Is the steel boom in China about to trigger a revival of West Bengal's manufacturing sector? It may seem far-fetched but that's exactly what is happening in the Communist-run eastern state which has seen very little manufacturing growth for the last two decades.
Take a look at the latest moves being made by Basant Kumar Agrawal, chairman, Hindustan Seals. Agrawal is pouring Rs 220 crore (Rs 2.20 billion) into manufacturing facilities at Haldia and Purulia that will turn out a mix of steel and aluminium products. Why West Bengal? Says Agrawal: "West Bengal is near the coal belt, which is the biggest factor in its favour."
Agrawal isn't the only businessman thinking along those lines. As the steel industry booms, around 60 mini-steel projects are at various stages of implementation.
Industry sources say the steel-making capacity of the projects put together would be around 5 million tonnes. More than 20 projects have already taken off. The steel-making capacity in the state is around 1.6 million tonnes currently.
The fact is that investments are being made in all segments of the steel value chain. There are re-rollers making billets and ingots. And there are also high-value products like axles and shafts and cold rolled strips.
There are even steel intermediary companies that have decided to set up shop in the state. German company Stolhberg, for instance, opened shop last year and makes hi-tech continuous casting granules for the steel segment. Others like Bhushan Steel ploughed in around Rs 150 crore (Rs 1.50 billion) to start a cold roll steel sheets plant.
Similarly, SPS Sponge Iron set up a steel casting and sponge iron plant at Burdwan for Rs 80 crore (Rs 800 million).
Some of the other names that have entered the state are Shova Ispat, Govinda Impex, Manab Ispat and Shri Ramrupai Balaji Steel.
Each of these newcomers has drawn up ambitious plans for the future. Balaji Steel, for instance, is investing Rs 1,200 crore (Rs 12 billion) to put up an integrated steel unit with a captive power plant. The company is also planning a coal washery as part of its project.
"The trend is now to set up a mini-integrated steel unit with a captive power plant using the waste heat generated from the sponge iron making process," says Molloy De, director of industries, government of West Bengal.
Then, there's Shova Ispat which is investing Rs 279 crore (Rs 2.79 billion) in a sponge iron, roll product and ferro alloy unit in Mejia, Bankura district. And Govinda Ispat is investing Rs 135 crore (Rs 1.35 billion) to put up a similar facility at Barjora in Bankura district.
Manav Ispat, on the other hand, will be manufacturing pipes, galvanised steel and alloy steel.
The reasons why the steel industry is heading to Bengal aren't difficult to figure out. There's an abundance of raw materials in the region.
"The state has a natural advantage in many aspects, including close proximity to principal raw materials coal and iron. The cost of power is also very cheap here. Moreover, we provide one of the best incentive packages to investors," says Gopal Krishna, managing director, West Bengal Industrial Development Corporation, the state's nodal agency for the promotion of industry.
The state government is also being backed by organisations like the Confederation of Indian Industry which has hired consultancy firm McKinsey to study the potential of the metals, mining and minerals sector in the eastern region.
The study will map the strength of the eastern states, look at their minerals, metals and manufacturing potential and also benchmark with global standards. In addition, it will suggest a plan for the revival of linked industries. The report will be submitted in six or seven months.
The slow journey back to West Bengal has been taking place for quite a few years now, in fact, ever since the industrial climate turned more favourable.
The Bureau of Applied Economics and Statistics has compiled data which shows that projects in the sector worth Rs 400 crore (Rs 4 billion) were implemented between 1999 and 2001.
But that has moved up steeply between 2002 and 2004 when around Rs 850 crore (Rs 8.50 billion) of investment came into the state. Also, for the first time, value-added products like ferro-alloys and ductile iron pipes were produced, points out foreign trade consultant Mukesh Tandon citing official statistics.
Tandon says the companies were attracted by a range of factors including the easy availability of electricity and coal, as well as cheap skilled labour and good port connectivity which helps the import of machinery and export of finished products.
Most of the investment has been focused on the three western districts of Burdwan, Purulia and Bankura.
The important thing to note is that none of these are giant-scale projects. Investments are going into sponge iron, pig iron and also steel-making. It's reckoned that the new sponge iron projects will turn out around 2.2 million tonnes annually and the steel-making ones will have a combined capacity of around 1.6 million tonnes.
Many of the new projects have, in fact, opted for sponge iron because scrap prices are hitting the roof. Therefore, the induction furnace route for steel making, which uses sponge iron as the key raw material, has emerged as the preferred technology, for most of the small-time entrepreneurs. The shortage of coke is another reason why entrepreneurs are opting for this technology.
Interestingly, many of the new projects are being promoted by first-generation industrialists from Bengal who are moving from scrap trading and other related businesses.
These entrepreneurs saw a robust growth in demand and positive signals from the state government, so they shifted attention to manufacturing. The success of those who jumped into the field early (some of them are said to have recovered their investment within 15 month of operation) encouraged others.
"There are many people who can invest Rs 25 crore (Rs 250 million) to Rs 50 crore (Rs 500 million) in the state. Our job has been to promote them. Only then will others be interested," a WBIDC official pointed out.
The steel boom is actually not confined to West Bengal. New investments are taking place in neighbouring Chattisgarh, Jharkhand and Orissa. These states probably offer better availability in terms of raw materials.
However, West Bengal officials say the state wins because it has more skilled labour and a better infrastructure. Also, the other states have greater security problems.
West Bengal's bureaucrats are, however, hoping SAIL will decide that the time is right to revive the ageing giant IISCO and turn it back into an integrated steel producer.
IISCO owns some of the finest iron ore and coal mines in the country besides townships and a comprehensive infrastructure. Reviving IISCO would, of course, cost thousands of crores.
However, industry sources are grumbling and saying that they need more help from the state government to sustain the viability of these projects. One problem is that Eastern and Central Coalfields has cut down on coal supply.
As a result, the companies have to depend on supplies from Orissa, adding to transport costs. If this situation persists the businessmen say it would make their projects uncompetitive.
The businessmen want the West Bengal government to replicate the Orissa model, where the state has been encouraging steel companies to take iron ore mines on lease.
The state has made a good beginning in reviving the sector, but it still has lots to do if it is to make West Bengal a manufacturing hub.
