Modi's 'Make in India' drive skids on red tape

Prime Minister Narendra Modi is seeking to turn India into a global manufacturing hub by curbing red tape. Photo / AP

Prime Minister Narendra Modi is seeking to turn India into a global manufacturing hub by curbing red tape. Tell that to Tata Steel, which closed one its largest iron-ore mines because of delays over permits.

India's largest maker of the alloy isn't alone. Steel Authority of India, the second-biggest, has closed one of its top-yielding quarries, pending renewal of its lease. JSW Steel's plan to start mining in the eastern state of Jharkhand has been hampered by a probe into the mine allocation process.

Modi is set to trumpet his "Make in India" initiative at the Group of 20 summit in Australia this week as he vies with China to woo manufacturers. The mine closures show lingering bureaucratic obstacles to his push, stemming from court rulings and officials in India's 29 states that lie beyond Modi's direct control. India slid two places to 142nd out of 189 economies in the World Bank's latest ease of doing business rankings.

"There are things beyond the government's control," said Taimur Baig, chief economist at Deutsche Bank in Singapore. "If a court makes a pronouncement there is nothing really that the executive can do. For better or for worse, India has many more layers of checks and balances."

Tata Steel shares have gained 11 per cent this year, lagging behind the benchmark S&P BSE Sensex's 32 per cent increase. State-run Steel Authority has climbed 15 per cent, while JSW Steel has risen 21 per cent.

Modi introduced the "Make in India" drive in September to lure investment and revive economic growth after sweeping to office in a landslide victory in May. His government aims to boost manufacturing's share of India's $1.9 trillion gross domestic product to 25 per cent from about 15 per cent currently.

Iron ore

The government needs abundant iron ore supplies to beat China's global dominance in manufacturing and vie with nations such as Thailand and Indonesia as a production hub. The ore is used to make steel, which in turn is used to manufacture everything from cars to railway lines.

Yet judicial mining bans over environmental and regulatory lapses led to a drop in iron ore production in four of the past five years. That's stoked local prices even as global rates fell, and some buyers are turning to imports.

Spot prices of iron ore in Odisha, the biggest producing state, have gained 31 per cent in the past year to 3,200 rupees ($52) a ton, said Gunjan Aggarwal, an analyst at commodities consulting firm CRU Group. Prices at China's Qingdao port have slid 44 per cent to less than $76 a ton as of Monday.

Tata Steel said it is meeting the shortage through local purchases and imports of the material.

"There are challenges in procurement due to logistics constraints and hence we are facing difficulty in operations," spokesman Chanakya Chaudhary said in an emailed reply to questions.

'Contrary to PM's vision'

Steel rebar from China at Indian ports cost 37,000 rupees a metric ton in October, compared with Steel Authority of India's price of 44,000 rupees, the company's data show.

"Steel is the most crucial element," said Surinder Kapur, chairman at New Delhi-based automobile-parts maker Sona Koyo Steering Systems. "Steel plants running at lower capacity run contrary to the prime minister's vision."

Modi's changes since taking power include faster environmental approvals for major investment projects, more market-based energy pricing, fewer foreign-investment curbs and steps toward ending the state's grip on commercial coal mining.

He expanded his cabinet two days ago as he seeks faster decision-making to speed up growth in Asia's third-largest economy. His administration has vowed to press ahead with amending land, labour and investment laws to make business easier.

Regulatory hurdles

At the same time, regulatory hurdles continue to constrain iron ore production. CRU estimates iron ore imports may surge to 15 million tons in the year ending March 31 compared with the prior 12-month period.

"We are being squeezed," said Jayant Acharya, marketing director for JSW Steel. "While the international iron ore prices are at a five-year low, our own domestic prices are going in an opposite direction."

About 20 per cent of India's steel capacity isn't being used, the Steel Ministry's Economic Research Unit estimates.

"That's not a good sign for any investor," said A.S. Firoz, the chief economist at the unit. "We have to fix the raw materials issue and take care of infrastructure for smoother movement of raw materials and finished products."

- Bloomberg