Competitive Steel, Competitive India

Executive Summary

Steel is a core input for industrial economies and underpins a wide range of downstream sectors, including construction, automobiles, capital goods, shipbuilding, and infrastructure. Hence, steel prices and their availability strongly influence a country’s economic growth. The history of the Indian steel industry began in 1912, when Tata Steel (formerly TISCO) started operations in Jamshedpur. During the British Raj, the company supplied the government during both World Wars, helping it secure tariff protection. By the late 1930s, Tata Steel had reduced costs and improved efficiency, and these tariffs were eventually removed in 1947. However, the trajectory of this successful private industry shifted with the New Industrial Policy of 1956, which reserved the steel sector solely for the government until the economic reforms of the 1990s.

Over the last couple of decades, India’s steel output has risen sharply. From producing less than 5% of global steel and ranking ninth in 2000, India became the world’s second-largest steel producer by 2025, accounting for nearly 9% of global output, behind only China, which produced 960 million metric tonnes of steel. Indian steel is riding high on robust domestic demand caused by rapid economic growth. This growth has also been accompanied by handsome profits—the steel industry recorded average profitability (earnings before interest, tax, depreciation, and amortisation [EBITDA] over sales) of 15% which is 3–4% higher than the rest of Indian manufacturing (2000–2025) and the biggest global steel firms (2015–2024). High growth and profitability can emanate either when the industry is efficient or when it is protected. This raises a fundamental question—how do we know if the Indian steel sector’s laurels are due to competitive strengths or because of protection? And how to improve its competitiveness further? This study attempts to answer these pivotal questions. Below are some key findings from our analysis:

Iron-ore prices are controlled for the steel industry: India has kept iron ore prices significantly cheaper for steel manufacturers by imposing a 30% export duty (of the selling price) on iron ore since 2011. This results in a significantly lower domestic ore price (around 30–40% lower than global prices). India can keep ore prices low because it is self-sufficient in iron ore, and most of the iron ore (98%) is used only in steel-making. The lower ore price reflects the undervaluation of domestic resources purely to benefit the steel industry. Since the bulk of iron ore is produced by the public sector, and steel is largely owned by the private sector, this benefit transfer is from the public to the private sector.

Steel products have tariff and non-tariff protection: The output of the steel industry and its price are protected through high tariffs at around 7.5% (plus an 11.5% safeguard duty) and non-tariff barriers in the form of Quality Control Orders (QCOs) on 228 steel products (of which it stands suspended on 59 products as of September 2026). The comparable tariff rate in the Association of Southeast Asian Nations (ASEAN) and China hovers between 3% and 4%. As a result, domestic steel is priced not only higher than in China but is also around 6% more expensive than in a high-cost country like Japan. Notably, the price is higher despite lower production costs in India. A direct comparison of the major cost heads—viz, wages and salaries, finance cost, logistics, and coking coal—between Japan’s biggest steel producer and India’s biggest private sector steel manufacturer shows that the per-tonne cost for the Indian steel manufacturer is lower by almost 20–40%. Higher steel prices have a detrimental impact on downstream industries and, consequently, on the overall economy. In the construction sector, for example, steel typically accounts for around 15% of total project costs. In the automobile sector, steel and steel-related products constitute roughly 5% of the raw material cost of a four-wheel vehicle.

Profitability of the steel sector is compromised under free market conditions: What would happen to the industry’s profitability if this policy largesse is withdrawn, ceteris paribus? We create two independent scenarios to test this. First, the price of domestic steel drops by 6% almost equating it with Japanese levels. Second, export duties on iron ore are removed, and steel players buy all their iron ore requirement at global prices to reflect its true cost. Under both scenarios (considered independently), the industry loses much of its profitability. In the first scenario, the profitability of the largest private sector steel firm reduces by 25% and in the second scenario, it reduces by 70%. Meanwhile, the profitability of the largest public sector firm and the fastest-growing private firm drops by 40%–50% in the first scenario and becomes negative in the second. Steel industry’s high profitability is because of its ability to sell at a higher price in the domestic market. Thus, the steel industry owes much of its sheen to a favourable policy architecture, which has resulted in a high-price industry.

Policy Recommendations for a More Efficient Steel Sector

Continuing this current paradigm is inefficient. While maintaining protection can accelerate capacity addition in the short term, it weakens incentives for efficiency improvements, entrenches higher costs, and undermines steel-intensive industries that are critical for jobs, exports, and manufacturing growth. India needs a holistic reform package to make the steel industry globally competitive. Below are some key recommendations based on our analysis:

• Reduce tariffs and non-tariff barriers on steel: Implement a calibrated 5–10-year roadmap to lower duties in the sector to ASEAN-equivalent levels, and use anti-dumping measures only sparingly if evidence of unfair trade emerges. Implement the recommendations of the high-level committee on non-financial reforms to remove QCOs on a large number of steel products immediately.
• Disinvest the government’s stake in Steel Authority of India Limited (SAIL): Begin a phased disinvestment in SAIL. Given the predominance of the private sector in the steel industry, there is no reason the Government of India should be actively managing a steel firm. At the same time, the state must retain strategic minority holding. This will improve efficiency, governance, and fiscal outcomes without compromising strategic oversight.
• Remove the export duty on iron ore: Abolish the 30% export duty on high-grade iron ore to unlock value creation and increase its export revenues. This will also expose domestic steelmakers to global ore prices, improving efficiency. This was the case before 2007; we need to return to that regime.
• Overhaul the mining policy to incentivise exploration: The removal of the export duty on iron ore will result in sizeable exports of the ore, which will encourage further exploration of the resource. However, this will run into bottlenecks under the current auction-based mining regime, which separates the rights of exploration from those of extraction. That is, those who discover new mines do not have the right to sell the mining rights (Chadha et al., 2023). They receive revenue in the form of a share of the auction premium owed to the state government only when the mine is auctioned and operationalised (Chadha et al., 2023). Given this incentive structure, exploration has virtually stopped in the country. Explorers should be allowed to monetise their discoveries by transferring or selling discovered blocks to mining companies. This will accelerate new mine development, boost mining’s contribution to Gross Domestic Product (GDP), and attract long-term investment.

Competitive steel is a necessary condition for competitive manufacturing. A calibrated shift toward openness and efficiency would serve India’s broader growth objectives far better.

Keywords: Competitiveness, Trade barriers, Steel industry, Iron ore mining, Mining, Quality Control Orders