India’s protectionist bent and weak state cast doubt over steel-building ambitions

By Hu Weijia Source:Global Times Published: 2016/7/8 0:13:01

While steel firms in many parts of the world are experiencing a painful process to cut overcapacity, New Delhi is looking to significantly expand its domestic steel sector. Following Indian Prime Minister Narendra Modi's statement last year that the country must surpass China in steel production, Bloomberg reported this week that India wants to almost triple the size of its steel industry over the next decade to reduce its reliance on imports.

However, there are major questions over whether India can really realize its dream of becoming a global steel-producing colossus.

Though the Modi administration called for the significant expansion of the steel industry, the government itself may be the major cause of a possible failure in the strategy's implementation.

The steel sector is the backbone of the manufacturing industry, and it is tough to imagine a nation building a complete industrial system without the development of steel enterprises. The Modi administration's clear ambition to turn India into the world's factory makes the promotion of India's domestic steel industry development absolutely necessary, but it is doubtful whether the Indian government is strong enough to promote this grand strategy.

Historically speaking, governments in countries like South Korea, Japan and China played an important role in promoting steel industry development in the initial stage of their industrialization process. The South Korean government owned 75 percent of steel giant POSCO when it was set up in 1968, and Baosteel - China's largest listed steel maker - is State-owned. The development of the steel sector requires a large amount of investment, meaning governments always have to play a role in mobilizing financial resources and creating favorable conditions for the rapid expansion of big steel firms. However, India's democratic system may leave the government with limited power to raise sufficient capital for investment in profitable industries.

It seems India is seeking to boost its domestic steel industry with some help from trade protectionism, making China a primary victim of Indian trade investigations. It is true that protecting Indian steel firms from intense international competition can buy some time for the industry's domestic expansion. But such moves will reduce India's competitiveness in the long run.

In this regard, China's experience of reform and opening-up to the outside world might provide some insight, proving that New Delhi's promotion of Indian manufacturing will not inevitably lead to confrontation between China and India. China and the US witnessed unprecedented economic interaction in China's early stage of industrialization as Beijing actively boosted bilateral trade and attracted investment from the US. Why can't New Delhi consider adopting similar open-mindedness toward China?

The author is a reporter with the Global Times.

Posted in: Eye on The Economy

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