Steel: Free markets please

Killing the goose

China’s booming appetite for raw materials is causing disruption to the supply of metallurgical coking coal and scrap steel to the Indian steel industry – presumably contributing to the rising consumer prices. The incoming minister for steel feels that government can solve this problem by fiat – by regulating the steel industry.

The idea shows a frightening ignorance of economics and a shocking departure from the reformist creed to which the prime minister belongs to. In recent years, the Indian steel industry has well integrated into the global economy and is on its way to become one of the world’s most competitive. Tata Steel is the lowest-cost steel producer in the world. If anything, the government must assist the steel industry to better integrate with the global economy – through free-trade arrangements with countries that supply inputs and with steel-consuming countries.

Shackling the industry by imposing a regulatory regime will extinguish any hopes that the Indian steel industry will become another global competitor. Apart from adding a few more miles of red tape to an already red-taped Indian economy, government control will be fertile ground for corruption. Cynical as it may sound, that may well be the intended objective.

The argument against setting up a national regulatory commission for steel does not go far enough. The union steel ministry itself is a relic of another age – throwing it into a blast furnace will be a better idea.