FROM THE TELEGRAPH OF 25 OCTOBER 2006
No easy way for
SAIL
Leading Indian
companies have been aware of the compulsions of globalization for some time;
some, especially in pharmaceuticals, have taken them aboard and gone on to
expand abroad. But nothing brought the implications more graphically to the
common Indian as the spectacular bid of Mittal for Arcelor. Lakshmi Mittal was
an entrepreneur who made his fortune from a perch in London; and he was already
the world’s biggest steelmaker before he wooed Arcelor. But many Indians could
not help thinking: if he can do it, I can do it. And those in the steel
industry thought: if he can do it, I had better get ready for it.
So Tata Steel
suddenly abandoned its habit of sticking to its knitting and engineered a
daring acquisition of Corus which would make it one of the world’s dozen
biggest steelmakers. There are still some dissenting voices amongst Corus’s
shareholders. But since the two managements are agreed, a shareholders’ revolt
is unlikely to upset the apple cart; a few more pennies on the offer price
should see the deal through.
The emotions
that stirred the managers of Tata Steel are now spreading to other steelmakers.
Jindal Steel, which prospered by making steel from scrap for local markets, is
wondering how it can break out of India. Essar Steel, perpetually short of
money, must be wondering which foreign company it can lure into bankrolling its
expansion.
But the biggest
challenge is faced by India’s biggest steelmaker, SAIL. Being owned by the
government, it would find it difficult to spread out abroad. Populist
politicians would bridle at the idea of SAIL making steel abroad when so many
Indians are starving for steel and waiting for nice jobs. SAIL cannot freely
issue equity; and without equity it would find it difficult to borrow for acquisitions.
And many countries, especially those with powerful steelmakers and large
markets, would baulk at allowing in another government’s stalking horse.
So for now, SAIL
is only thinking of getting bigger so that it can look competitors in the face.
With this object in view, it plans to build a greenfield plant in Jharkhand. It
inherited Chiria mines there when it took over the sick man of Burnpur – Indian
Iron and Steel Company – and was sitting on them till now; now it contemplates
exploiting them. To do so it must make steel there, since Jharkhand would not
allow the ore to leave the state.
SAIL will
probably make further moves to expand domestic capacity based on domestic
resources to sell to the domestic market. But such a strategy is unlikely to make
it a global player. It will be confined to the protected domestic market, its
product range will be weighted towards low-value structurals, and its expansion
will be limited by what money the central government deigns to give it. Such
are the unavoidable handicaps of a state enterprise.
