China's ascendancy as the global manufacturing powerhouse is associated with the fact that it is the world's largest producer of crude steel. In 2004, it produced 272.5 million tonnes of crude steel, while India occupied a lowly ninth position with 32.6 million tonnes, according to the International Iron and Steel Institute (IISI). Fifty years ago, both countries were equal in steel production but China subsequently has forged ahead. Its per capita consumption is 200 kgs, which is 6-7 times higher than India's 30 kgs.

Such low levels of steel consumption ought to clarify India's pretensions of being an uncaged Asian tiger. The nation is, no doubt, on the prowl, but there is no way it can secure the position China is currently occupying without more steel. It would not be amiss to remind people that in the 1950s and 1960s, India's planners and consultants like the late MN Dastur dreamt of a day when India's steel production would touch 100 million tonnes. But that era of planned development is now history.

Many decades later, the current UPA government's draft steel policy in a spirit of better-late-than-never talks of targeting 100 million tonnes of annual consumption by 2020. When that indeed happens, there will, of course, be no holding back India as a global manufacturing power. But the iffy question is whether all of this would happen. Sadly, for all its importance as a yardstick of industrialisation, the government's policy decisions on steel are guided only by short-term political expediency rather than strategic intent.

If 100 million tonnes of steel consumption is to be principally met by domestic production, the government must, above all, nurture investments by Indian players instead of rolling out a redder carpet than necessary to foreign investors. While the decision of South Korean giant POSCO and the world's largest steel producer Lakshmi Nivas Mittal to set up 12 million tonne steel plants in Orissa and Jharkhand is to be welcomed, the domestic players also have major investment plans of their own.

Orissa, Chhattisgarh and Jharkand, for instance, have so far received investment commitments close to $40 billion (Rs 1,720 billion) which also include Essar Group' plans to set up a 3.5 million tonne steel plant in Chhattisgarh besides those by Jindal Steel and Power and Tata Steel in Orissa, among others. This estimate is in line with steel industry estimates that the latter was set to invest over one lakh crores of rupees over the next five years. But all of this might not come to pass if these investments are not encouraged through a facilitative policy regime on matters like infrastructure.

While POSCO will invest $2 billion in setting up various infrastructural facilities including a port, there are reports that India too will spend close to $1.2 billion in setting up road and rail links for this and other steel proposals in Orissa. There are no prizes for guessing that all this flurry of action on the part of the state government is solely due to the POSCO factor. That same priority attention must be devoted to the requirements of the domestic players as well, without which their investment plans will not takeoff.

As is well-known, in the late 1990s, Tata Steel's plans to set up a 5 million tonne plant in Gopalpur in Orissa did not fructify as the promised rail line from the iron ore mine to the port didn't come up. If that plant had come up then -- at a time of a cyclical downturn in the global steel industry when equipment prices were low -- Tata Steel would have benefited from the subsequent recovery in steel prices. Its latest plans to build a 3.3 million tonne plant are again predicated on Orissa's help in building roads while it plans to spend Rs 20 billion on developing the Dhamra port, including rail links.

Instead of facilitating such investments, the policy regime, however, is in danger of eroding business confidence in the industry through its short-terminism - especially when a global slowdown in the industry has already set in. Steel demand in China, in particular, is declining rapidly while its production is simultaneously rising. All of this implies a situation of massive excess supplies in the global steel market that has already headed towards India, thanks to its liberal import duty regime for steel of only 5 per cent.

Unfortunately, the government's attitude towards the steel industry is governed by short terminism instead of strategic intent. Instead of conserving iron ore, the government is going out of its way to encourage indiscriminate exports of this raw material or attract foreign investors like POSCO who have come to India to exploit, if not export, our iron ore reserves. The need, above all, is to encourage value addition domestically Why can't captive mines, for instance, be allocated to large domestic steel plants in the country?

Indian steel majors must grow bigger if they have to become global players. Tata Steel has advantages like being the world's lowest cost producer of steel. But the need is for greater scale. Mittal has taken over the leadership role as the world's largest steel producer from the Luxembourg-based Arcelor. Domestic players must be encouraged to grow bigger through investments and acquisitions abroad -- that is indeed the royal road to attaining the 100 million tonne dream of the late Dastur. 

(N Chandra Mohan is an economic commentator)