The Indian steel magnates want the government to spend more on infrastructure defying the logic of privatisation where the state spends less and the private sector fill the void. But that has not happened in India.

The interesting thing is that Indian steel magnates particularly the new breed had to be rescued even before they started production by repeated doses of financial institutions money that they have become bloated with debt. A two million tonne new capacity in flat products will come into production during 1998-1999 and where is the market for it? The existing producers themselves are jostling for market with price rebates and extended credits.

One half of the steel industry in India, the arc furnace unitshave already been destroyed. This is not reflected in figures as production of new units like Essar, Lloyds and Jindal has been added to it giving a false impression that the secondary steel sector is increasing production.

Will the disease spread to old and new giants? There is every sign that it will spread with lot of blood on the balance sheets. Vizag Steel has been a given a respite by converting Rs 1,300 crore of loans into equity and has staved off BIFR only temporarily. A rehabilitation package is being worked out for Vizag Steel.

Arvind Pande, chairman, SAIL says that he has signed a MoU with government assuring Rs 300 crore profit during 1998-99 if the steel prices are increased by six to seven per cent. But prices are fixed by producers themselves today and not by the government and if market forces pull down the prices, while SAIL's costs increase by Rs 1,700 crore then, there is indeed trouble.

Pande wants the Rs 5,000 crore loan from SDF to be converted into equity so that the interestcost is saved. SAIL's equity will be then Rs 9,000 crore. SAIL will be in a better position to borrow for the Rs 12,000 crore modernisation.

The modernisation already undertaken at Durgapur and Rourkela at a cost of Rs 10,000 crore have made them white elephants. Due to high interest and depreciation these two units are pulling SAIL itself in losses. Times were different when these modernisations were undertaken at the behest of the government. If SAIL had a choice with market forces ruling it would have modernised Bokaro and Bhilai first the two profit making plants, whose profits are now falling due to lack of modernisation. Newly equipped Bhilai and Bokaro could have been earning handsome profits which would have sustained SAIL and help it pull along Durgapur and Rourkela.

Some time back there was a proposal from a Japanese giant that it will help modernise and expand Bhilai provided it could take away a million tonnes of production. There is tremendous potential in Bhilai and Bokaro but it mayremain untapped due financial problems.

Essar's problem is the debt burden and the servicing cost. It wants to incur various foreign currency debts to retire costly Indian debt. This may prove highly risky as the Rupee has depreciated already to Rs 41 to a dollar and forecasts are that it will dip to Rs 48 by end of 1998 and the foreign loans may be much greater liability. So the Indian steel industry is passing through the most difficult times.