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With banks re­luc­tant to lend ad­di­tion­ally to the high­lylever­aged steel sec­tor, the govern­ment is eval­u­at­ing the set­ting up of a fund­ing agency ex­clu­sively for the sec­tor much on the lines of Power Fi­nance Cor­po­ra­tion and the Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion for the elec­tric­ity sec­tor. The pro­posed en­tity could have an ini­tial cap­i­tal of Rs 2,500 crore and en­tail par­tic­i­pa­tion from all ma­jor do­mes­tic pro­duc­ers, sources said.

A com­mit­tee has al­ready been formed by the steel min­istry headed by the chair­man and man­ag­ing di­rec­tor of state-run steel firm Rashtriya Is­pat Nigam, P Mad­husu­dan, in this re­gard and it met for the third time on De­cem­ber 31. The com­mit­tee is likely to sub­mit its rec­om­men­da­tions in a month.

“The Par­lia­men­tary Stand­ing Com­mit­tee on Steel and Coal had rec­om­mended us ear­lier to look into the pos­si­bil­ity of set­ting up a fund­ing agency for the steel sec­tor on the same lines as PFC or REC for the power sec­tor. We have set up the com­mit­tee, but no con­crete de­ci­sion on the for­ma­tion of the agency has taken up yet,” a se­nior steel min­istry of­fi­cial said.

The agency, if formed, would mainly fund ca­pac­ity ex­pan­sion projects of the do­mes­tic steel firms. The cor­pus of the agency would pro­posed to be grad­u­ally en­hanced keep­ing in pace with the fund re­quire­ment of the steel firms. Paucity of funds is partly com­ing in the way for rais­ing ca­pac­ity of the do­mes­tic firms.

Ac­cord­ing to in­dus­try thumb-rule, around $1 bil­lion is needed for cre­at­ing 1 MTPA ca­pac­ity, which would call for an in­vest­ment of around $200 bil­lion in the coun­try’s steel sec­tor in the next 9-10 years, as the coun­try as­pires to raise its ca­pac­ity to 300 MTPA by 2025-26. How­ever, sit­ting on over Rs 3 lakh crore debt, steel sec­tor has no means to cor­re­spond with the govern­ment’s in­tent. The plight of the in­dus­try is so acute that they have re­cently pleaded for a mora­to­rium on in­ter­est pay­ment to the steel min­istry.

Apart from Tata Steel’s re­cently-com­mis­sioned Kalin­gan­gar pro­ject and NMDC’S up­com­ing 3 MTPA pro­ject, which is likely to go on stream by June-july next year, steel sec­tor’s ca­pac­ity ex­pan­sion plans has nearly been halted. Bar­ring brown­field ca­pac­ity ex­pan­sion plans are also muted bar­ring those by SAIL and RINL, mainly be­cause the cur­rent plight of the in­dus­try caused by cheaper im­ports, lower de­mand and price.

Though global steel gi­ants like Arcelormit­tal and Posco had ear­lier evinced mas­sive in­vest­ment in­ter­ests, which could have raised In­dia’s steel-mak­ing ca­pac­ity in a big way, FDI in the sec­tor is still lag­ging be­hind.

While the in­dus­try is of the view that the govern­ment should have thought of set­ting up a lend­ing agency long ago; some raise ques­tions on the practicality and vi­a­bil­ity of the idea since steel is a dereg­u­lated sec­tor and al­most 80% of the coun­try’s pro­duc­tion comes from the pri­vate sec­tor. Thus, steel could not be com­pared with the steel sec­tor since power is a reg­u­lated area and govern­ment firms still rule the roost there.

“Which steel firm is mak­ing fresh in­vest­ment now? What is the need of such a lend­ing agency for fi­nanc­ing ca­pac­ity ad­di­tion par­tic­u­larly at a time when do­mes­tic firms are not util­is­ing even 70% of their rated ca­pac­ity? If bank’s not lend­ing is the logic, then they will cer­tainly do so when the fun­da­men­tals of the sec­tor will look up,” said a se­nior govern­ment of­fi­cial.

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