Make in India Means More Defense Contracting for Local Steel Companies

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The Indian Government’s “Make In India” campaign, with emphasis on defense-related manufacturing, has opened up a new market and source of revenue for Indian steel companies, especially those in the private sector.

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Essar Steel India Ltd. (ESIL), for example, announced it was responding to Prime Minister Narendra Modi’s call and shifting its focus to produce value-added niche steel and its products at one of its facilities in Hazira. At present, ESIL manufactures about 30% value-added steel out of its total capacity of 10 million tons per year at Hazira.

A report quoted M. Venkatraman, Senior Vice-President and Head of R&D, Product Development and Applications Engineering at ESIL, told The Hindu BusinessLine that the steel company would gradually shift its focus to utilize 70% of Hazira’s capacity to manufacture specialty steel for defense-related requirements in the next 5 years.

Like ESIL, other steel majors, too, have started looking at defense as a new avenue for growth, despite the fact that the response of global defense companies to Make in India may have been sluggish in the first few months of its initiation post July 2014.

According to a statement by the government in the Indian Parliament, it had received only 6 proposals for foreign investments so far. India’s armed forces have always been dependent on imports of defense equipment but the government’s new FDI move is set to change that game. The Modi Government had, a few months ago, increased the Foreign Direct Investment (FDI) cap in the defense sector to 49%.

India’s current import of steel is about a lakh ton a year to meet various defense-related requirements. With domestic steel majors giving this new sector their undivided attention, imports are likely to come down and save foreign exchange, too.

ESIL has already developed ultra-strength steel known as Quenched and Tempered (QT) special alloy plates for battle tanks and other applications.

Another private player, the Kalyani Group has said it is actively focusing on the non-automotive segments such as power, railway, aerospace, oil and gas, and defense industries.

The group’s defense business, carried out by Kalyani Strategic Systems, has been a supplier of defense components and subsystems, including ammunition and shells, and aluminum road wheels.

In an interview with the Business Standard,  Baba Kalyani, Chairman of the Group said it had identified artillery systems, armored fighting vehicles, and others as its areas of operation.

All this, he pointed out, require forgings as a base. To convert metallurgy into a fully integrated working platform, the company needed to integrate other knowledge areas such as electronics and control systems. This is where, he felt, the new policy of FDI relaxation in defense will help his company.

The company is now slated to go in for joint ventures in these areas, and plans to announce its defense investment by mid-January, Kalyanis said.

Even the chairman of Steel Authority of India, a government-owned steel major, C.S. Verma, holds the view that the initiatives taken by the new government, especially in the field of infrastructure, were good news for the steel industry. According to him, the Make in India campaign, FDI in defense, railways, and other industries would give a push to India’s steel industry.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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