Swot Analysis: Industry of India
How it works
- Availability of iron ore and coal currently
India ranks fourth in the global iron ore production charts (with more than 130,000,000 tonnes being produced just last year and third in the global steel production chart (89,000,000 tonnes being produced last year) (2013 Minerals Year book- Iron Ore, 2016). Ignoring the future availability of their own ores, currently, the gradually increasing mining industry and availability of essentials like iron and coal- necessary for the sustenance of the industry- form a big component of the attractiveness of the industry.
- Low labour wage rates
With its history of being the labour intensive industry, the low labour wage rates of the Indian steel and iron industry provide a major cost advantage to the firms of the industry. While it could be argued that things are changing and lesser people are being employed in the machinated firms, the fact still remains that largely semi-skilled nature of actually working in the steel and iron mills is proportionate with their wage rate.
- Abundance of quality manpower,
‘ As a basic industry’ the steel and iron industry creates considerable proliferation of the upstream and downstream firms – with studies by the International Journal of Scientific and Research Publications stating that one year of employment in the steel industry creates 3-3.5 years of employment of another person elsewhere. With this, the total employment rates go up which only helps the Indian economy grow.
- Constant demand from construction industry
In relation with the point above, the Indian construction industry’s consistent demand for steel and iron products to improve the metropolitan city infrastructure makes the industry an attractive option.
- Increased demand from automobile industry
The currently booming automobile industry – in addition to their highly specific and customized demand for steel and iron products – is a major component in the profitability of the industry.
- Unsustainable means of acquiring domestic raw materials
Despite the claims made by the private firms of the industry of having modernized processes that favor sustainability, the actual acquiring of raw materials is currently being done in a very haphazard fashion – with wrong mines being dug out to find low-quality hard coal, and crude steel being produced using outdated and polluted open-hearth methods – that causes the environment more harm.
- Low labor productivity
This is only in relation to the other big players of the global industry – an average Indian steel maker producers nearly 144 tonnes of steel per worker, while the average western European steel maker producers more than 600 tonnes of steel per worker.
- Low research and development investments
In comparison with the western industries, India is seriously lacking on the technological front – especially on the eco-friendliness of its mining and refining capabilities If India were to catch up on the operational efficiencies of the western cousins and its production of stainless steel and other such basic requirements by the industry, India’s already high position on the global charts would be ever higher.
- High-interest rates
While it is a given that any industry takes loans out on capital to be used by the firm, Indian steel firms are charged at around 14% on capital, which creates a high cost of debt, especially when the numbers are compared to Japan’s interest rate of 2.4%.
- Inadequate infrastructure
The insufficient transport facilities and other infrastructural issues like lack of enough ports, etc. severely hamper the economic growth of the industry. Despite having the world’s most widespread railway networks, India’s poor quality of transport doesn’t allow the distribution of steel and iron goods to occur efficiently.
- Intermittent energy cuts
India’s characteristic power outages also affect the production processes of the steel and iron companies. Those firms with heavier energy requirements invest on industrial generators that produce their own electricity, but the largely government-run factories are still hampered. While it was promised in 2005 that India would soon solely rely on nuclear energy for its future energy demands, this plan is still to be implemented.
- Booming automobile industry
As mentioned above, the up and coming automobile industry is only expected to improve its sales and up its demands for highly customized products, which would provide an opportunity for the Indian steel and iron industry to increase its profitability
- Unexplored rural market
Due to rapid urbanization and growing urban infrastructural demand, there is an additional increasing insistence for improved infrastructure in the rural areas of India which would only provide a favorable possibility for the steel and iron industry to benefit from this expansion into rural housing, etc. especially in terms of both higher product demand, but also improved distribution channels.
The Middle East and Singapore’s growing demand for India’s exports of hard coal, crude steel and iron ores provide scope for developing the industry’s economic status.
- New natural gas substitutes
The emergence of shale gas as a cheaper fuel is soon changing the landscape of steel production in Saudi Arabia, Mexico and Iran, in the creation of DRI to make steel. The numerous opportunities that would emerge if India upgraded its current methods and resource to adopt this new fuel source would help the entire industry keep up with its increasing capacity.
- High interest of foreign producers
The increasing interest in foreign steel producers, especially after the new Industry Policy Regime that has opened the industry to private investors has led to a new influx of foreign technology and FDI into the industry, with the Ministry of Steel behaving as a facilitator. This has created significant scope for the economic development of the industry.
- China’s takeover of exports
With the growth of China’s steel industry to creating 49% of the world steel production (‘China’s Steel Industry Is Dominating the Global Market but Will It Last’, 2016), it is soon expected to take over as the biggest and soon – only net exporter of steel. While it currently plays a significant role in using up the excess and scraps steel from other parts of the world, its government’s initiatives to accelerate their scrap industry will decrease their demand for foreign scrap material, cutting India’s income through scrap exports, and also eating into the global export markets for steel and iron in general.
Not only had this, but China’s rise to becoming a net exporter also put domestic steel prices under pressure. China’s industry is expected to be consolidated even more, and thus, poses a great threat to the current Indian steel and iron industry.