimated at Rs. 160 ($34). These were among the loweat steel productioncosts in the world at that time. Ten years later, the corresponding figuresfor IISCO and TISCO were Rs. 212 and 203 respectively. 1/ The increasereflects rising costs of raw materials, transport and labor during

1/ Exclusive of the ingot excise duty of Rs. 40 abolished on February 29, 196h.

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that period. IISCO's net works'costs per ton of saleable steel amounted in

1964/65 to Rs. 386; total costs, including depreciation and capital charges,

came to about Rs. 530 per ton of saleable steel with the plant having operatedat about 94 percent of rated capacity. TISCO's costs were somewhat lowerthan IISCO's.

23. Although production costs in the HSL plants cannot be discussedthoroughly without a detailed financial analysis of each plant, availablefigures on plant investments (see Annex I) and data on works costs providedby HSL, permit some observations. As a general point, production costs atthe HSL plants are higher than those of the private plants because theinvestment per ton of capacity in the one-million ingot stage and the publicsector plants was considerably greater. Works costs for comparable products

do not appear to vary greatly from those in the private plants. Net works

costs per ton of saleable steel at Bhilai and Durgapur, neither of which roll

the costly flat products, were of the order of Rs. 330 in 1964/65. The

corresponding costs of Rourkela, an all-flat producer, amounted to about

Rs, 430. Adding 13 percent of gross fixed assets for depreciation (whichaccounts for five percent) and capital charges 1/ would indicate averageproduction costs in 1964/65 of Rs. 545 at Bhilai, Rs. 630 at Durgapur, andRs. 790 at Rourkela. If the costs of the town and ancillaries are included,costs would be even higher. lIoreover, there are good reasons for believing that

the capital charges do not reflect the true costs of capital in India. A betterreflection of depreciation and capital charges may well be of the order of 15-17

percent.

24. The Third Plan expansions will lead to a greater utilization of certainplant facilities which are already available. The extent to which this will

reduce production costs - without taking account of the recent change inthe par value of the Indian rupee - cannot be assessed at present because there

are indications that plant investments now under way will again exceed theearlier estimates.

25. Although a direct comparison of foreign and Indian production costs

is not feasible, it is worth noting that in mid-1965 certain continentaland Japanese steel products were being delivered in India at prices (c.i.f.Calcutta) varying from well below to a little above domestic production costs. 2/

For example, import prices of bars and structurals, an important part ofBhilai's, Durgapur's and IISCO's product mixes, ranged from Rs. 477 to Rs. 613

per ton; plates and black sheets, both of which are produced by TISCO and

Rourkela, were quoted in the range of Rs. 480-590 and Rs. 566 respectively.

It should be noted that export prices charged at that time by continental and

Japanese producers were below the home prices for certain items, but the fore-going figures suggest that, at the exchange rate then in effect, India's steel

industry, even operating at or near rated capacity levels, did recently not

1/ This in general in line with the formula recommended by theTariff Commission in 1962.

2/ The same general pattern also obtained early in 1966.

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appear to have the cost advantage of earlier years.

26. In spite of the rise of raw material, labor and transport costs sincethe Fifties, there are practical prospects for reducing production costs throughsavings in works costs by improving productivity, especially in the yield ofblast furnaces, by concentrating on the output of those saleable categorieswhich the individual plants can roll most economically, and by lowering theproportion of defectives in output. There is no technical obstacle to suchdevelopments, but more accurate knowledge of costs will be necessary toascertain precisely where reductions are feasible. The determination of standardcosts would be of great help. This applies to all Indian plants. There is alsoscope for a reduction in the share of fixed costs in total production costs byincreasing the plants' operating rates. (Bhilai has done it.) The costs ofthe Indian steel industry have been a subject of growing concern to the IndianGovernment, which is currently investigating the possibilities for reductionsthrough a committee chaired by a member of Parliament. Until recently, therehas been little, if any, pressure on the industry to reduce production costsbecause pressures for output of "tonnage" have been strong in the face of steelshortages and the setting of prices has been based on costs. However, therecent changes in the control system, and the appearance, as well as the prospects,of a comfortable supply position in many steel sections, offer hope that costreductions through better performance will have the attention at the plant levelwhich they deserve.

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III. THE CONTROL SYSTEM

27. Until March 1964, the Government maintained far-reaching controls oversteel consumers and producers. The control system, introduced during World War

II, had survived without significant changes until then because steel had remain-ed in short supply. Its aims were: to ensure the use of steel for purposesconsidered important for the common good; to keep prices from rising inresponse to scarcities; and to ensure that all consumers in India, no matter

how far from the steel plants, could obtain steel at the same prices. To achieve

these objectives, the Government allocated steel to users, prescribed production

programs of individual plants, set the prices of steel and regulated distribution.

28. The control system was established when India consumed about one milliontons of steel per year. In 1963, consumption was five times as great and theattempt to control in detail had become increasingly ineffective. In view of the

growing dissatisfaction with the working of the system, the Steel Ministerinitiated in September 1&2 an investigation by the Raj Committee whichdisclosed in its report - numerous shortcomings and inequities. After considera-

t4on of the Committee's recommendations, and of proposals invited from the steel

producers, the Government withdrew on March 1, 1964, its direct controls over the

allocation, production and pricing of those steel products in which the supply

position had eased, principally merchant sections, structurals and railway

materials. In respect of these categories, most of the functions, previously

exorcised by the Government were taken over by a Joint Plant Committee (JPC)under the chairmanship of the Iron and Steel Controller and composed of

representatives of each of the five steel plants and the Raj),ways. The balance

of steel categories have remained under control since then _, except for a few

items. They represent about hO percent of India's 1965/66 output of saleable

steel. In discussing the system now in force, the principal features and effects

of the previous control system must be noted, especially since they have remained

for a large part, in existence with resoect to a sizeable proportion of steel

products. (The Government directive on the procedural aspects of the system

introduced in iiarch 1964 is reproduced in Annex III-A.)

30. The Iron and Steel Controller, with head offices in Calcutta, is

responsible for administering Government controls over steel. However,important policy decisions are made elsewhere. The Steel Ministry authorizesthe capital investments of the main producers, approves the prices and the

usually semi-annual allocations of controlled steel categories among various

sponsoring authorities (Ministries, State agencies, etc.), which in turn issue

quota certificates to individual consumers. The authority of the Ircn and Steel

1/ A report issued in October 1963 by a Committee chaired by Dr. K. 1N. Raj ofthe Delhi School of Econoraics, it included Dr. Raj Krishna of the University

of Delhi and Dr. K. S. Krishnaswamy of the Planning Conmission.

2/ Pricing and distribution of pig iron for sale, which does not fall underthis classification, was under control until August 20, 1965,.and was atthat time transferred to JPC.

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Controller is also limited in respect of steel imports, because the value ofsteel allocated to "actual users"!, to whom the bulk of steel imports hasbeen routed in recent years, is determined by one of several sponsoringauthorities in the context of their allocation under India's annual foreignexchange budget; the most important is the Directorate General of TechnicalDevelopment. However, the import license itself is in most instances issuedby the Iron and Steel Controller, often after considerable delay followingthe determination of import allocation.

31. Regulation of Demand, Production and Distribution: Until March 196h,orders, or "indents" to be placed with producers, had to be processed throughthe Iron and Steel Controller, who accorded them one of several priorityratings established by the Steel Ministry. This procedure was designed toenable the Controller to "plan" indents on producers, bearing in mind theircapacities and their outstanding orders. Plants were permitted to roll onlywhat was "planned" on them and to sell their output only to designated con-sumers. One purpose of "planning" was to ensure that plants produced sectionsconsidered difficult or inconvenient to roll.

32. Consumers purchasing controlled steel in amounts of at least one wagonload may buy Indian-made steel directly from a producer. Orders of less thana wagon load have to be placed with a "controlled stoclist", a wholesaler, atRs. 50 per ton over the producer's sales price, or with a "registeredstockist" or retailer, at Rs. 65 per ton over the producer's price. Therewere until recently over 200 controlled stockists, and nearly 2,000 regis-tered stockists, the latter being licensed by the State Governments.

33. According to the Raj Committee, processing of the nearly 50,000 indents,which the Iron and Steel Controller received each year, took reportedly twoto six months or longer and even that required pushing by the indentors.End-use was not always the criterion for priority classifications of indents;priorities were often based on the standing of the indenting party and onpressures of all kinds. Even after priorities for individual indents wereassigned, the timing of delivery was highly uncertain, since the Controller'soffice had no breakdown of outstanding orders on producers by priorityratings. Even under the best of circumstances, it took a minimum of sixmonths to obtain steel deliveries against indents "planned" on the producers.

34. Administrative imperfections in the face of steel scarcities resultedin disorderly distribution and permitted the development of a thriving blackmarket. Steel consumers frequently placed orders simultaneously with bothproducers and stockists in the hope that one would deliver. The results were,on the one hand, untimely cancellation of orders and, on the other, deliveriesof steel - when they occurred after an uncertain time - no longer needed forthe originally intended use. Part of the delayed deliveries flowed into theblack market. Further leakages occurred through the recognized stockists,the channel for about 40 percent of domestic production in recent years.Scarcity made for quick turnover and minimized the pressure to build adequatestorage and service facilities; some stockists received a "privilege rent"for steel ostensibly destined for them but really going elsewhere. The RajCommittee found that small consumers, who must look to the stockists and whomthe control system was supposed to protect, generally obtained only about one-quarter of their supplies at controlled prices. Large consumers, presumablyexcluding Government, managed to get over two-thirds on this basis. Incom-

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plete control over that portion of steel imports coming through "establishedimporters" 1/ and barter imports also facilitated sales outside recognizedchannels.

35. While the Raj Cormmittee did not favor the abolition of controls, it

recommended a number of steps to help remedy the distortions in operating the

system. Among these were a considerable reduction in the number of priorities,

and the planninig of production by an industry body with a more realistic view

as to how best to utilize available production facilities and as to the

relative costs of producing specific sections in each plant. The Committeealso made the welcome suggestion to abandon the officially recognized network

of distributors and of privileged importers. The Government of India, acting

on a number of the Committee's recommendations, introduced the following measuresin March 1964:

(a) Priorities are limited to defense (A) and important projects (B)including the Railways, transport and communications, basic andsmall-scale industries, and agriculture. A Steel Priority Committeechaired by the Secretary in the Steel Ministry and including seniorcivil servants is to make semi-annual priority allocations of Indian-made steel, and to determine the foreign exchange allocation topriority users of imported steel.

(b) JPC, with offices in Calcutta, is the channel to which all indents(of at least one wagon load) for both the freed and controlled cate-gories, rolled by the main producers, have to be presented. It isalso responsible for the "planning" of these indents on the mainproducers.

(c) Licensing of stockists was terminated in respect of freed categories.Anyone authorized by the producers or JPC can trade in these products 2/

However, controlled and registered stockists continue to be the onlyoutlets for the controlled categories.

The Government indicated at that time that it was considering the possibilityof routing steel imports either through JPC or the Minerals and Metals TradingCorporation (1015TC), a Government body. In 1965, it was decided to entrustto MMTC the handling of transactions for the major portion of flat productimports, which also account value and tonnage-wise for the bulk of India'ssteel imports.

36. JPC's initial preoccupation was setting prices for the freed steel

categories. It started getting itself organized only in the summer of 196h1, ata time when the main producers' output was fully booked, in some instances yearsahead, for the controlled and the more desirable freed sections. Since then, JPC

1/ Namely those who imported steel before 1957.

2/ JPC has authorized only 34 stockists to deal in special sections. It isapparently not planning to authorize stockists for more general categories.

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has built up a staff, mainly drawn from the steel companies; this has helpedinstill a much more professional atmosphere in JPC than in the Steel Controller!'Office. JPC also expects soon to have a computer to facilitate the "planning"process. JPC's principal contribution to date has been the acceleration inthe processing of, and the follow-up on, indents "plamned" on the main producersand in matching this activity with the related working out of the industry'squarterly rolling programs. While customers can now generally expect speedierdelivery of many steel items, the works orders (into which the indents aretranslated at the plants) for scarcer categories which do not have priorityrating take up to a year or, in some instances, considerably more, for delivery.There have also been general improvements in the composition of the plants'rolling programs, but the criterion of relative production costs, as recommendedby the Raj Committee has not yet featured in the regulation of production by thcJPC. This is principally due to the absence of appropriately detailed costdata for the industry as a wahole, but JPC is now trying to tackle this problem.It is also attempting to obtain a better view about the likely short-termdevelopments in the steel market.

37. On balance, JPC has completed its shake-down phase with credit and hasevolved as a body in which the industry representatives have increasingly founda common viewpoint, which at times has prevailed over, and at others beenbalanced out by, the views taken by the Controller and the Railways' represent-ative. It would be difficult for JPC to neglect the important influence of theGovernment, both as the leading steel consumer and through its decisionsaffecting the whole economy. This reflects itself in preferential accommodationof Government indents in the rolling program and in the priority classification("JPC status") of orders for freed categories patterned partly on the prioritysystem effective before March 1964 and influenced by the decisions of the SteelPriority Committee. 1/ In fact, JPC has given ad hoc priorities, on theinstruction of the Iron and Steel Controller, to specific works orders, thus"bumping" others included in a rolling program.

38. With the partial liberalization of distribution, a sizeable number ofnew steel traders appeared and entered the queue of indentors at the JPC. Quitea few among them had little or hardly any storage and processing facilities, norsufficient financial backing, and have therefore tried to off-load steel quickly,sometimes even at a loss. This has been occurring at a time characterized by afairly ample supply position in various structural and merchant sections (aswell as in coils due to insufficient de-coiling installations), and by a "creditsqueeze" and foreign exchange shortages affecting steel consuming activities. As

1/ This Committee has as a matter of practice only addressed itself to thecontrolled categories and worked on the basis of "priority" or "no priority"as determined by the judgment of its members and not based on a specificpriority list. Priority classifications are given to existing works orders,not to indents. They cover currently the bulk of existing orders forcontrolled categories except for thicker plates and galvanized corrugated

sheets. The Committee has not concerned itself with priority allocationsof imported steel, nor with the related foreign exchange allocations. Thereis no evidence that priority allocations of domestic steel and allocationof imported steel have been coordinated with one another.

- 15 -

a result, it is possible nowadays to buy from the plants and the stockists

the relatively plentiful steel sections at the official price and quite often

below that level, when transactions with stockists are involved. This has

produced the phenomena of the "tied deal" by which stockists, including some-

times those of the main producers, condition the sale of scarcer categories on

the associated sale of the amply supplied sections. In general, the steel

companies' sales offices can no longer content themselves with the processing

of transactions, but have to make an effort to push the sale of their "easier"

sections. This is a relatively novel symptom in the Indian steel market which

should help focus increasing attention on the quality and costs of steel

production.

39. Prices: A good deal of the difficulties in regulating steel demand,

production and distribution, resulted from the attempt to set prices at a "fair"

level for both consumers and producers, and the involved character of the

price-fixing procedure.

40. In setting the retention price (the amount the producers were permitted

before March 1964 to retain from the sales proceeds), the aim was to enable the

producers to earn enough to cover works costs, overheads, depreciation, capital

charges and a "fair" return. The retention price was computed on the basis:of an

assumed though feasible production volume and mix, in the main (especially in the

last pricing period) using TISCO's plant as the basis. Works costs were

calculated for the 26 principal categories and depreciation and return were

related to the "gross block", the historical value of gross fixed assets. This

basic approach was modified in certain respects but was generally followed since

its adoption in 1948. It guided the inquiries of the Tariff Commission madeprior to the establishment of retention prices which were usually announced in

the form of an average price for the whole industry. (The changes in the approachto the determination of the retention prices are summarized in Annex III-B).

41. The announced average retention price per ton of saleable steel rose

from Rs. 252 in 19h9 to Rs. 550.5, the level applicable on February 29, 196h.

The average retention prices for each plant varied, however, depending on theplants' actual production patterns.

42. Basing retention prices on an assumed product mix and volume of one

plant (namely TISCO's) has not helped the development of an output pattern in

line with the needs of the Indian economy. When the plants had to roll

difficult and time-consuming sections, overheads and works costs were bound to

rise over the officially recognized levels. The same thing occurred when the

plants had to roll small quantities of individual sections and small orders were

not infrequent in India because the plants were conmmitted to roll a few thousand

sections and sizes. 1/ The "extras" (special price allowances) established by

the Iron and Steel Controller for difficult sections did not seem to compensate

the plants. In view of the large backlog of priority orders and the inability

of the control organs to follow them up, the plants were at times able to resist

the imposition of rolling programs that were uneconomic under sanctioned price

differentials. In such cases, the plants may have kept their volume of output

up, but their production pattern has not been in tune with demand. In fact,

fabricators complained vocally in recent years about the shortage of "matching

1/ A rationalization and reduction of sections, covering a sizeable proportionof steel output, was introduced early in 1965, together with new steel

certifications worked out by the Indian Standards Institution.

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sections". This tied up other types of steel in inventories and held back

production.

43. As a result of the Government's desire to keep steel prices down,retention prices were below real production costs in most plants. For the lastretention price period, a gross block was used which corresponded after some

adjustments to TISCO's block, about 30 percent of which represented plantinstalled before 1955. TISCO, which furnished the base, therefore managedreasonably well under the last average retention price. But at the HSL plants,which have a gross block per ton of rated saleable steel capacity well inexcess of Rs. 2,000, retention prices did not even cover works costs plus allow-able charges (13% of gross block). It was not surprising therefore that HSLshowed until recently only losses which through March 1964 1/ amounted cumulat-ively to Rs. 684 million. (HSL made for the first time a net profit in 1964/65).Even in the older private plants, real costs are understated because fixedcosts are linked to the historical value of assets, not their replacement costs.

44. The determination of sales prices, even more than the retention prices,has been dominated by the aims of achieving "fairness". Since 1956, salesprices have been the same at all Indian railheads. They equalled the producers'retention prices, plus excise duties on saleable steel, and surcharges and afreight element payable to the Equalisation Fund. 2/ In general, sales pricesfor individual items were about Rs. 100-150 higher than their retention prices.

They did not change significantly between 1957 and the introduction in 1964 ofthe pricing system now in effect.

45. The Raj Committee, aware of the shortcomings, did not suggest liftingprice controls over producers, but recommended that the producers' pricesshould cover replacements of equipment, reflect more realistically the cost of

producing the several categories and be adjusted from time to time in line withchanges in demand for specific items. Furthermore, it called for an abolitionof price controls over steel handled by distributors. Some of these proposalswere incorporated in the pricing system in effect since March 1, 1964.

46. With the advent of the new pricing system, the distinction betweenretention prices and sales prices was dropped. There are now ex-works prices,including excise duties, and sales prices. The difference is a fixed freightelement, at first Rs. 63 and now Rs. 67 per ton for all steel categories, to

permit the continuation of freight equalization which is administered by JPCfor all steel sold by the main producers. Ex-works prices for controlled cate-

gories were raised by an average of Rs. 30 per ton of saleable steel, including

an average increase of excise duties of about Rs. 25. (Excise duties on steel

1/ Long term capital employed in HSL amounted on March 31, 1904, to Rs. o.Oh

billion, accounted for by Rs. 4.47 billion of equity capital and loans ofRs. 3.57 billion, mainly from the Government. Since then, the Governmenthas made another equity contribution of Rs. 810 million.

2/ Originally, the main function of the Equalisation Fund was to make possiblethe sale of higher-priced imported steel at the lower domestic prices.

Later on, import prices were falling, while retention prices went up.Payments to the Fund were therefore adjusted to a level principally topermit freight equalization.

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products have since been further increased through the initial and supplementary

1965/66 budgets.) JPC, which is now responsible for posting prices for the freed

categories established a similar average increase for the products under its

jurisdiction. There was no conscious attempt in setting the prices of the freed

categories to take account of the different costs of producing, nor of the demand

and supply of, various items. The initial increase in excise duties replaced

the surcharge on saleable steel which ceased to be payable to the Equalisation

Fund. The manner of the Fund's liquidation has not yet been settled. Except

for establishing prices for categories now falling under the Indian Standard

Institute specifications 1/ (mainly bars and structurals), prices posted sub-

sequent to the spring of 1964 were for all practical purposes designed only to

take account of increased excise duties. The three steel companies have made

several representations to the Goverrunent of India to allow the offsetting in

the price for controlled categories of external escalation factors which have

meanwhile intervened, principally in respect of raw materials, labor and trans-

port. The Government declined these, however, in November, 1965. The companies

have tried the same through JPC for the freed categories but have not succeeded

due to the general reluctance in official circles to put the existing price

relations out of line between controlled and freed categories. The main pro-

ducers seem, however, to have succeeded in bettering their sales realizations,

through the "extras" on freed categories which were modified by JPC in

September 1965.

47. There is no price control over stockists in regard to free categories.

Controlled prices continue to govern the distribution of the controlled cate-

gories. The re-rollers fall outside the scope of JPC. They can book orders

directly and sell at prices listed periodically by the Steel Re-Rolling Mills

Association. (Not all of them observe the latter, however.) Those of the

re-rollers who process billets, receive their semis at controlled prices and

under official bulk allocations. 2/

I/ i.e. "standard" (formerly "tested"), "commercial" and "off-grade"

(formerly "untested").

2/ While many re-rollers have complained about insufficient billet supplies due

to the main producers' preference to "finish" their intermediate products,

continued protection is unlikely to help bring into reality the worthwhile

suggestions of the Raj Committee that the re-rollers, who can generally

change rolls frequently with less loss of output than the big plants, fill

orders for time-consuming and inconvenient sections. This would enable the

main producers to concentrate on orders which they could turn out in large

volume to assure the full utilization of their large capacity high-speed

rolling facilities. At present, the "bread and butter" of the re-rollers

consists mainly of bars and rods which are also produced by four big plants.

The Iron and Steel Controller has to ensure that prices charged by the

main producers for bars and rods (which are freed) do not cause hardship

to the re-rollers. It is likely that, as long as their billets supply is

assured up to a point and obtainable at controlled prices, many re-rollers

will be reluctant to change their present output pattern and, furthermore,

that uneconomic units will be kept in operation.

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48. Until import duties were increased on August 19, 1965, controlled and"freed" sales prices for several of the big plants' products were somewhat abovethe price (including duty) of imported steel. Only steel imported from the

United States - an important supplier of sheets and plates under AID deliveries -was significantly more expensive. While prices of Indian-made steel were also.raised somewhat in August 1965, they were then generally below the price ofimported steel after payment of duty. A black market for scarcer steel products,which command a premium over the posted prices of Indian-made steel, hascontinued to persist, mainly in controlled flat items. Since devaluation onJune 6, 1966, the discrepancy has widened significantly between posted Indianprices and current estimates of prices of imported steel to the Indian user.This is shown in the Table below in respect of selected products; the Tablealso shows the range of black market prices charged in March-April 1966 in

Bombay, Calcutta, Delhi and Madras.

Table 1(Rs. per metric ton)

Indian Producers' Black Price of Imports Landed at CalcuttaCategory Sales Price (FOR) Market after Payment of Duties

("standard or Price Japan Belgium U.S.tested") July Est. July Est. July Est.

April 1966 April 1966 1965 Jun.'66 1965 Jun.'66 1965 Jun.66Controlled:

Black sheets 947 1250-1400 n.a. 1388 816 1350 987 1620Galvanizedcorrugatedsheets 1205 2000-2300 1346 1995 1153 1860 1408 2242

Plates(10 mm.up) 842 1000-1300 813 1118 693 1125 1022 1703

Free:Bars 730 800-1000 703 1147 674 1080 1093 1837Structurals 760 800- 850 825 1365 641 1013 loh1 1785

Source: Controlled and Black Market Prices - Iron and Steel Controller;Freed Indian Sales Prices - JPC; Import Prices - TISCO, based on data inMetal Bulletin (UK) issues of July-September 1965 and April-March 1966.(Estimates for June 1966 made by Mission on basis of March 1966 c.i.f.quotations adjusted for devaluation and new import duties in effect sinceJune 6, 1966.)

C.i.f. quotations for steel imported from the European continent and Japan nowappear to be in the vicinity of posted Indian steel prices. Before devaluationIndian prices were significantly higher than these c.i.f. quotations; therefore,exports of Indian saleable steel, even after excise duty concessions, had tobe subsidized in the range of rupees 210 -. 280 per ton.

49. To avoid paying higher prices, Indian consumers have naturally made everyeffort to obtain., steel at the posted prices, especially controlled steel. Thebusinessman is interested in the average cost of all the steel he purchases,

officially and on the black market. In some cases, moreover, the user may havebeen able to offset the higher cost of black market purchases by profits obtained

-19-

through sales on the black market of delayed official deliveries. It isdoubtful to iThat extent controlled prices below the real value of scarce items,hold down the general price level. Prices for most end products, in whichscarce steel is used, are not controlled and reflect their true market value.Manufacturers wiho have been buying black market steel and making productswhich are in demand can still compete. It is practically impossible toestimate how much industrial capacity built up in the (later unfulfilled) hopeof securing official steel supplies has not been utilized nor how manyinefficient industrial enterprises or other consumers have been making a profitbecause of an inside track to controlled scarce steel. But it is clear thatthe opportunity of obtaining scarce steel products, at posted prices belowtheir scarcity value, encourage both the use of these categories and the over-stating of officially registered demand. Buyers of controlled scarce steelhave in fact been getting a "rent" from the steel producers and the Governmentwhich, if the steel companies had higher earnings, would have fewrer difficultiein taxing them than in taxing high profits realized by a great number of steelconsumers. There is also reason to believe that freight equalization does notresult in the most efficient utilization of resources. Very possibly someareas, as for instance in Punjab, are using more steel than they would ifsales prices of Indian steel reflected true transport costs.

50. It can now be expected that, as a result of the very recent importliberalization measures combined with the prospects for larger non-projectassistance from abroad, more of those steel sections, which are now scarce inIndia, will be imported. If price and distribution controls on steel wereabolished, not all steel prices are likely to rise because of the comfortablesupply position in a great number of steel sections, which is likely to continuOnly the prices of scarcer sections will;go up to the levels at which importsof the same items have to be bought by the Indian user. On present estimates,as Table 1 illustrates, these levels are still higher than the posted pricesnow in effect for the same Indian-made item. Lifting of controls, supportedby easier access to steel imports, would discourage the registering of excessdemand induced by controls, flush out inventories of scarce items built up byusers ranging from industries to governmental project authorities, and helpovercome the black market.

51. The abolition of price controls is also desirable from the producers'viewpoint, since increased earnings arising from possibly higher prices forscarce sections will be needed to finance the substantial expansion andbalancing works they are expected to undertake in the Fourth Five-Year Plan.The prospect of higher earnings due to the lifting of controls should not,however, give the plants freedom to let their internal production costs run up.The potential oligopoly position of Indian producers can be minimized by steelimports, the price of which can be influenced by appropriate variations inexcise and import duties. If prices were freed, they would in due coursereflect the market for individual products and the relative cost of theirproduction. This would probably also lead to a fuller utilization of availablecapacity in line with market demand.

52. To sum up, there is strong justification for having users pay for thetrue value of steel In India. To the extent that real priority users narrowLydefined according to the importance of their actual steel use, require protec-tion, the Government has the power to take specific measures on their behab..This would be preferable to affording protection through price and distribution

C-rtrolJ to a wide range of consum3rs in rcespect of scarce steel.

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IV. SUPPLY AND DEMAND

53, Past Developments: Consumption of finished steel mill products

amounted ia 1965/66 to about 5.4 million tons. Domestic production provided

nearly 4.6 million tons. Exports of finished steel are still negligible -

they amounted to about 120,000 tons in 1965/66. There are no reliable data

on inventories, but, although there is considerable hoarding of scarce

sections, total inventories are apparently not very significant. It does

not seem unreasonable therefore to assume that, in the last few years, actual

consumption has been roughly equal to domestic production plus imports, i.e.

apparent consumption.

54. The two main areas of steel use are West Bengal/Bihar and Maharashtra,

which include respectively the industrial centers of Calcutta and Bombay. In

the past 5-6 years these areas have consistently taken about 25%-30% and

15%-20%, respectively, of the available saleable steel. Uttar Pradesh and

the Punjab (an area with many re-rollers) each account for about 10% of con-

sumption. Madras State, where industry has recently developed considerably,

takes about 6 percent.

55. At the close of World War II, apparent consumption of finished steel

amounted to only one million tons and in 1954 it amounted to only 1.5 million

tons, The next year saw the beginning of a great rise which has continued

with fluctuations since that date. Import restrictions on steel were dropped

in 1955, and imports rose to 900,000 tons in that year from 300,000 tons in

1954. In 1956, they rose to over 1.8 million tons. Since 1958, when a

foreign exchange crisis made necessary a cut in all imports, including steel,

imports have remained fairly stable, remaining generally in the area of one

million tons a year. Apparent consumption has continued to rise, however, as

a result of increasing domestic production, as shown in the table below.

Table 2(in thousand tons)

CalendarYear a/ Production Imports Total

1955 1,260 900 2,160

1956 1,356 1,854 3,2101957 1,409 1,720 3,129

1958 1,398 1,173 2,571

1959 1,768 819 2,5871960 2,210 1,212 3,422

1961 2,799 988 3,787

1962 3,564 820 4,384

1963 4,257 950 5,2071964 4,343 1,007 5,350

1965 4,529 880 (prov.) 5,409 (prov.)

a/ The figures for 1960-64 are not exactly comparable with those given in

Annex IV which gives data for fiscal years 1960/61, 1962/63, 1963/64,

1964/65 and 1965/66 for comparison with estimates for the year 1967/68.

Source: National Council of Applied Economic Research (NCAER) Reappraisal of

Steel Demand (September 1963); for 1962-1965: Steel Ministry.

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56. Actual consumption almost certainly fluctuated less than theconsumption figures given above suggest. Part of the large imports in theearly years of the Second Plan period probably went into stocks and were drawnclown in the following years of the Plan. The sudden rise in consumption is,however, undoubtedly attributable to the steel requirements engendered by the-dustrial boom which occurred during the Second Plan, particularly in newer

industries in the private sector - e.g. motor vehicles, food processing andtextile machinery, and machine tools; production of machinery practicallydoubled during this period. The Railway program was another contributing factor.

57.. The Indian planners had hoped that domestic output of saleable steelWrould reach about 4.5 million tons by the end of the Second Plan (1960/61) andthus virtually meet domestic demand for that year as originally estimated.1,. wever, actual production amounted to only 2.4 million tons and imports were,cf necessity, continued. Apparent consumption was over 3.4 million tons. That.-. gure differs from the detailed estimate of consumption of finished steelby various consuming sectors:at the end of the Second Plan, made by the PlanningCc!nmission, which shows total finished steel consumption of about 4.3 million tons-in 1960. Even excluding the nearly 0.5 million tons for unspecified uses andstocks, estimated consumption in identified uses amounted to 3.8 million tons, as*;mpared with the figure for apparent consumption of somewhat over 3.4 milliontons. In view of the pressing shortages at that time, it is doubtful that thex3-0.4 million tons difference could have come from inventory reductions. Thedifference between the Planning Commission's estimate and the figures forapparent consumption are more probably due to the fact that steel use data for.he past are not reliable. (The Planning Commission's estimate is summarized inlnnex V-A). Only one-half of apparent steel consumption in 1960 can be traced-o output data or reports on progress of construction - consumption in construc-tion by the Railways and other means of transport, in the manufacture of transport,industrial and electrical equipment, and in a variety of other items such aspipes, containers and structural fabrication. The difference between the estimateof steel consumption and the figure for apparent consumption can probably beat;-ributed to errors in the estimates for consumption in agriculture, small-scale

zidustry, and industrial and residential construction.

58. Demand Forecasts: In view of the apparent unreliability of the pastestimates of steel consumption, estimates for the future must be regarded with^-me reservations. There are three detailed Indian estimates 1/ of futuresteel requirements in the country. They were prepared some years ago andcalculated by the so-called end-use method - that is, by multiplying the outputtarget for each major sector of the economy at a given date by a factor represent-ring the steeL content of an average unit of output in that sector. The steelcontent factors were developed on the basis of Indian experience supplemented,1;. re necessary, by foreign experience, mainly British and Japanese. The output

i Planning Commission (Perspective Planning Division), Sept.-Oct. 1961;M. N. Dastur & Company, June 1962 (this estimate forms part of Dastur'sreport dated July 30, 1963, on the Bokaro steel plant project); andNCAER, September 1963.

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targets naturally rest on expectations as to the future growth ofthe economy. All three estimates were based on the same growth model, pre-pared by the Perspective Planning Division of the Planning Commission, whichassumed that the economy would expand at the rate of about 5-6 percent perannum during the Third, and at about 7 percent during the Fourth, Plan. TheIndian demand estimates were geared only to the last year of the respectivePlan periods, i.e. 1965/66 and 1970/71, and assumed that the Plan targetswould be achieved. They assumed further that there would be no significantchange in controlled steel prices effective at the time of the estimates'preparaticon.

59. The Indian estimates foresaw a domestic demand for finished steelproducts in the range of 7-8.5 million tons in 1965/66 and 12-14 million tonsin 1970/71. 1/ (The NCAER estimate for 1970/71 also makes an allowance forexport possibiliti'es, namely 1.5 million tons.) The breakdown of the Indianestimates, showing estimated requirements of steel-using sectors, issummarized in Annex V-B. The United States Steel Corporation, which sub-mitted a techno-ecbnomic survey of the proposed Bokaro plant in March 1963,estimated requirembnts in 1965/66 at 6.9 million tons and in 1970/71 at 11.2million tons. Its estimates were based on the expectation that, with a fewexceptions, only 80 percent of the growth targets would be fulfilled.

60. The expectation regarding India's economic growth on which the de-tailed Indian estimates are based seems to be over-optimistic. This hasalready become apparent in respect of the past fiscal year, i.e. 1965/66,when effective demand for finished steel seemed to amount to somewhat belowsix million tons despite persisting scarcities in a number of sections,especially certain flats. Instead of the envisaged rate of 5-6 percent peramnum, national income (in real terms) grew during the first twio years ofthe Third Plan at a rate of only 2-1/2 percent. This rate improved in1963/64 (1h.5 percent) and particularly in 1964/65 (almost 8 percent) when,following its stagnation in earlier Plan years, agricultural output rose by10 percent. Industrial production in the organized sector, which accounts for

roughly one-eighth of national income, rose at an average of about 7.5 percentper annum in the first four years of the Third Plan instead of the forecastrate of 11 percent. Aggregate investment seems, however, not to haveexperienced significant shortfalls, Performance in the past year wasaffected by the drought, a credit squeeze, and the atrcphy in theavailability and use of imported production materials in industrial output.The latter was aggravated by the uncertain prospects of external assistancefollowing the Indo-Pakistani hostilities last September and the husbandingof scarce stocks. It would therefore not be surprising if national incomearnd industrial output declined in 1965/66. In vieu of the aforementioned

developments, finished steel requirements have not come up to expectations,and forecasts for the Fourth Plan have therefore to be viewed from a

/ iore recent, though more global Indian demand estimates, including aworking paper (April 1964) of the Perspective Planning Division whichestimated 1965/66 requirements of finished steel at 6.7 million tons,put steel demand in the range of over 6 million tons for 1965/66 andabout 11 million tons for 1970/71.

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1965/66 base which is about one million tons below the one assumed in the

earlier Indian estimates.

61. It is hazardous at this stage to attempt making a realistic estimate

for 1970/71, because major planning decisions concerning the size and shape

of many Fourth Plan investments and production targets have not yet been made.

It now appears likely that the Fourth Plan will be ready in a few months.

Recent efforts, however, have focused only on the preparation of a program

for 1966/67. While it appears safe to assume that the Indian economy will

experience further growth in the Fourth Plan, flagging Third Plan performance,and the uncertain outlook for 1966/67 are bound to affect the level of

economic activities during the next five years. Taking this into account

and realizing the risks inherent in predictions, it would appear plausible

to expect that aggregate requirements for finished steel during the Fourth

Plan will grow at a rate which is only somewhat faster than the rate of

increase experienced during the Third Plan. This would imply an annual growth

by close -to 12 percent per annum, putting Indian steel requirements not much

beyond 10 million tons in 1970/71.

62. Even the foregoing figure warrants caution because weight savings

may be achieved as a result of the rationalization and standardization of

sections. 1/ With the increasing cost in recent years of various inputs in

the production process, there may very well be considerable pressure on

design engineers and the steel producers to make such savings possible.

Indian users of industrial raw materials have shown considerable responsive-

ness to prices as evidenced by wide-spread consumer preference for the lower

priced "commercial" grade steel sections, and particularly by the marketingdifficulties in the first half of 1965 for a sizeable proportion of pig iron

imported from the U.S.S.R. (The iron was imported in response to the reported

pig iron scarcities and sold at a price of about Rs. 80 per ton over the

controller price, a fact which created considerable sales resistance among

hoped-for buyers and contributed in the end to the decontrol of pig iron last

August.) None of the available demand forecasts, having been computed only

on the basis of physical steel use norms, take changes in cost and price

relationship into account. Wfhile macro-economic variables and end-useestimates will continue having an important place in estimating future steelrequirements, there is increasing urgency that reactions to possible varia-

tions in steel prices feature strongly in such an assessment, using

reasonably detailed and representative sample surveys. In fact, such an

exercise would be needed soon to establish a better founded criteria for the

planning of future capacity than the ones available at present.

63. India's steel industry has export prospects, especially in the nearby

countries where India would have an apparent location advantage. At present,

however, it is doubtful that the Indian steel industry can expect sustainedlarge-scale exports at the end of the Fourth Plan in view of the likely pre-

emption of supplies by the Indian market. However, this may change in subse-

quent Plan periods. In the intervening period, there may, of course be some

exports of items in which output temporarily exceeds domestic requirements.

1/ A recent study of the NCAER indicates that savings in structural steel may

amount to as much as 25% as a result of standardization and the increased

use of tubes and welded sections in construction.

64. Future Supply Position and Need for Expansion: The Third Plan calledfor an increase in domestic output of finished steel to 6.8 million tons in1965/66. The increase was to come mainly from the Third Plan expansionsof the HSL plants, although some output was expected from a new flat pro-ducts plant to be built by the Government at Bokaro in Bihar. (Constructionof this plant has begun only very recently and finished products are notlikely to be available in appreciable quantities until the early years of theFifth Plan.) The five steel works' output of saleable steel in 1965/66amounted to about 4.8 million tons, the equivalent of nearly 4.6 million tonsof finished steel, with the recent increase in output coming principallyfrom Bhilai. The full effect of the Third Plan expansion in the HSL plantsis expected to be felt in 1967/68, when India's output of finished steelshould amount to about 6.4 million tons. This should meet a major proportionof India's steel requirements at that time though imports would still appearnecessary.

65. In subsequent years, however, domestic output is likely to lag behindrising Indian steel requirements unless further capacity is added. Evennow, due to insufficient Indian capacity, the demand pressures for a seriesof flat products are acute; flats account for the bulk of current finishedsteel imports and about 34 percent of apparent consumption. (Only aboutthree-quarters of apparent flat consumption in 1965/66 were met from Indianoutput.) If, as now expected, the next Plan will emphasize the use ofunderutilized industrial capacity already available (or capacity soon comingto fruition) as well as the production of agricultural implements, theshare of flats in India's steel requirements is likely to rise. This devel-opment is likely to continue in the Seventies as India's industrial baseexpands. While the proportion of flats in steel needs may by 1970/71 notcome to about h0 percent, as some Indian planners expect, it is clear thatadditional flat product capacity must loom large in a further expansion ofthe Indian steel industry. Capacity expansions for other sections wouldalso be desirable. (The principal exception to this appears to be railwaymaterials, capacity for which should after completion of the currentexpansion at HSL meet the Indian Railways' needs for some time to come.)

66. The Government of India is preparing a program for the constructionof new steel capacity during the Fourth Plan and beyond. Understandably ithas strong emphasis on flat products. Some, but not all, of this capacitymight be in operation by 1970/71 for reasons explained in the next chapter.India's demand for steel will probably continue to exceed domestic outputa few years beyond the Sixties. Until sizeable additional outputis available from new facilities early in the Seventies, India may haveto go on importing finished steel, probably at the rate of nearly onemillicn tons per year. With imports at that level, India's foreign exchangebill for steel imports would continue for some time to amount to about$150-$200 million per year, since most of the imports would probably be inthe form of thin flats which are expensive steel products.

V. PLANNING FOR THE FUTURE

67, Planning work for the Fourth Plan program has been underway, thoughintermittently, for about four years.

63. Approximate Goals: The steel planners were for a considerable timegilded by the Indian demand estimates referred to in paragraph 59. For planningpturposes, they chose the lower range (12 million tons) of estimated domestic-: quirements of finished steel in 1970/71. To meet a demand of that order fromComestic production would require raising the present ingot output of about 6.5million tons to nearly 16 million tons. In fact, until last year an ingotcapacity target of 16.5 million tons by 1970/71 has been considered in India.Hio)wever, in view of the likelihood that resources and time may not suffice toaThieve capacity of that order, and because demand was no longer expected toreach the earlier estimated levels, recent discussions of the next Indian steelexpansion program have focused on a lower capacity range for the end of the-,Yurth Plan. The present plans are to raise the capacity of the HSL plants,..o build the proposed new public sector plant at Bokaro, and to expand IISCO's-.-pacity to make use of available rolling facilities. In addition, TISCO has

been requested by the Government to examine a doubling of its present capacity,and considerable work has been done on the proposal of building a fifth public,;ector steel plant. (Various sites for this project were reviewed last year!:y an Anglo-American group in the vicinity of the Goan and Bellary-Hospet ironcre fields,and in the area of Visakhapatnam near the Bailadilla ore deposits;the areas are shown in the attached map.) According to the planners, not allcf the contemplated installations, particularly the fifth public sector plantand TISCO's expansion, could be completed by the end of the Fourth Plan. Thefollowing table summarizes the expansion program now under consideration in,.idia.

Table 3(million ingot tons)

Rated Capacity on Tent. Est.Completion of Proposed Capacity Production

Third Plan Program Additions Total in 1970/71

A. "Core"of Program

Bhilai 2.5 1.0 ) 3.2 3.0Durgapur 1.6 1.8 ) . 3.4 2.5Rourkela 1.8 0.7 ) Epansions 2.5 2.0IISCO 1.0 0.3 ) 1.3 1.3

Bokaro - 1.7 (new plant)-/ 1.7 -

5.5 12.1 8.8o Possibilities

TISCO 2,0 2,0 (expansion) 4.0 2.0

Fifth Public - 1.5 (new plant) 1.5 -Sector Plant

3.5 5.5 2.0

T' tal A + B 8.9 9.0 17.6 10.8

7 Capacity buildup to continue, without interruption, to 4 million ingot tozis.

rce Ministry of Iron and Steel, May 1966

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The Indian planners also foresee that integrated steel plants may have tomeet a substantial share of pig iron required outside the works. (Indianestimates put these requirements in the vicinity of 2.5-3.5 million tonsby 1970/71). The Government has, in fact, decided to advance the constructionof blast furnaces well before associated steel making and rolling facilitiesare installed, as for instance at Bhilai and Durgapur.

69. Preparatory work is furthest advanced on Bokaro, IISCO and Durgapur.The U,ISoSOR concluded an agreement with India in January 1965 for a loanof 190 mi'llion roubles for the foreign exchange cost of the initial stageof the Bokaro plant and has since then presented a project report (up to thefour million tons stage) to the Indian Government. The United Kingdomindicated its willingness to provide £60 million for the second expansion ofDurgapur and a project report prepared by HSL's Central Design Bureau (CDB)has been available for about- a year. IISCO has completed loan negotiationswith the IBRD on its 300,000 ton expansion. 1/ CDB's project reports onthe further expansion of Bhilai (being prepared with Russian assistance) andon Rourkela have, however, still to be prepared. W3hile there is a well-founded expectation that the UoS.S.R. will assist in the financing of Bhilai'sexpansion, discussions on the possibilities of obtaining external assistancefor a further capacity increase at Rourkela are only at a preliminary stage.The prospects are still uncertain, in respect of TISCO, which is expectinga feasibility report from the British consultants, Atkins & Partners, thissummer; and in respect of the fifth public sector plant, the Government hasstill to make a decision on the site of this plant. The Indian planners hopethat new capacity will be in place between three to four years after theplacing of orders for equipment. This time range may, however, actually besomewhat longer, especially for a newl plant. Except for Bhilai's sixthblast furnace and Bokaro's initial stage, equipment orders for any of theproposed installations have as yet to be placed. (Contracts for Durgapurare likely to be placed by the autumn of 1966.)

70. While IISCO's proposed expansion would principally yield additionaloutput of structurals and merchant sections, the produzt mix of the firmlyprogrammed portion of the public sector program will all be in flats,except for Bhilai. 2/ (The contemplated expansion of TISCO provides fora semi-continuous strip mill, similar to the one proposed for Durgapur.)If all of the firmly proposed flat installations are erected, India's flatproduct capacity would be raised to nearly 5 million tons ascompared to a capacity level of about 2 million tons expecTed when HSL'sThird Plan expansion is completed. These aforementioned capacity ranges

1/ Thought had been given in earlier planning exercises to a furtherincrease of IISCO's capacity to 2.0 million ingot tons.

2/ No decision on the product mix of the fifth public sector plant hasas yet been made, but it is expected to provide for structurals andmerchant sections.

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make no allowance for flat product installations proposed for TISCO's con-templated expansion.

71 The additional output of pig iron would come in most plants fromlarger blast furnaces using prepared burdens and in some instances fuel and

oxygen injections. Steel making is to be concentrated in L.D. converters,because of their lower investment costs and the experience with properoperating methods that operating costs would also be lower than in open

hearth furnaces. To the extent practicable, continuous casting plants would

be installed to eliminate the need for costly blooming mills; there are noplans to install additional blooming mill capacity in any of the existingplants.

72. Rough estimates of requirements, based on recent data, are asfollows for the "core" portion of the tentative Fourth Plan program:investment was, before devaluation, broadly estimated at the equivalent ofabout $2.3 billion with a foreign exchange component of the order of

$0.7-$0.8 billion. (This estimate may now well be 30 to 40 percent higher.)

It includes some mining facilities, but not related power and transport

development. Additional personnel requirements are estimated at about3,800 engineers, about 7,000 technical graduates and over 30,000 skilled andsemi-skilled workers, Raw material requirements for the production ofabout 14-15 million tons of ingot steel (with Bokaro's planned full develop-ment) and 2-3 million tons of pig iron are estimated at around 28 milliontons of iron ore and over 20 million tons of clean coal.

73. Planning Problems: The Indian steel planning effort has been influ-enced by the recurring uncertainties on the aggregate and specific resourceavailabilities for the next steel program. This factor, together with theeffect of the five-year planning cycle in India, is materially contributingto the prospect that at least the next round of Indian steel expansion will,as in previous Plans, lead to a bunching of the introduction of new steelcapacity, probably towards the end of the Fourth or early in the Fifth Plan.

Planning work has been leaning heavily towards engineering and other physicalaspects - on how to secure raw materials, to solve manpower and transportproblems, and to determine the extent to which steel plant equipment could

be procured in India.

74. The planners have responded keenly to the current, and the likelywidening of the "flat gap"; present plans pr*vide that available, plusenvisaged flat capacity resulting from the "core" portion of the Fourth Plansteel program, would amount to nearly 5 mill-on tons. Flat production ofthat magnitude could be available in 1972/73 or 1973/74, years in whichIndia's total needs for finished steel are eatimated in the order of 13 and145 million tons of steel, respectively, asuinming an annual growth of about12 percent in the Fifth Plan. Output of flats of 5 million tons, ifachieved in 1972/73, would represent only 38 percent of total steel needsestimated_for that year. The share of flat requirements in total steel needs

at that time may well however be somewhat over 40 percent. But if the fulldevelopment of Bokaro to a 4 million ingot ton capacity, and the contem-plated 2 million ton expansion of TISCO, resulted in output of flats in therange of 7.7-7.8 million tons (near capacity levels of the industry) in

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1974/75, then India may have a surplus in flats for a year or two in themid-1970's. Excess capacity in flat, or any products, could be supported

if India's steel industry would have material export prospects at that time.This could indeed be so, especially since the recent devaluation hasenhanced the Indian steel industry's competitiveness. However, consideringthe continuing existence of factors pressing up production costs in India,and the likelihood of further cost saving developments among foreign steelmanufacturers, the Indian steel industry would have to succeed in itsattempts to lower production costs materially to be an effective steelexporter in its own right and without the help of subsidies. A field whichoffers considerable scope for cost reduction, namely establishing andrealizing the most economic solution of raw material preparation for eachsteel plant, still requires - as indicated in paragraph 14 - a major amountof work.

75. The transport problem appears to present no major difficulties. Thesame applies to the availability of iron ore, except possibly for a while inthe case of Durgapur which depends on a considerable, and so far delayed,expansion of the Bolani mine. Ensuring a supply of limestone of high andeven quality also requires more investigation.

76. The prospects for coal availabilities is clouded, however. TISCO andIISCO are expected to be able to meet their requirements from their own mines.The public sector plants would have to continue to rely on the private sectormines and the National Coal Deve'lopment Corporation (NICDC). To obtain theneeded increase, over the present level of about 17 million tons, to 36million -tons of raw coking coal would require substantial inves-tments both inthe private and the public mines. The availability of resource may be lessof a problem for NCDC, which is already developing coking coal projects for4.5 million tons and is planning for another 6.5 million tons, but theprivate coal industry's resource position is bleak following the coalmarketing difficulties in recent years. Furthermore, the time range fordeveloping new coal capacity can be as long as eight years. Besides in-creasing the output of coking coal, further provision will have to be madefor washing. The quality of raw coal mined is apparently deteriorating furtherand the yield of washed coal is expected to go down from two-thirds to 55-60percent. In view of the backlog of building coal washeries, a major effortwill have to be made to ensure the availability of washing capacity for about20 million tons of clean coal in time.

77. With a view to reducing external financing requirements, tlhere hasbeen considerable discussion in India about the availability of domesticequipment. Hopes are centering on the heavy engineering complex at Ranchiwhich is likely to be able to furnish a sizeable share, but not all, of theneeded equipment up to the rolling stage. Some of the private engineeringcompanies, however, should be able to contribute. However, with the mountingpressure for the use of domestic equipment which, in respect of a considerablerange of items, is likely to remain more costly, even after devaluetion,than equivalent imported equipment, investment costs will in the a- -'teprobably be higher during the next expansion of the steel industry.

78. TISCO and IISCO are expected to meet their own personnel requiremcnts,This should be possible but will require effort. HSL, which has still to

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meet some of its needs for experienced production staff, despite the

encouraging recent progress, would have to provide some staff for Bokaro as

well as additional staff for its three existing plants when they are expandedfurther. Even with the stepped-up training program now underway at HSL,the experienced Indian staff that the company has built up is bound to bediluted for some time. The Government recognizes that foreign expertswill again be needed to supplement Indian staff, especially on tlle plants'finishing end. (Arrangements have already been made for Russian operatingassistance at Bokaro.)

79. As to the management set-up, the establishment of a separate Governmentcorporation for Bokaro (Bokaro Steel Ltd.) was in line with the trend,initiated by the Steel Vinistry about three years ago, toward a greater degreeof independence of individual public sector undertakings. The furtherevolution of this trend remains to be seen.

8o. On balance, the planners have still a formidable amount of work ahead.In particular, the shortages of skilled manpower and the prospects forobtaining domestic equipment in time may be expected to impose constraints.Some of the planners are aware of the uncertain outlook and they are nowtrying to take a longer-range view, beyond the Fourth Plan, on the expecteddevelopment of new capacity and output. This is encouraging in itselfbecause planning for steel development in the Seventies should proceed with-out let-up while and after planning work is done for the Fourth Plan program.

81. The Planning Apparatus: Work on the Fourth Plan steel program was inits earlier phases in the hands of a Steering Group including representativesof the Steel Ministry, the Planning Commission, other interested government

agencies and the main producers. The Steering Group and its sub-committees

met only for short periods at intervals of four to six months. It had

hardly any staff to formulate the problems and the alternative solutions to

enable the principals to concentrate on making decisions. The broad outlines,

established by the Steering Group, were the basis on which the design

engineers have been preparing their project reports - the main emphasis on

steel planning for the past year or so. The absence of a qualified staff,

supporting the authorities which make policy decisions on steel development,

is a serious handicap. The problem is particularly serious with regard tothe economic analysis of various project proposals, the assessment of theeffects of delays and changing cost and price relationships, decisions asto siting of new plants and the most appropriate phasing of the productionof various steel categories. The Steel Mlinistry has become concerned

about this gap and is now considering steps to strengthen the staff work onsteel planning problems.

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VI. CONCLUSOII4S AND OUTLOOK

82. Conclusions: There is no doubt that the Fourth Plan must include, asa major elp-ment, provision for a further expansion of India's steel industry.But there is equal urgency for the industry to secure the full advantage ofthe expansion works already completed and still underway.

83. The consolidation of the advances made recently in sorting out theoperational problems of the new plants must be a prime task during theremainder of this decade, especially to achieve and maintain high maintenancestandards. This is a problem of achieving a balance between the availableplant facilities and people with experience, and with devotion to their workand organization. The next round of expansion will put great strain on themanagement and staff of the steel companies involved and it may again benecessary to fall back on foreign operational assistance, especially if someof the experienced Indian personnel would have to help man new plants. Suchassistance seems, however, not to be required for an extended period becausethe further broadening of the industry's base through expansion and thepassage of time should increase the stock of experienced Indian personnel.

84. Except for ensuring the supply of narrowly defined high priorityrequirements from both domestic output and imports, direct Government controlsover steel would no longer be necessary, especially with the appearance of arelative abundance of a series of steel categories. Higher prices for scarcesections, though likely to be cushioned by the easier access to steel imports,would probably make for a more rational use of steel. While they would insome measure increase the producers' earnings, they would not necessarily resultin a corresponding increase in the cost of steel to the economy because some ofthe potential higher earnings now flow into the black market. Moreover, if theindustry's additional earnings are channeled into financing expansions, theconsumer will benefit in the long run. Every attempt should be made, however,to ensure that producers do not take advantage of higher steel prices to pennitproduction costs to rise. The present harbingers of a competitive situationwill probably help most to prevent this development, which would be furtherenhanced by judicious incentives in the plants, for instance appropriatebonuses.

85. There is a definite need for strengthening the present steel planningmechanism to prepare the material required for decisions to be made by thepolicy makers in the Steel Ministry and outside. This is especially necessaryto help provide the basis for the realistic assessment of steel demand and fordetermining the phasing and product mix of new steel capacity, the sites ofnew plants, and the most economic solution of raw material preparation for eachplant. Qualified staff, when assembled, should be available to the policymakers on a continuing basis and not be disbanded when a steel expansion program-as been worked out. Foreign assistance for specific tasks, in terms of staffand research facilities not yet available in India, may also be necessary in:his field. This may also be needed, though to a lesser degree, in design andconstruction supervision for special installations at both the private and;overnment plants, since the expertise available in India is already spread

over many tasks.

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86. If further expansion does not materially interfere with theoperations of available facilities, the decision to expand existing plantsseems to offer the best scope for attaining substantial additional steeloutput by the end of the Fourth Plan. These plants are likely to have betterprospects for building up the additional requirements for experiencedmanpower and, moreover, additional output can probably be attained morequickly and with a smaller investment than through the construction of newplants. Indeed, the proposed expansions at existing plants would make asubstantial contribution towards meeting the expected higher steel require-ments by the end of the Fourth Plan and somewhat beyond. Since output atcapacity levels from new facilities may not be achieved by 1970/71, and therewill probably be a further sizeable growth in the requirements for flatproducts in the Seventies, there is room for building additional flat capacityduring the Fourth Plan. However, if the flat capacity resulting from allcontemplated new flat installations yields substantial output in about eightto nine years, it is possible that supplies will temporarily exceed Indianrequirements. To make possible the exports of any steel surpluses in Indiawithout subsidies, the Indian steel industry would have to reduce itsproduction costs materially. This aspect, on top of executing a majorexpansion program, is the cardinal problem in the years ahead.

87. Outlook: Since some of the project reports are still outstandingand arrangements have still to be made for the financing and the procurementof equipment in respect of many installations, concerted efforts will beneeded to realize the Indian steel planners' target of obtaining productionof nearly 11 million ingot tons in 1970/71. It seems, however, not unrealistito expect that capacity of about 12 million ingot tons will be in place bythat time and that output near capacity levels should be possible in theearly years of the Fifth Plan.

88. If improvements in operations and in the raw material input can makepossible reductions in costs and a better quality of output, the industry'sexport prospects would certainly be enhanced. However, except for sporadicexports of items in which output temporarily exceeds domestic demand, thereis little prospect for sizeable steel exports as long as output limps behindIndian requirements. In the long run, howevEr, India's steel industry shouldbe able to divert more of its production to exports, especially to nearbyAsian countries.

ANNEX IPage 1

DATA ON INDIAN STEEL PLANTS

Plant Performance

1. Jamshedpur (TISCO): The expansion schemes carried out in the Fifties(the Modernisation and Expansion Program and the Two-M4illion-Ton Program)were completed in 1959, about one year behind schedule. After their com-

pletion, production of saleable steel lagged behind capacity levels (1.5million tons). The main difficulties were the erratic raw material supplyand limitations in the facilities for the preparation of the blast furnaceburden (e.g. the sintering plant). The plant achieved an operating rate of100% capacity only in 1963/64 and has done better since then. The balancingscheme to be completed within the next two years is designed to achieve abalanced and improved raw material input. It should make possible mainten-ance of production at rated capacity, if not a little more.

2. Burnpur (IISCO): IISCO's expansion (the '"1953" and "1955" extensions)were completed more or less on schedule. The last item, the Morgan mill(bars and rods) was commissioned in March 1960. In 1961/62, in the face offormidable raw material problems, the plant was able to operate at about 90%of capacity. The principal obstacle was the quality deterioration and theirregularity in the supply of coal. The company is therefore developing

its own mines. (A Bank loan of $19.5 million, made in 1961, finances theforeign exchange cost.) In 1962/63 and 1963/64, capacity utilization wasattained, however, at the expense of quality. A blast furnace failureaffected 1964/65 production and problems with coal supplies in 1965/66.Work on IISCO's expansion to a 1.3 million ton capacity is expected to beginin 1966 with production from the new facilities estimated to become availablein 1970. The Burnpur works also produce about 250,000 tons of pig iron peryear for use outside the steel plant, though mainly in IISCO's own foundry atnearby Kulti.

3. Bhilai (HSL): This was the first of the new plants to be fully com-pleted. All installations were operational late in 1961. As in the othernew plants, the blast furnaces were the first producing units. Pig iron,not yet required for steel making, was sold, and Bhilai continues to supplythe market with about 300,000-500,000 tons of pig iron per year. The blastfurnaces were followed by the melting shops and rolling facilities for semis.When all facilities were ready, Bhilai's production picked up swiftly,

exceeding capacity slightly in 1962/63; in 1963/64, before any of the ThirdPlan installations were operational, output of saleable steel reached 115percent of rated capacity. (This achievement supports the view that Bhilai'scapacity is under-rated.) Bhilai appeared until over a year ago to be the

best run of the HSL plants. It is the least sophisticated of these plants.With its heavy section mills, it has stood up well in a situation character-

ized by pressures for output, in which tonnage is the prime performancecriterion. Bhilai's Third Plan expansion works were begun in 1962 andshould be finished this year. Substantial additional output of finishedsteel was already available in the last production year. A sixth blastfurnace, which is part of the plant's Fourth Plan expansion, is expected to

be in place in 1967 to produce pig iron for sale until further steel-makingcapacity is built up.

ANNEX IPage 2

4. Durgapur (HSL): All installations were operational by November 1962,

when a three-year process of commissioning the plant's various units was

completed. Although the production of crude steel reached the capacity

level in 1963, the output of the finishing mills, especially in the wheel

and axle and the sleeper plants has lagged for some time, explaining in part

the fact that sales of pig iron and semis have exceeded the programmed

quantities of 360,000 and 210,000 tons, respectively. Output of saleable

steel should, however, catch up in the current year. Work on Durgapur's

Third Plan expansion started in 1963 and the resulting increase in output

is expected some time in 1967.

5. Rourkela (HSL): This has for some years been the problem child. The

plant had to go through a major repair of a blast furnace due to initial

over-heating, two breakdowns of the blooming mill and labor difficulties.

The most recent difficulty was communal strife in March 1964, which brought

the plant practically to a standstill for a few weeks. This was regrettable,

since the plant seemed to have recovered at that time from several of its

earlier running problems, accentuated by the delicate nature of the rolling

facilities for flat products. The plant has done significantly better since

then and is reportedly now the best-run of the HSL plants. Adjoining the

steel plant is a fertilizer plant, but problems in obtaining adequate gas

supplies from the steel plant's coke ovens have not permitted the full use

of its capacity. Substantial work on the Third Plan expansion began early

in 1963, but sizeable production of finished steel from the additional

facilities cannot be expected before 1967-68.

6. Badhravati: This plant's capacity is now being increased from the

present 36,000 tons to 60,000 tons of finished products per annum. The works

are being converted into an alloy steel plant with completion likely in

1966-67.

7. Re-Rollers: The 191 registered units include four "Secondary

Producers" with their own electric steel furnaces fed with scrap, 91 billet

re-rollers, and 96 scrap re-rollers. Their size, equipment and performance

vary widely; in fact, the majority are simple one- or two-stand hand looping

operations. The re-rollers roll mainly merchant sections, accounting for

over one-half of total availabilities. In the case of rods, they contributed

practically all of India's output in recent years. Their output in recent

years has ranged between 800,000-950,000 tons with capacity, in the aggre-

gate, being utilized at 75-85 percent. With the capacity additions still

underway, the re-rolling industry estimates that its capacity will possibly

this year amount to 1.83 million tons on a two-shift basis and 2.2 million

tons on a three-shift basis. The main producers, except for Rourkela,

are required to supply a portion of their semis to the re-rollers but they

have been able at times to oppose such "diversions". Due to the sizeable

capacity build-up in the re-rolling industry in recent years, there are

no longer enough semis to go around. About five years ago, the supply

position was comfortable, but since then semis have been increasingly used

in the main producers' own finishing mills. During the period of ample

supply (1960-61) a number of wildcat units (i.e. not licensed) were able

ANNEX IPage 3

to obtain officially allocated supplies and this fact has made them"legitimate". There is a glaring over-capacity in the industry and it ishighly questionable whether a majority of the units could pass an efficiencytest. A committee chaired by the Deputy Iron and Steel Controller is nowexamining this matter in view of the re-rollers' continued complaints aboutinsufficient billet supplies, especially during 1965/66. Billet suppliesmay temporarily improve later this year, and for a while in 1967/68 becausethe full capacity of the finishing facilities, now being installed inconnection with Bhilai's and Durgapur's current expansion, will becomeoperational only after the new steel making installations and primary millshave been working for some time.

* * * * * *

The following pages show data on the five main plants' physicalinstallations, Third Plan and balancing works and investment costs. Theyalso show the plants' recent output records and production estimates for1967/68, when output of saleable steel from the Third Plan expansions isexpected to be available on a substantial scale.

ANNEX I

Page 14

INDIA - DATA ON MAJOR STEEL PLANTS

BHILAI - Hindustan Steel Limited

"One-Million Ton" Phase (Existing) Additions under Third Plan Expansion

Plant Coke - 3 batteries of 65 ovens each 3 batteries of 65 ovens each

Iron - 3 blast furnaces (each 1135 tons p. day) 2 blast furnaces (1770 tons each)

Steel - 6 open hearth furnaces (each 250 tons) 4 open hearth furnaces (500 tons)and 1 existing furnace convertedto 500 tons capacity

Rated Ingot Capacity - 1 million tons p.a. 2.5 million tons p.a.

Rolling 1 blooming mill (1,150 mm.) - 200 tons p. hr.) -1 billet mill - 118 tons p. hr.) -

1 rail and structural mill - 30/150 tons p. hr.) -1 merchant mill - 501h00 tons p. hr.) 1 wire rod mill - 400,000 tons p.a.

Saleable Steel Capacity - 770,000 tons p.a. 1,965,000 tons p.a.

With the following production pattern:

Rails 120,000 tons 500,000 tonsHeavy structurals 274,000 167,500Sleeper bars 90,000 82,500Merchant sections 136,000 o 500,000Billets for sale 150,000 315,000

Wire and wire rod h00,000

Cost (millions) Total Investment Rs. 2,023 ($425) Estimated: Rs. 1,381 ($290)L/(Plant and ancillaries) July 1965

Of which in foreign Rs. 980 ($206) Rs. 650 ($136)exchange

Plant alone Rs. 1,500 ($315) Rs. 1,227 ($258) (1964 est.)

1/ Excludes investment in township (estimatesnot yet finalised) and provision forinterest during construction (estimated atRs. 140 million)

Emoloyment Total 50,583 (incl. mining and construction)(}MarCh 1966) (at plant 23,402

USSR experts 74 (operational)251 (for expansion)

Source: Data on physical installations provided by Steel Plant. Financial and employmentdata from HSI, head office in Ranchi.

ANNEX IYage 5

INMDIA - DATA ON MAJOR STEEL PLANTS

DURGAPUR - Hindustan Steel Limited

"One-Million Ton" Phase (Existing) Additions under Third Plan Expansion

Plant Coke - 3 batteries of 78 ovens each 1 battery of 78 ovens

Iron - 3 blast furnaces (each 1250 tons p. day) 1 ore preparation plant1 blast furnace (1500 tons p. day)

Steel - 7 open hearth furnaces (each 200 tons) Increase of existing open hearthfurnaces to 220 tons capacity

Rated Ingot Capacity - 1 million tons p.a. 1.6 million tons p.a.

Rolling - 1 blooming mill (42 inches)1 intermediate mill (32 inches)1 continuous billet mill1 medium structural mill (24 inches)1 merchant mill1 sleeper plant1 wheel and axle plant 1 skelp mill

Saleable Steel Capacity - 800,000 tons p.a. 1,240,000 tons p.a.

With the following production pattern:

Forging blooms 40,000 tons 70,000 tonsLight and medium struct. 200,000 " 200,000

Merchant sections 240,000 " 240,000Railway sleepers 60,000 " 75,000Wagon wheel sets 50,000 " 93,000Billets for sale 210,000 " 300,000

Skelp 250,000Fishplate 12,000

Cost (millions) Total Investment Rs. 2,052 ($431) Estimated: Rs. 599 ($126)1'(plant and ancillaries) July 1965

Of which in foreign Rs. 1,029 ($216) Rs. 240 ($51)

exchange

Plant alone Rs. 1,660 ($348) Rs. 587 ($123)(March 1963)

1/ Excludes investment in township(estimates not yet finalised) andprovision for interest during con-struction (estimated at Rs.30 million)

EBnployment Total 30,215 (incl. construction)(March 1966) (at plant 16,232)

UK personnel:Operational 24Construction 4

Source: Data on physical installations provided by Steel Plant. Financial and employment

data from HSL head office in Ranchi.

ANNEX IPage 6

INDIA - DATA ON MAJOR STEEL PLANTS

ROURKELA - Hindustan Steel Limited

"One-Million Ton" Phase (Existing) Additions under Third Plan Expansion

Plant Coke - 3 batteries of 70 ovens each 1 battery of 80 ovens

Iron - 3 blast furnaces (each 1000 tons p. day) 1 blast furnace (1500 tons p. day)1 sintering unit (4000 tons p. day)

Steel - 4 open hearth furnaces (each Bo tons)- 3 L.D. converters (each 40 tons) 2 L.D. converters (each 60 tons)

Rated Ingot Capacity - 1 million tons p.a. 1.8 million tons p.a.

Rolling - 1 blooming and slabbing mill (1180 mm.) -

1 plate mill (3.1 mi,)I wide strip mill (roughing train 1800 mm.)

(finishing train 1700 mm.)1 cold rolling mill 1 cold rolling mill1 cold reducing mill 1 cold reducing mill6 tin plate lines (hot dip) 2 galvanizing lines

1 continuous electrolytic tinning line

1 pipe plant (150,000 tons p.a.) 1 electrical sheet mill

Saleable Steel Capacity - 720,000 tons p.a. 1,240,000 tons p.a.

With the following production pattern:Wide and heavy plates 200,000 tons 280,000 tonsHot rolled sheets and 300,000 " 300,000 T

stripCold rolled sheets 170,000 I 300,000Hot dipped tinplates 50,000 I5,0oo

Electrolytic tinplate 100JO,0Galvanized sheets 160,000Electric steel sheets 50,000

Cost (millions) Total Investment Rs. 2,3h0 ($h92) Estimated: Rs. 1,3h0 ($282)-/

(plant and ancillaries) July 1965

Of which in foreign Rs. 1,340 ($282) Rs. 580 ($122)exchange

Plant alone Rs. 1,900 ($399) Rs. 1,100 ($231)(1963 estimate)

1/ Including township and interest duringconstruction (stimated at Rs. 60 million)

Employment Total 30,897 (incl. mining and construction)(March 1966) (at plant 15,535 )

Foreign personnel:Operational 32 (principally on finishing)

Source: Data on physical installations provided by Steel Plant. Financial and employmentdata from HSL head office in Ranchi.

ANNEX IPage 7

INDIA - DATA ON MAJOR STEEL PLANTS

JAMSHEDPUR - Tata Iron and Steel Company, Ltd.

Position on Completion of MEP and IMP Balancing Works

Plant Coke - 4-1/2 batteries (256 ovens) Colliery development (Jharia coal field)1 battery of 52 ovens

Iron - 6 blast furnaces (1 - 650 tons p. day) Development of iron ore mineswith combined actual (2 - 800 " it ) (Noamundi and Joda)capacity of 1,866,000 (2 -1000 " " ) Ore beneficiationtons p. yr. (1 -1500 ) Ore blending yard

Improvement of sintering installations

Steel - 5 converters Additional equipment to increase4 open hearth furnaces (90 tons) capacity of melting shop No. 33 tilting open hearth (2 - 250 tons)

furnaces (duplex) (1 - 200 tons) Facilities for production of8 f'ixed open hearth furnaces (200 tons) dynamo-grade steel

Rated Ingot Capacity - 2 million tons p.a.

Rolling - 2 blooming and slabbing mills2 continuous sheet bar and billet mills1 billet mill (28 inches)...dismantled in May 19651 rail and structural mill1 medium and light structural mill2 merchant mills1 skelp mill1 plate mill (96 inches)1 sheet mill with galvanizing equipment1 wheel and axle plant

Saleable Steel Capacity - 1,52?,000 tons p.a.

With following production pattern:

Rails 82,000 tonsStructurals and merchant 503,000 "Plates 100,000 "Sheets 150,000Skelp 250,000Wheels and axles 30,000Billets and blooms for sale 412,000

TentativeCost of MEP and TtP: Total Investment Rs. 1,12h ($236) Estimate

(millions) (plant and ancillaries) (April 1966): Rs. 595 ($125)

Of which in foreign exchange Rs. 589 ($124) Rs. 95 ($20)

Plant alone Rs. 828 ($174) Rs. 255 ($54)

Employment Total 62,529 (incl. mining)arch 1966) (at plant 32,126)

Source: TISCO

ANNEX IPage 8

INDIA - DATA ON MAJOR STEEL PIANTS

BURNPUR - Indian Iron and Steel Company, Ltd.

Position on Completion of 1953 and 1955 Extensions Balancing Works

Plant Coke - Five batteries (308 ovens) Colliery development at Chasnalla,Jitpur and Ramnagore

Iron - 4 blast furnaces (2 - 700 tons p. day)with annual capacity (2 - 1200 tons p. day)of 1,300,000 tons

Steel - 3 converters5 tilting open hearth, duplex (200 tons) 1 electric furnace (40 tons)1 tilting open hearth, duplex (300 tons) oxygen injection in open hearth1 fixed open hearth, duplex (100 tons)

Rated Ingot Capacity - 1 million tons p.a. 1.3 million tons p.a.

Rolling - 1 blooming mill (40 x 96 inches) 1 continuous casting plant (blooms)1 rail and structural mill (34 inches) Modifications in rolling mills1 billet and sheet bar mill

(continuous)1 light structural mill (18 inches)1 continuous bar and rod mill (10 inches)1 sheet mill (with galvanizing equipment)

Saleable Steel Capacity - 800,000 tons p.a. About 1 million tons p.a.

With the following production pattern (1963/64 Actuals):

Rails 105,000 150,000Structurals 178,000 380,000Bars and rods 217,000 170,000

(merchant sections)Black sheets 71,000 60,000Galvanized sheets 83,000 90,000Billets and blooms 156,000 200,000

Cost of 1953 and Total Investment Rs. 578 ($121) Estimated: Rs. 48h ($12)1955 Sxtensions (Feb. 1966)

(millions) Of which in foreign exchange Rs. 235 ($49) Rs. 150 ($31)

Employmnent(March 1966) 32,422 (including mining and Kulti plant)

(at Burnpur plant - 17,795)

Source: IISCO

Steel Production of !ain Producers ?. 9.- ~~~~~~ii

(thlousand tons

1960/61 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRON 4,300.5 735.6 404.3 412.0 1,588.0 1,160.6of which for sale 873.2 3P1.8 25h.6 167.0 5.0 231.8

2. IMGOT STEEL 3,36h.1 401.5 168.4 258.0 1,622.0 914.2

3. SEMIS FOR SALE(Blooms and.

billets) 1,o53.4 309.2 119.2 73.0 422.8 219.2

4. FINISHED STEEIr 1,423.0 28.1 2.2 33.1 839.8 502.8. ~ -

1. Rails, Structural& Merchant 862.5 28.1 2.2 - 61.5 353.7

a) Rails 159.2 5.5 - - 85.9 67.8b) Sleepers (+ sleeper

bars) 6.6 - 1.8 - 4.8 -

c) Heavy Structurals)d) Light Structurals) 332.0 14.8 0.4 163.6 153.2

e) Merchant sections(including bars) 345.2 7.8 - _ 187.7 132.7

f) Wires and rods - -

g) W4heels and.Axles 19.5 - _ _ 19.5 h) Fish plates - - - - - -

2. Flat Products 56065 - - 33.1 378.3 149.1

a) Plates 113.2 - - 27.9 85.3 -b) Hot-rolled sheets

and.strip 21h.3 - - 2.1 132.5* 79.7c) Cold-rolled. sheets

and,strip - - - - - -d) Galvanised sheets 69.4 - - - - 69.4e) Tin plate - - - - - -

f) Skelp 160.5 - 160.5 -

g) Pipes 3.1 - - 3.1 - -

TOTAL SALEABLE STEEL 2,476.4 337.3 121.4 106.1 1,262.6 722.0

* includes (d)

Source: Steel Works' Data provided by ilinistry3 of Steel, Mlnes andHeavy FEgineering.

AYiEX' IPage 10

Steel Production of Hain Producers(thousand tons)

1962/63 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRONU 6,020.3 1,182.1 1,057.8 772.6 1,766.o 1,291.8of which for sale 1,065.8 337.9 391.9 81.1 16.0 238.9

2. I2GOT STEEL 5,290.7 1,059.8 731.0 699.6 1,798.3 1,002.0

3. SEMIS FOR SALE 1,035.8 238.6 211.2 0.3 427.1 158.6(blooms and billets)

4. FINISHED STEEL 2,891.6 561.0 288.0 420.7 985.5 636.4

1. Rails, structuraland merchant 1,899.7 561.0 288.o - 568.o 482.7

a) Rails 447.5 248.0 - - 104.2 95.3b) Sleepers (+ sleeper

bars) 51.7 19.8 31.9 - - -

c) Structurals 622.4 68.o 124.9 - 227.2 202.3d) Merchant sections

(including bars) 732.4 225.2 110.0 - 212.1 185.1e) Wires and rods - - - - - -f) 1Theels and axles 45.3 - 20.8 - 24.5 -

g) Fish plates 0.4 - o.4 - - -

2. Flat Products 991.9 - - 420.7 417.5 153.7

a) Plates 253.4 - - 163.4 90.0 -b) Hot-rolled sheets a!

and strip 357.0 - - 138.0 1h9.1- 69.9c) Cold-rolled sheets

and strip 83.3 - - 83.3 - -d) Galvanized sheets 83.8 - - - _ 83.8e) Tin plate 8.2 - - 8.2 - -

f) Skelp 178 .4 - - - 178.4 _g) Pipes 27.8 - - 27.8 - _

TOTAL SALEABLE STEM, 3,927.4 799.6 499.2 421.0 1,412.6 795.0

a/ Includes (d)

Source: Steel Plants

ANNEX IPage 11

STEEL PRODUCTION OF MAIN PRODUCERS(thousand tons)

1963/64 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRON 6,417.8 1,295.7 1,244.7 828.7 1,811.7 1,237.0

of which for sale 1,100.8 396.0 411.5 98.3 13.0 182.0

2. INGOT STEEL 5,833.7 1,142.7 972.4 800.1 1,891.5 1,027.0

3. SEMIS FOR SALE 1,191.0 218.3 349.0 2.7 465.o 156.0(blooms and Fillets)

4. FINISHED STEEL 3,305.2 668.5 371.6 569.5 1,041.6 654.o

1. Rails, Structuraland Merchant 2,169.9 668.5 371.6 - 629.8 500.0

a) Rails 459.8 253.5 - - 101.3 105.0b) Sleepers

(+ sleeper bars) 83.3 42.2 41.1 - - -c) Structurals 609.4 90.3 104.4 - 236.7 178.0

d) Merchant sections(incl. bars) 965.2 282.5 200.1 - 265.6 217.0

e) Wires and rods - - - - - -

f) Wheels andaxles 51.6 - 25.4 - 26.2 -

g) Fish plates 0.6 - 0.6 - - -

2. Flat Products 1,135.3 - - 569.5 411.8 154.0

a) Plates 264,1 - - 167.8 96.3 _b) Hot-rolled sheets

and strip 450.1 - - 225.2 153.9a/ 71.0

c) Cold-rolled sheetsand strip 131.8 - - 131.8 - _

d) Galvanized sheets 83.0 - - - - 83.0

e) Tin plate 16.5 - - 16.5 - _

f) Skelp 161.6 - - - 161.6

g) Pipes 28.2 - - 28.2 - -

TOTAL SALEABLE STEEL 4,496.2 886.8 720.6 572.2 1,506.6 810.0

a/ Includes (d)

Source: Steel Plants

ANNEX I

Page 12

Steel Production of Main Producers(thousand tons)

19614/65 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRON 6,602 1,257 1,313 986 1,883 1,163

of which for sale 1,036 341 387 78 19 211

2. INGOT STEEL 6,021 1,131 1,006 979 1,955 950

3. SEMIS FOR SAME(blooms and billets) 1,066 263 232 4 455 112

4. FINISHED STEEL 3,582 652 489 685 1,113 643

1. Rails, Structuraland Merchant 2,281 652 489 - 651 489

a) Rails 446 228 - - 107 111b) Sleepers

(+ sleeper bars) 68 - 68 - -

c) Structurals 648 126 144 - 215 163d) Merchant sections

(including bars) 1,059 298 244 - 302 215e) Wires and rods - - - - -

f) Wheels and axles 59 - 32 _ 27g) Fish plates 1 - 1 - - -

2. Flat Products 1,301 - - 685 462 154

a) Plates 266 - - 165 101 -

b) Hot-rolled sheetsand strip 529 - - 290 164a/ 75

c) Cold-rolled sheetsand strip 173 - - 173 -

d) Galvanized sheets 79 - - - - 79

e) Tin plate 23 - - 23 -f) Skelp 197 - - - 197g) Pipes 34 - - 34 - -

TOTAL SALEABLE STEEL 4,648 915 721 689 1,568 755

a/ Includes (d)

Source: Steel Plants

ANNEX IPage 13

Steel Production of Main Producers(thousand tons)

1965/66 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRON 7,1o4 1,632 1,280 1,054 1,920 1,218of which for sale 1,143 508 332 68 .16 219

2. BIG0T STEEIL 6,386 1,371 1,001 1,065 1,979 970

3. SEMIS FOR SALE(blooms and billets) 1z018 294 152 a/ 3 477 92

4. FINISHED STEEL 3,768 734 532 780 1,091 631

1. Rails, Structuraland Merchant 20394 734 532 - 646 t482

a) Rails 463 269 - - 103 91b) Sleepers

(+ sleeperbars) 69 - 69 - - -c) Structurals 686 157 179 - 178 172d) Merchant sections

(including bars)1,l16 308 250 - 339 219e) Wires and rods - - - - - -

f) Wheels and axles 58 - 32 _ 26 _g) Fish plates 2 - 2 - - -

2. Flat Products L,374 - - 780 445 149

a) Plates . 28t - - 182 .8b) Hot-rolled sheets

and strip 648 - - 385 166 b/ 97c) Cold-rolled sheetsl63 - - 163 - -

d) Galvanized sheets 52 - - - 52e) Tin plate 26 - - 26 - -f) Skelp 181 - - - 181 -

g) Pipes 24 - - 24 - -

TOTAL SALEABLE STEEL 4,786a/ 1,028 684 a/ 783 1,568 723

a/ Provisionalb/ Includes (d)

Sourcet Steel Plants

*3*

ANNEX IPage 14

Estimated Steel Production of Main Produicers(thousand tons)

1967/68 Total Bhilai Durgapur Rourkela TISCO IISCO

1. PIG IRON 9,653 3,060 1,735 1,668 1,920 1,270

of which for sale 1,789 890 362 252 15 270

2. INGOT STEEL 8,600 2,500 1,500 1,600 2,000 1,000

3. SEMIS FOR SALE(blooms and billets) 136 315 70 - 460 91

4. FINISHED STEEL 5,293 1,650 694 1,140 1,100 709

1. Rails, Structuraland Merchant 3,456 1,650 619 - 630 557

a) Rails 713 500 - - 103 110b) Sleepers

(+ sleeper bars) 157 82 75 - - -

c) Structurals 837 168 200 - 225 244d) Merchant sections 0/

(including bars) 1,219 500 240 - 276 203-e) Wires and rods 400 400 - - - -

f) Wheels and axles 119 - 93 - 26 -

g) Fish pla-tes 11 - 11 - - -

2. Flat Products 1,837 - 75 1,140 470 152

a) Plates 380 - - 280 100 -

b) Hot-rolled sheetsand strip 592 - - 370 a/ 150 b/ 72

c) Cold-rolled sheets 250 - - 250 - -

d) Galvanized sheets 180 - - 100 - 80

e) Tin plate 140 - - 140 - -

f) Skelp 295 - 75 - 220 -

g) Pipes - - - - - _

TOTAL SALEABLE STEEL 6,629 1,965 1,164 1,140 1,560 80.0

a/ Includes 30,000 tons of electrical sheetsb/ Includes (d)c/ Includes 8,000 tons of Z-Sections

Source: Steel Plants

AhTi\M IIPage 1

RAW iHATERIALS ANiD TRANSPORT

I. Raw Material Problems

1. India's most important endowment for steel making are her vastiron ore deposits, estimated at about 21 billion tons with indicated re-

serves of nearly 8 billion tons. Iron content, on the whole, is believed

to be relatively high, ranging up to 65 percent. The principal oredeposits, which are hematite, are concentrated in Bihar/Orissa (not far

from the main coalfields), Madhya Pradesh and Vfiysore. Rising demand neces-sitated increased mechanized mining. Because of the way in which mechani-cal equipment has so far been used, a growing proportion of the extractedore has unfavorable characteristics. One shortcoming is the high percent-

age of fines, which are now largely being dumped. Fines have to be ag-glomerated for use in the blast furnace; so far only sintering plants areavailable for this purpose, and only at Jamshedpur (where the plant needs

improvement), at Bhilai, and since recently at Rourkela. Another majorshortcoming is the high alumina content in the gangue extracted with theore. To compensate for the resulting unfavorable alumina/silica ratio inthe blast furnace, fluxes have to be added to the burden leading to a high

coke rate, and consequently to a lower yield. This can be largely reme-died by ore beneficiation, such as washing or gravity separation, butfacilities for this purpose must be installed.

2. Limestone does not offer a favorable picture. The principal

source for the steel industry is a private quarry at Birmitrapur in Orissawhich supplies Durgapur's, TISCO's, IISCC's and part of Rourkela's require-

ments. Bhilai is entirely supplied by its own quarry 16 miles from theplant and Rourkela is developing a nearby quarry. Improper quarrying prac-tices at Birmitrapur have resulted in great variations in quality. De-liveries containing a high proportion of insolubles, ranging from 5 percentto as high as 15 percent, have been frequent with the result that blastfurnace and open hearth performance have been seriously affected. It is

generally agreed that appropriate mechanized mining must be introduced andlimestone beneficiation facilities be installed. Indian experts are alsoconcerned about the sufficiency of good quality limestone deposits near the

present plants, especially for the steel melting shops, but there areindications, as a result of recent prospecting, of further satisfactorydeposits.

3. The main bottleneck, hcwever, has been the shortage and poorquality of coling coal in India. Estimates of indicated reserves rangebetween 1,600 and 3,500 million tonsl/but not all of this is economtically

1/ The Indian Geological Survey estimates that there may be a total of 14billion tons of coking coal in India, 6.5 billion tons of which in theJharia field. This estimate is however subject to detailed prospecting.

ANTIM IIPage 2

exploitable. The current output of India's coking coal has a high ashcontent averaging about 23-24 percent. Before and for some time after thewar, the steel industry was able to obtain coal with about 16 percent ash,but "slaughter mining" of the better varieties mainly during the Thirties,has depleted the better grades in the Jharia field where they principallyoccur. To reduce the ash content, it is necessary to wash the coal; underpresent Indian conditions, washing can reduce the ash content to about16-17 percent. Yields of washed coal amount to about two-thirds of rawcoal used. To stretch out supplies, attempts are also being made to mix"blendable" coal from the Raniganj field with the higher Jharia cokinggrades. After conversion to blast furnace coke, the ash content in thecoke still amounts to about 22-23 percent, nearly twice the ash contentof the coke used by most steel works outside India. This is a handicapto the Indian steel works in their attempt to reduce the present averagecoke rate in the blast furnace (now somewhat below 900 kg per 1 ton ofpig iron) through sintering, the injection of fuel and oxygen, and otherpractices. These processes have already shown scme success in India -830 kg in Bhilai - and prospects for further progress seem reasonablyfavorable in view of the advances made in Europe and North America wherecoke rates of 550 kg have been achieved.

4. The coal situation has been greatly aggravated by the poor plan-ning and delayed completion of coal washeries. The wiorking capacity ofabout 8 million tons of clean coal hoped for by 1960/61 has been in placeonly since about two years. The result has been the input of unsatisfactorycoal, accentuated by day-to-day fluctuations in quality and a scramble amongthe plants for the available washed or good quality coal. The effect onblast furnace performance is illustrated by TISCO's and IISCO's experiencethat each 1 percent increase in the ash content of coke results in a decreaseof 3-6 percent in the iron production in the blast furnace.

5. Considerable research has been done, and a sizeable body of know-ledge already exists, in India in respect of raw material preparation forIndian steel plants. They include the efforts, and results obtained by theNational Mqetallurgical Laboratory, the Central Fuel Research Institute, andsome of the steel plants. These endeavors have focussed mainly on tradi-tional practices such as sintering but recent technological advances abroad,e.g. pelletizing and pre-reduction, have not yet been investigated on asufficiently large scale--partly due to limited research facilities--as totheir applicability and economics in respect of Indian steel plants. Theresource constraint, and the governmental approval requirements for invest-ment proposals, have also militated against the translation of researchresults into actual installations of the required type and proportions. Thisis a point of concern because the Indian steel industry has to make everyeffort to reduce its investment and production costs for which the area ofraw material preparation offers considerable scope.

ANNEX IIPage 3

6. Attached tables provide data on the raw material consumption ofthe main plants, the conversion ratios of raw materials to iron and steel,

and the present status of the coal washeries' program.

II. Transport and Raw Material Handling

7. Railway carrying capacity caught up about two years ago with the

traffic engendered by the steel works 1/. Plants complained previouslyabout insufficient allocation of wagons. Another difficulty, still persist-ing though at a diminishing rate, is the type of wagon serving the plantsand the irregularity of arrivals. Trains coming in contain both open andcovered wagons; trains arrive in bunches bringing in amounts of raw materialsin excess of available handling facilities. Mixing of steam and gas coal inthe same train has also been occurring. Wagon tipplers are installed in allplants but they cannot accommodate the large-capacity BOX wagons, which theRailways increasingly use for the transport of coal and limestone. Thesecars have to be emptied first into stacks and thus require additional andtherefore costlier handling, mainly manual. Covered wagons are also handledmanually, except at Durgapur and Burnpur where extraordinary tipplers shakethe wagons to get the coal out. The supply of wagons to carry long-length

finished products has also been inadequate. These problems should be solvedas more appropriate wagons become available, although some modifications of

marshalling yards, especially at Jamshedpur, also seem necessary.

8. Bhilai has a splendid blending yard for coal and limestone.

Durgapur has extensive iron ore blending facilities which will be expandedfurther. The other plants are not yet as well equipped.

1/ One ton of ingot steel requires over 5 tons of carrying capacity.Four tons are accounted for by raw materials (if coal is washed) and0.7-0.8 tons by the dispatch of finished products.

ANNEX IIPage 4

IWDIA - STEEL PLANTS

Consumption of Principal Raw Materials(thousand tons)

Coal Iron Ore LimestoneWashed Umnashed Captive Other Captive Other

Mines Lines Mines Nines

Bhilai: 1960/61 396 720 1,225 - 506 -

1962/63 813 725 1,996 - 772 -

1963/64 1,242 334 2,193 - 761 -1964/65 1,493 313 2,138 - 804 -

1965/66 1,637 741 2,470 - 955 -Est. 1967/68 3,571 349 a/ 5,259 - 1,748 -

Durgapur: 1960/61 990 (incl. some 488 270 - 200unwashed)

1962/63 421 1,449 1,351 631 - 5521963/64 720 1,400 1,379 844 - 5071964/65 869 978 - 2,249 - 5171965/66 802 1,001 - 2,247 - 540

Est. 1967/68 1,807 1,125 a/ - 2,974 - 814

Rourkela: 1960/61 196 265 49 663 67 1631962/63 1,001 256 893 339 278 1241963/64 1,183 296 943 365 261 12119614/65 1,193 348 981 577 486 -

1965/66 1,507 153 1,004 783 550 -Est. 1967/68 2,127 233 a/ 2,330 705 850 17

TISCO: 1960/61 1,063 1,204 2,170 1,204 -103 6751962/63 1,582 868 2,618 327 77 8101963/64 1,902 189 3,046 78 121 7181964/65 1,828 274 3,096 - 128 6621965/66 1,859 353 3,116 _ 107 669

Est. 1967/68 1,905 467 3,240 - 120 680

IISCO: 1960/61 158 1,863 1,488 668 - 6711962/63 232 1,870 1,488 668 - 7421963/64 253 1,827 1,382 533 - 5141964/65 260 1,890 1,184 650 - 4871965/66 301 1,798 1,162 728 - 495

Est. 1967/68 300 1,850 1,200 730 - 495

TOTALS 1960/61 2,803 4,052 5,420 2,805 676 1,7091962/63 4,049 5,168 8,346 1;965 1,127 2,2281963/64 5,300 4,046 8,943 1,820 1,143 1,8601964/65 5,643 3,803 7,399 3,476 1,418 1,6661965/66 6,106 4,046 7,752 3,758 1,612 1,704

Est. 1967/68 9,710 4,024 12,029 4,309 2,718 2,006

a/ Estimates for 1967/68 raw materials consumption at the HSL plants were madein Nlay 1966. The portion of unwashed coal in total coal consumption in1967/68 was, however, estimated in July 1965.

Source: Steel Plants

ANNEX IIPage 5

CONVERSION OF PRINCIPAL RA4 MATERIALS INTO IRON AND STEEL

(metric tons)

1.7 tons of iron ore 0.4 tons of limestone 1.8 tons of rawq coking coal(22-23% ash content)

1.2 tons of washed coal(16-175> ash content)

1,.0.9 tons of coke

(23") ash content)

1 ton of pig iron

0.9 tons of pig iron 0.2 tons of scrap

1 ton of ingot steel(Open Hearth)

The foregoing reflects present average conditions in India.

Source: Steel IJorks, Planning Commission and M.AN. Dastur & Co.

ANNiX HIPage 6

INDIA - COAL WASHERIES PROGRAM(Status as of May 1966)

Annual CapacityRaw Coal Clean 1965/66 Recipient Steel Plant

Washery Completion Input Coal throughput (or other recipient)(a,71ioTT tons)

A. Second Plan

Jamadoba - TISCO 1956 1.44 1.00 0.98 TISCOWest Bokaro - TISCO 1956 0.70 0.50 0.32 TISCOLodna (PrLvate Sector) 1956 0.L0 0.23 0.31 IISCOKargali - NCDC 1961 2.22 1.55 1.25 Bhilai, Rourkela, Bokaro

Durgapur - HSL 1961 1.50 0.90 0.81 DurgapurDugda-I - HSL 1962 2.40 1.44 1.08 BhilaiBhojudih - HSL 1963 1.20 0.84 1.33 / Rourkela, TISCOPatherdTh - HSL 1964 2.00 1.30 0.35 Durgapur, Rourkela, IISCO

11.86 7.76 Availability6.43

EstimatedB. Third Plan Completion Provisional

throughputBhojudih-II - HSL 1964 (actual) 0.80 0.56 a/ included above Bhilai, TISCOKargali-II - NCDC 1966 0.50 0.35 Bhilai, Rourkela, BokaroDurgapur (West Bengal State) 1966 1.60 0.80 Durgapur Coke Ovens ProjectDugda-II - HSL 1966 2.40 1.20 Rourkela, BokaroKathara - NCDC 1966 3.00 1.50 Bhilai, Rourkela, Bokaro

Karanpura - NCDC 1966 2.84 1.80 TISCO, Bhilai, Rourkela, New Steel PlantSawang - NCDC 1967 0.75 0.50 Bhilai, RourkelaSudamdih - NCDC 1969 2.16 1.30 Nev Steel PlantRamgarh - NCDC 1970 1.50 0.90 Ramgarh/Bokaro Industrial ComplexChasnalla - IISCO 1968 2.70 1.90 IISCO

18.25 10.81Sub-Total(Second and Third Plans) 30.11 18.57

EstimatedFourt' Plan (Planned) Completion

Central Jharia (Monidih) - NCDC 1970 0.90 0.54 Rangarh/Bokaro IndustrialComplex

Pundi - NCDC 1970 1.50 0.75 New Steel PlantGovindpur - NCDC 1971 2.25 1.10 RourkelaSawang (expansion) - NCDC 1970 0.50 0.20 Bhilai, Rourkela

6.25 3.25

TOTAL 36.36 21.82

1/ National Coal Development Corporation (Government-owned)

Source: Ministry of Mines and Metals

filVTX III-APage 1

STEEL CONTROL

GOVERN IENT OF INDIAMINiISTRY OF STEEL, MINES AND HEAVY ENGINEERING

(DEPARTIENT OF IRON AND STEEL)

No. SC(A)--24(113)/63 New Delhi, the 29th February 1964

SUBJECT: Directive to Departments about Revised System of Distributionof Iron and Steel

In exercise of the powers conferred by Clause 17 of the Iron and Steel(Control) Order 1956, the Central Government is pleased to give the followingdirections as to the procedure to be followed by the concerned authoritiesin connection with the distribution of Iron and Steel. These directives wsilltake effect immediately.

Controlled and Free Categories:

2. With immediate effect, statutory control over prices and distributionof iron and steel materials other than the following will be withdrawn: -

i. Pig iron including ingot moulds and bottom plateii. Billets including tin bars

iii. Tinplateiv. Black Sheets (Plain) including coilsv. Black Sheets (Corrugated)

vi. Galvanised Sheets (Plain)vii. Galvanised Sheets (Corrugated)

viii. Platesix. Skelpx. Hoops and Wide Strip

xi. Defective material of any of the above noted categories

The above mentioned categories will be known as 'controlled categories' andall others as 'free categories'.

System of Indenting and Planning

A Joint Plant Committee is hereby constituted with the following per-sonnel to take over the functions at present performed by the Iron and SteelController in regard to planning and distribution of indents and rollingprogrammes:

(1) Iron and Steel Controller - Chairman(2) One representative of each main steel plant, i.e.,

The Tata Iron and Steel Co. Ltd.The Indian Iron & Steel Co. Ltd.Hindustan Steel Limited, RourkelaHindustan Steel Limited, BhilaiHindustan Steel Limited, Durgapur

ATNNLX III-APage 2

(3) A representative of the Railway Itinistry.

The Joint Plant Committee may obtain from the producers, indentors andthe authorised dealers such information and data as it may require in con-nection with the planning of production, scrutiny of indents and allocationto different plants. The Joint Plant Committee may also form such statisticaland other units as may be necessary for this purpose.

The Committee will handle all indents for controlled categories andsuch indents of free categories as are to be executed by the main steel plants.Indents for free categories which are to be procured from the Re-rolling 1lillsand Secondary producers including irysore Iron and Steel Limited will not behandled by this Committee. The Committee may formulate terms and conditionswhich are to be fulfilled by the indentors of de-controlled categories foracceptance of indents by them. The Committee should give wide publicity tothe procedure to be followed by the indentors in this regard and introducerevised formLs of indents, if necessary. MIeanwhile they will accept indentsin the forms at present laid down by the Iron and Steel Controller and alsoadopt the current indenting procedure laid down by him.

Distribution of Controlled Categories:

The existing system of distribution of controlled categories will con-tinue with the exception that all indents supported by quota entitlementsshall be sent to the Joint Plant Committee instead of the Iron and Steel Con-troller. The Joint Plant Committee will also plan indents for tinplate onTinplate Co. of India and Messrs. Khemchand Rajkumar and indents for cottonand jute baling hoops of M/s. J.K. Iron & Steel Co. and any other manufacturerproducing this material. The producers of tinplate and hoops shall not selltheir products except against plannings by the Joint Plant Committee.

The Joint Plant Committee will not deal with indents for Box strappingsor MIarrow Cold Rolled Strip which will be treated as free categories.

Quota Allocations

The Iron and Steel Controller will communicate bulk six-monthly allo-cations of different controlled categories to the Sponsoring Authorities, withthe approval of the Department of Iron and Steel. Before making these bulkallocations, the Iron and Steel Controller will make a realistic estimate ofthe domestic production in consultation with the producers so that backlog oforders on the producers is always kept at an optimum level. The Iron and

Steel Controller wvlill also collect demands from the Sponsoring Authorities andthose of the priority indentors from the Steel Priority Committee. The six-monthly allocations will be made only to the extent of anticipated domesticproduction. Supplies of imported steel uill normally supplement indigenoussupplies. Allocation of imported steel will be made by the Iron and SteelController with the general approval of the Steel Priority Committee, partic-ularly with regard to requirements of priority indentors. On receipt of bulkallocations, the Sponsoring Authorities will send a consolidated statement ofquota entitlement of individual consumers to the Joint Plant Committee andalso intimate the entitlements to the consumer concerned. These quota-holders

AIREX III-APage 3

should then submit their indents to the Joint Plant Committee supported bythe original letter of quota entitlement issued to them by the SponsoringAuthorities. The quota-holders whose entitlements are too small to beindented for on the producers direct will be required to book their ordersthrough stockists as at present. The present system of procurement anddistribution of State quotas through Registered Stockists will continue withregard to all controlled categories.

Steel Priority Committee:

A Standing Steel Priority Committee is hereby set up with the followringpersonnel: -

(1) Secretary, Department of Iron and Steel - Chairman.(2) Secretary, Department of Technical Development.(3) Secretary, Plamning Commission.(4) Secretary, Ministry of Finance, (Department of Economic Affairs).(5) Iron and Steel Controller - Member-Secretary

The Secretariat of the Steel Priority Committee will be located in theDepartment of Iron and Steel. This Secretariat will evolve forms in w-hichvarious Ministries and Departments entitled to apply for priority allocations,will submit their demands on a six-monthly basis. The demands to be con-sidered for priority grading are the following:

Priority 'A': Defense demands which will be collated, screened and sub-mitted to the Secretariat of the Steel Priority Committee by the Ministryof Defence.

Priority 'B': Railways, Transport and Communications, basic industries,agriculture, small-scale industries and important projects. These demandswill be collated, screened and sponsored by the 14inistries of the CentralGovernment responsible for the matters mentioned above. The SteelPriority Committee will, before taking decision about the six-monthlyallocation of priorities, generally hold discussions wJith the SponsoringlMinistries.

Distribution Agencies:

It has been decided to abolish the present system of controlled andregistered stockholders in so far as distribution of free categories is con-cerned. The producers are free to recognise anyone as a trader in steel offree categories after satisfying themselves of his credentials. Such traderswill be known as authorised dealers. Authorised dealers can be appointedeither by the Joint Plant Committee or by the individual producers. Whereasfree categories of steel can be indented for by a dealer even if he is not anauthorised dealer, the indents for controlled categories will be accepted bythe Joint Plant Committee only from dealers appointed by the Iron and SteelController as controlled and registered stockholders. These stockholdersdealing in controlled categories will be required to sell such materials atprices fixed by the Iron and Steel Controller and only to persons holding quotaentitlements. For the time being, therefore, the existing controlled and reg-istered stockholders wfill all continue to deal with controlled categories asat present and their existing terms and conditions of appointment will be con-tinued to be operative until these are altered by the Iron and Steel Controller.

ANITEX III-APage 4

Pricing:

The prices of controlled categ ories of steel will be fixed by the Ironand Steel Controller with the approval of the Central Government as at present,The present 3-column price structure for controlled categories will also con-tinue unaltered for the time being. There will be no free or open market forcontrolled categories of steel.

In the case of free categories, Government will not fix prices. TheJoint Plant Committee may determine, announce and list prices - base prices aswell as extras - from time to time. These will be ex-works prices. In orderto continue the present system under wlhich buyers of steel all over the coun-try pay the same railuay freight irrespective of the distance from the sourceof supply, the Joint Plant Committee should add a fixed element of equalisedfreight to the ex-works prices announced from time to time. The main producerswill continue to pay the actual freights and will make appropriate adjustmentsiith the Freight Equalisation Fund to be administered by the Joint Plant Com-mittee. The Joint Plant Committee will perform the function of freightequalisation for controlled categories also.

Re-Rolling Industry:

The re-rolling industry will be supplied billets at uniform f.o.r.destination prices. The Iron and Steel Controller will make bulk six-monthlyallocations to each individual re-roller and communicate these allocations tothe Joint Plant Committee, the re-rollers concerned and the Steel Re-rollingMills Association. To the extent of these allocations, the Joint Plant Com-mittee will accept indents from the individual re-rollers and arrange forsupply at prices fixed by the Iron and Steel Controller. There will, however,be no planning of any indent on the re-rollers by the Joint Plant Committee,or the Iron and Steel Controller and they will be free to book orders from anyconsumer or trader. There will also be no equalisation of freight for there-rollers who are free to fix their own prices. The Steel Re-rolling MillsAssociation, however, may announce and list the prices from time to time forgeneral information. The Iron and Steel Controller will ensure that the mainproducers fix a reasonable price for bars and rods and that such prices do notcause undue hardship to re-rollers.

Wire-Drawing Units:

The products of the wire-drawing units, i.e., all types of drawn wiresand wire products are treated as free categories. Control over both price anddistribution of these materials, therefore, stands withdrawn.

Equalisation Fund:

Consequent on the removal of statutory control over price of the bulkof steel production and the decision to entrust freight equalisation to theJoint Plant Committee, there is no further need to continue the operation ofthe Equalisation Fund. Government have, therefore, decided that as from the1st 14arch 1964, there shall be no new transactions involving payment either toor from the Equalisation Fund. Accruals to the Fund and payments therefromresulting from the previous transactions will, however, continue.

1I. SubrahmanyamAdditional Secretary

(Published in the Gazette of India Extraordinary dated 1st March, 196h, inPart II, Section 3(i).)

ANNEX III-BPage 1

STEEL CONTROL

The History of the Retention Price

The history and the policies in setting the producers' retentionprices can be divided into three distinct phases.

(a) In 19h9 uniform average retention prices were established forboth TISCO and IISCO, the only significant producers at the time. In theperiod 1950-1955 the two companies received different prices for the samecategories, because costs were higher at the Burnpur plant. Overheadsallowed for a gross return of eight percent on historical block. The pricesdid not provide for any margin to finance expansions. Since the companies'earnings were insufficient to finance the expansions carried out at thattime, Government loans, and special advances from the Equalisation Fund hadto be arranged. Those advances amounted to about Rs. 100 million to eachcompany and had unspecified maturities and undetermined interest charges.Pursuant to agreements between the Government and the two companies, repay-ment was to be made only from a "special element" to be added to thecompanies' retention prices to the extent that the proceeds from a shareissue, to be mutually agreed between the Government and the companies, werenot used to repay a portion of the special advances.1/

(b) Between 1955 and 1960, when TISCO and IISCO carried out theirSecond Plan expansions, the level of earnings was set with a view to meetthe financing requirements of the expansions after allowing for costs, chargesand the likely availability of outside funds. While both companies'retention prices were uniform for common categories, TISCO had to put Rs. 50per ton into a special development fund, against Rs. 7 in IISCO's case. Thedifference was not only due to TISCO's expansion being bigger, but also tothe fact that IISCO's production costs continued higher. Prices of cate-gories produced by TISCO alone were established so as to yield together withthe returns from common categories the amount of funds needed for the expan-sion. Since that time, retention prices have been subject to escalation tocover increases in railway freight, changes in statutory prices of coal, andincreases in labor cost due to legislation or Wage Boards awards.

1/ Since the promulgation of the Companies (Amendment) Act in December 1963,the Government has the power to convert, if it considers this necessaryin the public interest, loans which it has made to shareholder-ownedcompanies into equity. Both TISCO and IISCO signed earlier this year agree-ments with the Government for the repayment of their respective specialadvances, in essence providing for an initial payment of one-half of theadvances (which both companies have meanwhile made) and repayment of theremainder by installments in the period 1969-72. Interest payments haveto be made at the bank rate in force, including a portion of back interestfrom April 1961 onwards. These agreements have received the Bank'sconsent, required under Loan and Guarantee Agreements concluded in theFifties.

ANNEX III-BPage 2

(c) The Tariff Commission reviewed prices in 1962 retroactive to

1960. During that period the HSL plants had come into production. The

Government directed the Commission to recommend e al prices for steel

categories common to all producers, including HSL_, and prices for non-

common categories "in relation to the price of common categories on thebasis of known or standard differentials". No allowance was to be includedfor development. The Commission was unable to establish representative costsfor the HSL plants since they were still far from a reasonable degree of

capacity utilization. It therefore based its findings on costs in TISCO andIISCO. To calculate overheads, it assumed a standard for gross block ofRs. 1300 per ton of saleable steel, at 90 percent capacity utilization; this

was approximately TISCO's block which included about 30 percent of plantinstalled before 1955. On this basis the Commission recommended an average

retention price for the industry as a whole of Rs. 550 per ton of saleablesteel to cover works costs, 5 percent straight-line depreciation on allassets, interest on working capital equivalent to six-months' works costs,

an 8 percent return, and a special element of Rs. 8 for the repayment of

the special advances received by TISCO and IISCO. The Government rejected

the recommendation and set the average price at Rs. 520.5. It reasoned that

the plants should have worked at 100 percent capacity and prices shouldtherefore be based on a gross block of Rs. 1,176 per ton; it disallowed the

special element and reduced the working capital provision to four months.

In July 1963, the average retention price was raised again to Rs. 550.5.

The increase was made to offset cost escalations since the price period

1960-62; the computation formula remained the same. This price remained in

effect until February 29, 1964, when the system of retention prices was

abolished.

1/ Under the Government's agreements concluded in 1955 with TISCO and IISCO

price equality with other main producers, public or private, had to be

maintained until March 31, 1962, with respect to the common categories.

01O - STO!L SUPPLY

(thc.-od -t_r1 to_.)

AC A LE S T I A T E D

1960/61 1962/63 1963/66 1961/65 1965/66 (Pro-Lonal) 1967/68

flt 6u Irt Totatsbno da To-ta Pf T FAuct1o p 1-. P o Irt Tool P,ot O lOoor 1ott .

(1 th.ob i, - mu P rodo )

1) Pm 0R8O l.30.5 - 6,30w.5 6,020.3 - 6,020.3 6,14T.B - 6,417.8 6,602 - 6,602 7,104 - 7,ld. 9,653 _ 9,653

of 66, for f 21. 873.2 11.1 881,.3 1,065.8 .8 1,I6D.6 1,100.8 .1 1,100.9 1,036 106 1.312 1,1113 68 1,207 1,789 - 1,789

2) 113CT S7TEL 3,364.1 - 3,36b.1 5,290.7 - 5,290.7 5,833.7 - 5,833.7 6,021 - 6,021 6,386 - 6,386 8,600 - 8,600

3) aU PM 361B 1,053.1, 36.9 1,090.3 1,035.8 79.8 1,115.6 1,191.0 59.8 1,250.8 1,066 61 1,127 1,018 39 1,057 1,336 _ 1,336

(bl ad .ll.t.)

b) 7D1380 asr 1,953.0 2,927.6 3,361.2 3.622 3.808 join

1. 8.1t., Str-ot-. od lb.t 892.5 b61.5 1.35.o 1,935.7 380.1 2,315.8 2,205.9 316.2 2.522.1 2.321 2 2.605 2.134 173 2.607 3.1,56 100 3.556

.) 811,- 159.2 176.0 335.2 67.5 233.0 600.5 h59.8 105.6 565.2 W6 6 652 863) T 13 - fl3

b) Slo-p. ) Sloopor Br) 6.6 - 6.6 51.7 11.1 62.8 83.3 26.8 110.1 68 _ 68 69) ) 543 157 157

o) S0.t.otooo3. 332.0 80.9 b12.9 672.6 37.7 660.1 609.4 25.3 636.7 648 61 692 686 13 699 837 837

d) rloohoot oOtioo 375.2 76.2 651.A 768.6 37.6 806.0 1,001.2 76.5 1,077.7 1,099 137 1,236 1,156 86 1,262 1,219 100 1,319(06 .. d Br Shp8,.)

)VL-a dW Inr. dC _ 128.6 128.6 - 60.7 60.7 - 82.2 82.2 - 78 78 - 63 63 400 b00

f) Wh,.lo. .d . 19.5 - 19.5 h5.3 - hS.3 51.6 - 51.6 59 19 78 58 - 58 119 119

g) 2t pl-t-- - - - 0.A - 0.4 0.6 - 0.6 1 - 1 2 - 2 11 - 11

2. Pot Prodot 560.5 668.2 1.028.7 1.991.9 372.1 1.36h.0 1,135.3 519.6 1,65h.7 1.301 563 1.86 1.37b 469 1.843 1.837 808 2.637

0) Pl,1, 113.2 ) 253.6) ) 266.1) 266) 3 2E0) ) 380)

b) H.t-rofl.d .h,ot .d tvr.p 21h.3) ) 357.0 ) 4 590.1) 529 ) 6h8) ) 592)3 379.6 3 776.5 8 333.9 | 1,.1, ) h66.5 1,395.5 3 SU S 1,558 33 | 31 1,577 2 700 3 2,102

oCold-rolod p.t od8,1 - 9 383.3) 3131.8) 173) 3163) 250)

d) O loI.d h-ot. 69.4) 3 83.8) ) 83.0) 79) 52 )

o)?T plut - 88.6 88.6 8.2 38.2 46. 16.5 52.9 69.6 23 52 75 26 35 61 11.0 100 260

f) Sklp 160.5 - 160.5 178.6 - 178.A 161.6 - 161.6 197 _ 197 181 - 181 295 - 299

8) PSP-! 3.1 - 3.1 27.8 - 27.8 28.2 - 28.2 3a - 3b 26 _ 26 - - -O b r O n r~~t60 0th,, r ObrOohr

topoot hpot. 7q,ort 1.0,03,q-79.1 79.1 83.3 83.3 29.7 29.7 35.3 35.3 L -po rt

rOTAL 11BLE S7TElL (3 6 4) 2.5%.h ilAS.7 3,559.1 3,963.6 ns15.0 j h532.2 925.1 5,6b7.3 4,688 9i3.3 5.631.3 4 822 5,6b8 6.629 900 7.529

R HE-HOLtS 0 PRODUCTI2 0 921A 969.2 95.5 bS.1 760 1,100

900 b, 35% rodo ( f-r00O¢0tolD o,~ o!0l Of 06d01,',OOtpOt), 19S LIht t.to l

*a cbdrr 9 oPrbe- 136.6 118.0 156.5 175.1 1901-1.8. Po-Roll. 655.1 672.9 679.6 5104 7. 0

S300 p -8t.31 159.7 128.3 118.1 :°6 130

O TOrAL M71H2D S7L (h 6 S) 2,rAb 1,OL.8 3,L13.2 3.876-8 835.2 1 _728,5 6293.7 86582. 5 3 5.71 Y 1569 703 5.351 o.393 __ 7,293

!/ Abo-t 75,000 - 60,000 too, per uo prod t Pl-t th- 1. t prlnry n0.1 prodt.,..../ St-l pip., *h-w o..y to illS-t-ot rs.n of -P-d-hc0 of the prIory .00, 1 8redOpor-

s.rc- Stool w.. for 1960/61 - 1967/68 dut. on _in p-odo,rs.St0I R8.-Rol1, Pi111, A-.00t-loo Of rndt for 0000.1 dt. o ro-r711er-

prdototl t-roogh 1986/66.[ron .06d 9t01 Cot-rollr. for .0t001 i.poro- (1965/66 fti,-o P--Ded o0

b.1no Apnle .m -I -f 7r 65 rpllsslo sUte f-r hbl-c..

ANNEX V-A

Planning Commission's Estimateof Steel Consumption in India

in 1960

(thousand tons)Manufacturing

Transport Equipment 370Electrical Equipment 23Industrial Equipment 56Small-Scale Industries 380Other Manufacturing (including pipes

and structural fabrication) 412DeferLse 150Agriculture 360

Total Manufacturing 1,751

Construction

Agriculture 105Irrigation 55Industries, Mining and Power 684Railwaay and Other Transport 882Housing and Social Services 325

Total Construction 2,051

Stocks and unspecified uses 473

Total 4,275

Apparent Supply

Domestic Production 2,210

Imports 1,212

Total 3,422

ANNEY V-3

ESTD4ATES OF STEEL DEMAND IN P.VIA(in thousand tonsY

1/Indian Estimates -

1965/66 1970/71Planning L/ Planning */

Demand of Consuming Sectors Commission Dastur Commission Dastur

Manufacturing

Transport Eauipment 755 762 1,340 1,363Electrical Equipment 110 204 232 382

Industrial Equipment 302 359 645 71ASmall-scale Industries 6oo 475 1,000 760Other Manufacturing 763 1,443 1,445 2,310Defense 300 300 500 500Agriculture 675 492 1,125 730

Total Manufacturing 3,505 4,035 6,287 6,789

Construction

Agriculture 182 182 262 263Irrigation 80 81 125 125Industries, Mining and Power 1,384 1,601 2,350 2,688Railway and Other Transport 1,015 1,168 1,580 1,736Housing and Social Services 425 468 825 908

Total Construction 3,o86 3,500 5,142 5,720

Stocks, spares and 948 1,067 1,701 1,705unspecified uses

Total 7,539 8,602 13,130 14,214

*/ Forecasts relate to calendar years 1965 and 1970.

NCAER's Estimates

1965/66 1970/71

Agriculture and communitydevelopment 201 295

Industries and minerals 3,915 7,312Transport and communications 1,303 1,903Power 295 569Irrigation 99 100Social Services 240 485Others 300 500Stocks (1/12 of foregoing) 529 930

Domestic Demand 6,882 12,094

Export Possibilities 20 1,500

Total 6,902 13,594

1/ The estimates of the Planning Commission and of M.N. Dastur & Company areorganized along similar lines, although the scope of some of the steel-using sectors shown is not identical. NCAER's estimate is organizeddifferently and therefore shown separately.

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