Thursday, April 24, 2008

The Spine of the Nation can't Afford its Steel

The rising steel prices is a matter of concern for every industry. The first to feel the heat is unquestionably the Railways. The Indian Railways often quipped as the "Spine of the Nation",is probably moving into a swamp with many of its contractors threatening to stop further construction activities unless they were covered for the uncertainties pertaining to Steel prices.
Vendors who supply finished steel and other components used for manufacturing coaches and wagons, too, are walking out of contracts they had signed with the railway ministry.
Rising inflation has been precarious and has left everybody pondering for a solution. However,the price of steel has been rising faster than the overall inflation. The annual growth in the index for steel was almost four times the annual rate of inflation at 7.14%.
The result has not been sweet for the world's largest employer.The Indian Railways runs the risk of a major setback to its plans to ramp up freight capacity, which is currently operating at its peak, through a big step-up in capital expenditure. In the railway budget this year, minister Lalu Prasad had said that capital expenditure would be increased from Rs31,783 crore in 2007-08 to Rs37,500 crore in the current fiscal year. The railways has already started preparatory work to construct the dedicated freight corridor, a 2,700km railway grid that will connect Mumbai, New Delhi, Kolkata and Chennai. And then it all comes crumbling down like a cookie. Rumours are abound that there has also been a shortage of steel for rails, for completion of several projects that are underway.
Steel prices have a tendency of pulling up the prices of everything else. Being the backbone of the economy, the Railways will be forced to increase their freight charges if the steel prices don't cool off. Almost two thirds of the nations freight is carried by the Indian Railways. So the next time you find that milk prices have increased, you might have a reason to blame steel.

6 comments:

Sita said...

Yes. The rise in steel prices is a threat. However, I do not agree that it is the only reason for inflation in our country. Price rise of other commodities like cement can also be cited as a reason.

The main raw materials for steel are iron ore and coke. These are imported from countries like China.Steel companies claim the long-term contract prices for international coking coal have increased by more than 200 per cent, while iron ore prices have increased 300 per cent, and hence the price of steel.

Pig iron producers have now started blending domestically produced metallurgical coke with the imported variety in the proportion of 70:30, which has helped to contain the prices to some extent.

Govt has taken many steps to keep a check on steel prices. Some of them include the removal of import duty, increasing export duty to 10% for this alloy and even re- classifying steel as an essential commodity. There is even a proposal of imposing an ad valorem export duty on iron ore!

The railways, who also seem to be affected due to the uncontrolled rise of steel prices, have offered to help contain the prices by decreasing the freight charges of iron ore. Railways is planning to bring iron ore back to lower tariff category of 170 from the present 180. The move is expected to soften steel prices. A fortnight ago, the Railways had increased freight rate for iron ore 5-6% by reclassifying it into class-180 from class-170. It would now just revise its one-month-old decision that was announced in the midst of rising inflation and bring back iron ore under the class 170. Apart from iron ore, the Railways may also consider lowering freight on finished steel, a move that may directly benefit consumers.

There is also a rumour that the steel companies are engaged in cartels, which they strongly deny.

Laloo had planned a lot for the railways. For it to become a reality and not remain as a dream, these stringent measures have to be taken. Else his idea of reducing railway fares will no longer be a reality and we might end up paying more instead :)

Ganesh Nayak Ullal said...

@Sita,

Sometimes the comment section is more interesting and informative than the blog post itself. :)

Krishna Prashanth said...

I agree with Ganesh, and am still wondering if I should keep my posts small enough to allow more space and coverage area for comments. ;-)

Sita said...

Your posts are so interesting that it triggers the readers to write more about the subject, which may sometimes exceed the size of the blog itself!! :)

Thanks Ganesh!!!! :):)

Panduranga Kharvi said...

I am sensing some danger over here!!!. I always read the news paper from last to first page . And blogs from comments to blog spot , just to know if i can comment stright away . " Expressing ideas on other expense". If comments turns bigger then its.... WRONG.
Comments should be one sentence or objective type answer as all universities recommends . Man i am lazy enough to start another campain for that and do something on that . Here few suggestions
1. Write multiple comments
2. Make it as extension of your blog spot - its as an extension.
3.Comments can refer to some article like page no 271 of that book or www.website.com
4.Write down in the disclaimer /foot note that comments above 3 lines or 30 words are not accepted. (after this only)
5.Keep writing as much blogs as possible so people are left out with only the words good and intresting and can add meaningful.


Keep it up ..

Panduranga Kharvi said...

In histroy no statue is erecited in the name of the critic's . Keep write and share your views.