SAIL strives to be a respected world class corporation and the leader in Indian steel business quality, productivity, profitability, and customer satisfaction. We build lasting relationships with customers based on trust and mutual benefit. We uphold the highest ethical standards in conduct of our business. We create and nurture a culture that supports flexibility, learning, and is proactive to change. We chart a challenging career for employees with opportunities for advancement and reward. We value the opportunity and responsibility to make a meaningful difference in people's lives.
The Steel Authority of India Ltd. (SAIL) is the largest steel manufacturer in India. The company's four integrated steel plants and three specialized facilities produce a variety of steels used in the construction, engineering, utilities, railway, automotive, and defense industries. SAIL's product line includes hot- and cold-rolled sheets and coils, galvanized sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel, and alloy steels. While India's government owns approximately 85 percent of the company, SAIL operates under a "navratna" status, that is, it enjoys substantial operational and financial autonomy.
The history of the iron and steel industry in modern India is closely bound up with political and economic developments since the country achieved independence from Britain in 1947. Most of the productive units run by SAIL were built as state ventures with aid and assistance from industrially developed countries, and operated by SAIL's predecessor, Hindustan Steel Ltd. SAIL's main subsidiary, the Indian Iron & Steel Company Ltd., India's largest single iron and steel company, developed separately as a private company before nationalization, but it depended on state subsidies from 1951 onward and had to function within the terms of the government's planning system.
The industry, however, did not spring from nowhere in 1947. Iron had been produced in India for centuries, while Indian steel was superior in quality to British steel as late as 1810. With the consolidation of the British raj the indigenous industry declined and the commercial production of steel did not begin in earnest till 1913, when the Tata Iron and Steel Company began production at Sakchi, on foundations laid by Jamsetji Tata, whose sons had raised the enormous sum of INR 23 million to set up the company, partly from family funds but mostly from Bombay merchants, several maharajahs, and other wealthy Indians who supported the movement for Indian self-sufficiency (Swadeshi) but did not want to appear openly anti-British. Tata was to dominate the Indian steel industry until the 1950s. The Indian Iron & Steel Company was set up in West Bengal in 1918 by the British firm Burn & Co., with plans to become a rival steelmaker. Steel prices declined in the early 1920s, however, and the company produced only pig iron until 1937. The acute depression suffered by the iron and steel industry after World War I was alleviated by the government's protective measures. The industry continued to make steady progress.
From the late 1920s, when the British authorities introduced a system of tariffs that protected British and Indian steel but raised barriers against imports from other countries, the Indian market was divided in the ratio of 70 to 30 between British producers on the one hand and the Tata company on the other--thus effectively excluding indigenous newcomers. By 1939 the Tata works were producing 75 percent of the steel consumed in what was then the Indian Empire, consisting of the present-day India, Sri Lanka, Pakistan, Bangladesh, and Burma.
In the late 1930s, as European rearmament pushed iron and steel prices upward, the export of Indian pig iron increased and two small firms began to compete directly with the Tata company in steel production. The first was the Mysore State Iron Works, which had been set up by the maharajah of Mysore in 1923 to produce pig iron at Benkipur, now Bhadravati. The second was the Steel Corporation of Bengal, a subsidiary established by the Indian Iron & Steel Company in 1937, the year after it had bought up the assets of the bankrupted Bengal Iron and Steel Company. The Steel Corporation of Bengal was reabsorbed into its parent company in 1953. All three companies profited from the British connection during World War II. Annual output rose from one million tons in 1939 to an average of 1.4 million tons between 1940 and 1945.
In 1947, when India became independent as the biggest, but not the only, successor state to the British raj, the three major iron and steel companies had a total capacity of only 2.5 million tons. A great deal of their plant was already more than three decades old, and badly in need of repair and replacement, while demand for iron and steel was growing.
Industry Changes in the Late 1940s-50s
Like other Third World states that achieved political independence but found their economic prospects determined by their subordinate position in the world economy, the new republic's policymakers decided to seek economic growth through a combination of protection for domestic industries, heavy public investment in them, encouragement of savings to finance that investment, and state direction of production and pricing. The Mahalanobis model of the Indian economy, based on the assumptions that exports could not be rapidly increased and that present consumption should be curbed for the sake of long-term growth through import substitution by the capital goods sector, provided the theoretical justification for this set of policies, which closely resembled what was done in the Soviet Union in the 1930s, in China in the 1950s, and in Africa and Asia in the 1960s, though with much less loss of life than in most of these cases.
Under the terms of the new government's Industrial Policy Statement of 1948, confirmed in the Industries Development and Regulation Act three years later, new ventures in the iron and steel industry were to be undertaken only by the federal government, but existing ventures would be allowed to stay in the private sector for the first ten years. Thus the First Five Year Plan, from 1951 to 1956, involved the use of government funds to help Tata Iron and Steel and Indian Iron & Steel to expand and modernize while remaining in the private sector. As for new projects, in 1953 the government signed an agreement with the German steelmakers Krupp and Demag on creating a publicly owned integrated steel plant, which was sited at Rourkela, in the state of Orissa, to make use of iron ore mined at Barsua and Kalta. Krupp and Demag were chosen after the failure of Indian requests for aid from Britain and the United States, but were excluded from the project by 1959, when the Estimates Committee of the Lok Sabha, the lower house of the Indian Parliament, concluded that getting investment funds from them was equivalent to borrowing at an interest rate of 12 percent.
In order to carry out its side of the agreement the government set up Hindustan Steel Ltd. in 1954, as a wholly state-owned company responsible for the operation of the Rourkela plant. By 1959, when the plant was commissioned, Hindustan Steel had become responsible for two more plants, at Bhilai in Madhya Pradesh and at Durgapur in West Bengal, under the Second Five Year Plan, which started in 1956. The Bhilai plant, located between Bombay and Calcutta, was designed and equipped by Soviet technicians, under an agreement signed in 1955, and by 1961 it included six open-hearth furnaces with a total capacity of one million tons, supplied from iron ore mines at Rajhara and Dalli. The Durgapur plant, meanwhile, was built with assistance and advice from Britain and sited near the Bolani iron ore mine. Hindustan Steel took over the operation of all the iron ore mines supplying its plants, all three of which had been located to take advantage of existing supplies. This policy of locating steel production near raw materials sources reflected the relatively small and dispersed nature of the domestic market for steel at that time, and contrasted with the market-related location policies of companies in more advanced steel-producing countries, such as the United States.
Hindustan Steel's other major venture was its Alloy Steels Project, also based at Durgapur, which was inaugurated in 1964. Hindustan Steel's tasks included not only steel production but also the procurement of raw materials, and its subsidiaries included, in addition to the iron ore mines already mentioned, limestone and dolomite mines and coal washeries. It also operated a fertilizer plant at Rourkela.
The modernization of the two private sector leaders and the program of public sector investment together raised Indian steel output from about one million tons a year in the 1940s to three million tons in 1960, then to six million tons only four years later. Pig iron output rose by an even greater margin, from 1.6 million tons in 1950 to nearly five million tons in 1961. Both wings of the iron and steel industry contributed to the expansion of the engineering and machinery industries envisaged in the Mahalanobis model, and in turn were stimulated by the increased demand to raise production volume and quality. In 1965 Hindustan Steel's latest project, for an iron and steel plant with an associated township at Dhanbad in the state of Bihar, was transferred to a new company created one year earlier, Bokaro Steel Limited. Contact continued between the two companies, however, mainly through an arrangement whereby the chairman of each company was made a part-time director of the other. Like the Bhilai plant the Bokaro project was initiated with aid and advice from the Soviet Union, including blueprints, specialist equipment, technical training, and a loan at 2.5 percent interest. After the establishment of SAIL the Bokaro company was changed back into a division of the public sector steel company.
Throughout its first five years of production, 1958 to 1963, Hindustan Steel's losses rose steadily from INR 7.51 million to INR 260 million. It made a small profit in 1965 and 1966, only to slip back into the red and stay there until 1974, the last year of the company's existence under that name. Among the reasons the company gave for these disappointing results were the losses incurred at the Rourkela fertilizer plant, the Steel Alloys Project, and the Durgapur steel plant; an increased rate of interest on government loans; an increase in provision for depreciation; and the high costs of imported plant and equipment.
Problems Leading to the Creation of SAIL in 1973
The rate of growth of the iron and steel industry, and of the engineering and machinery producing sectors with which its fate was so closely linked, declined significantly once the phase of import substitution was complete and the droughts of the mid-1960s had forced a diversion of resources from industry. Pig iron output, which had risen so spectacularly in the 1950s, rose from seven million tons in 1965 to ten million tons in 1985, while production of steel rose from 6 million tons to 12 million tons in the same period. The industry suffered due to state intervention to keep its domestic prices low as an indirect subsidy to steel users, and--though the technical problems were different--from a heritage of outdated and inefficient plants and equipment.
Indian government policy since 1965 has been to use its iron ore less as a contribution to domestic growth than as an export, earning foreign exchange and helping to reduce the country's chronic deficit on its balance of trade. Production of ore increased, from 18 million tons in 1965 to 43 million tons in 1985, in order to supply a growing number of overseas markets.
With the expansion and diversification of Hindustan Steel, the separate establishment of Bokaro and the beginning of planning for new plants at Salem, Vishakhapatnam, and Vijaynagar, it became increasingly clear that public sector iron and steel production would need some new form of coordination to avoid duplication and to channel resources more effectively. The Steel Authority of India Ltd. was established in January 1973 for this purpose, to function as a holding company along the lines of similar but older bodies in Italy and Sweden. The new organization was placed on a secure footing when the Indian Iron & Steel Company was nationalized, giving SAIL control of all iron and steel production apart from the venerable Tata Iron and Steel Company and a number of small-scale electric-arc furnace units. At the time of nationalization the Indian Iron & Steel Company included a steel plant at Burnpur in West Bengal; iron ore mines at Gua and Manoharpur; coal mines at Ramnagore, Jitpur, and Chasnalla; and a specialist subsidiary, the IISCO-Ujjain Pipe and Foundry Co. Ltd., based at Kulti.
Both SAIL and its predecessor sought to expand capacity to meet predicted rises in demand for steel. In 1971 Hindustan Steel had unveiled plans for India's first coastal steel plant, at Vishakhapatnam. The project, which in 1991 was in the process of being opened, with one blast furnace already in operation, was expected to allow productivity of 230 tons per man year compared with less than 50 in SAIL's existing plants. The Authority also invested heavily in modernizing its oldest plants, at Rourkela and Durgapur.
Challenges in the 1980s
The 1980s were not a happy decade for SAIL. It suffered losses between 1982 and 1984 but went back into the black in the following two years. Meanwhile Tata Iron and Steel was consistently profitable. By 1986, when the Indian steel industry's total capacity was 15.5 million tons, only 12.8 million were actually produced, of which SAIL produced 7.1 million. Thus imports of 1.5 million tons were needed to meet total demand, after years of exporting Indian steel. By 1988 all the main steel plants in India except Vishakhapatnam were burdened with obsolescent plants and equipment, and Indian steel prices were the highest in the world. The government proposed a ten-year plan to modernize the plants, based on aid from West Germany, Japan, and the Soviet Union just at a time when the worldwide economic recession was deepening and the World Bank was recommending the privatization of SAIL and the liberalization of steel imports.
In 1989 SAIL acquired Vivesvata Iron and Steel Ltd. In its first year under SAIL's wing this new subsidiary's production and turnover showed an improvement over its last year in the private sector. This progress contrasted with results for SAIL as a whole in 1989-90, since production declined, and once again planned targets were not met. Various factors contributed to this disappointing outcome, including unrest at the Rourkela plant as a result of the management's decision not to negotiate with a new union, Rourkela Sramik Sangha, which had challenged the established union, Rourkela Mazdoor Sabha, and had even won all the seats on the plant's elected works committee. Another problem, continuing over several years, arose from defects in power supply; the impact of power cuts on steel output in 1989-90 was estimated as 170,000 tons lost, and the supply of coal was unreliable.
During this time period, SAIL remained in the public sector as a central instrument of state plans for industrial development. The country's reserves of iron ore and other raw materials for iron and steel made the industry central to the economy. At the beginning of the 1980s India had recoverable reserves of iron ore amounting to 10.6 billion tons, a natural endowment that it would take 650 years to deplete at then current rates of production. The high-grade ore within this total--that is, ore with an iron content of at least 65 percent--was, however, thought likely to reach depletion in only 42 years; yet it still represented about one-tenth of the world total. SAIL struggled to maintain production, let alone expand it, in large part because of circumstances outside its control. Since the purchase of raw materials typically accounted for 30 percent of the Indian steel industry's production costs, any rise in the prices of coal, ferro-manganese, limestone, or iron ore cut into the industry's profitability. In the first half of the 1980s, for example, prices for these materials rose by between 95 and 150 percent, at the same time as electricity charges rose by 150 percent. Most of these increases were imposed by other state enterprises.
Nor did it help SAIL that the high sulfur content of Indian coal required heavy investment in desulfurization at its steel plants. Indeed, the industry had chronic problems in trying to operate blast furnaces designed to take low-sulfur coking coal. The more suitable process of making sponge iron with non-coking coal, then converting it to steel in electric arc furnaces, was introduced in the private sector later, though by 1989 only 300,000 tons were being produced in this way. India's basic output costs of INR 6,420 per ton in 1986 compared well with the averages for West Germany (INR 6,438), for Japan (INR 7,898), and for the United States (INR 6,786). What finally kept Indian steel from being competitive was the imposition of levies that raised its price per ton by about 30 percent, and which included excise duties, a freight capitalization surcharge, and a Steel Development Fund charge.
In spite of such problems, and in response to them, SAIL announced in December 1990 an ambitious plan to increase its annual output of steel from 11 million to 19 million tons, thus transforming itself from the world's thirteenth largest steel producer to its third largest, within ten years. SAIL's use of its steel production capacity, running at about 77 percent in 1990, would be raised to 95 percent by 1996, thus permitting output of crude steel to rise by two-fifths over its current level. Output for 1990 had actually been only six million tons, however, compared with 6.9 million tons in 1988, and eight million tons in 1989. SAIL was no more able than large steel companies in other countries to achieve the optimum balance between demand and supply, between increasing the quantity of output and improving its quality by modernizing, and thus escaping from its heritage of outdated plant and equipment. Neither Hindustan Steel nor SAIL was ever in a position to defy the circumstances of the Indian economy or of the world steel industry on their own, but they achieved, in large part, the more modest goal of contributing to India's postwar economic growth.
The 1990s and Beyond
As part of an economic reform policy, India set plans in motion to partially privatize its nationalized industries in 1993. As such, 10 percent of SAIL was offered to private investors over the next several years. In 1994, the company announced its plans to offer an additional 10 percent to international investors in order to raise funds for plant modernization and expansion.
While SAIL worked to reach the goals set forth in the early 1990s, the company faced severe challenges in the latter half of the decade. Falling international steel prices, high costs related to its modernization program, increased inventory levels brought on by private sector growth, the Asian economic crisis, and falling export sales took their toll on SAIL's bottom line. In fact, during the 1998-99 fiscal year, the company posted one of the largest net losses in its history--$360 million.
Overall, the global steel industry struggled during the late 1990s and into the new millennium. By 2002, a turnaround appeared to be on the horizon and demand in India had increased by 5.7 percent. V.S. Jain was named chairman that year and was tapped to reverse SAIL's fortunes. Under his leadership, the company planned to raise its production capacity to 20 million tons by 2011. SAIL's output surpassed ten million tons of saleable steel in 2003 while exports grew by 53 percent over the previous year. By 2004, the company was producing 12.5 million tons.
Although SAIL appeared to have weathered the industry downturn, it continued to face problems related to coking coal supplies. Jain explained the issue in a June 2004 Hindustan Times article. "Coking coal has been a global problem," he claimed. "Since China restricted exports to bolster its domestic industry, global prices have gone through the roof. Our current coking coal requirements are 13 million tons, of which 9 million tons is imported. Due to constraints, we had to cut production last year and make exorbitant spot purchases." Jain added, "We are exploring the option of buying equity stakes in coking coalmines in Australia and New Zealand. We are also looking at substitutes like coal tar and other petroleum derivatives."
Along with the challenges brought on by the coking coal concerns, SAIL was forced to deal with rising steel prices. Over the past several years, the company had worked to overcome industry problems by diversifying into new business areas in an attempt to bolster profits. In 2001, the company formed a joint venture with the National Thermal Power Corp. to create NTPC SAIL Power Company Ltd., a company designed to manage the Captive Power Plants. Other newly formed joint ventures included the Bokaro Power Supply Co. Ltd. and the Bhilai Electric Supply Co. Ltd.
Believing that it had a solid strategy in place, SAIL's management team remained optimistic about the company's future. India's economy was growing, leading SAIL to assume that the country's steel consumption would nearly double the 2004 levels, reaching 55 to 60 million tons by 2012. Although the company's bottom line stood to benefit from this estimate, the cyclical and turbulent nature of the steel industry left SAIL's future hanging in the balance.
Principal Subsidiaries: Indian Iron & Steel Company Ltd.; Bhilai Oxygen Ltd.; Maharashtra Electrosmelt Ltd.
Principal Competitors: Arcelor S.A.; JFE Holdings Inc.; United States Steel Corporation.