By Swansy Afonso
The world’s oldest living city is getting a makeover.
Varanasi, Hinduism’s holiest site on the Ganges River in northern India, is one of 100 places earmarked to receive trillions of rupees to transform their aging infrastructure and become ‘ Smart Cities,’ replete with affordable housing, improved sanitation, and better transportation. To build it all, India plans to triple its steel-making capacity, making it the world’s second-biggest producer, trumping Japan, and reviving an industry that a year ago was on its knees.
“India is one of the bright spots for the global steel industry,” said Bijoy Thomas, a senior analyst at India Ratings & Research, the local unit of Fitch Ratings, by phone from New Delhi. “We have a very low base of per-capita consumption and the nation is on the path to development.”
India used about 63 kilograms of steel per person last year, compared with 493 kilograms in China, according to the World Steel Association. That low consumption base, and the promise of a government-backed boom in construction, has prompted a flurry of expansion plans as steel prices recover from a slump in 2015.
India’s biggest producer, JSW Steel Ltd., plans to build two new plants of 10 million tons each in the resource-rich states of Odisha and Jharkhand, and spend billions more expanding its existing mills in an effort to double its size by 2030. Rival Tata Steel Ltd. has sought environmental clearances to expand its two plants in India by 4 million tons a year.
India’s ambitious plans could force the country increasingly to turn to global markets to get enough coking coal and iron ore, Thomas said.
Pink City
Among the cities due for an upgrade are Jaipur, a favorite stop for tourists who come to view its pink stone palaces, and the nineteenth century battlegrounds of Kanpur and Lucknow. But Varanasi, also known as Benares, is especially symbolic of Prime Minister Narendra Modi’s plan to transform India.
Continuously inhabited since the 11th century B.C., the city of 1.2 million people is Modi’s political base. Its narrow lanes wind their way to ancient sandstone palaces above the famous ghats or riverfront steps, where the Hindu faithful burn funeral pyres or come to wash away their sins in the sacred river. About 6 million tourists visit the city every year, but it lacks basic urban facilities like a proper sewage system.
The local government has a 25 billion rupee ($390 million) plan to build affordable houses, bury the millions of wires and cables that clutter the streets, install solar panels and upgrade the ghats by 2020-21. There are also plans for a metro system, part of a new urban rail policy approved this month that would bring new subways to 15 Indian cities and expand networks at 12 others.
All of it will require millions of tons of additional steel.
India’s steel consumption could almost triple to as much as 240 million tons by 2030, with the majority being used in construction, according to Sanak Mishra, secretary general of the Indian Steel Association. He predicts India will overtake the US. as the world’s second-biggest consumer next year.
“The Indian steel story is a growth story,” said Mishra, who previously ran the Indian projects of ArcelorMittal, the world’s biggest producer. “India is one of the few major economies where steel use has not matured.”
Shares of Tata Steel have surged 61 percent this year in Mumbai while JSW Steel has climbed 51 percent. The benchmark S&P BSE Sensex Index has gained 19 percent.
Even so, like many of Modi’s ambitious plans, the National Steel Policy has a challenging target. To meet it, capacity would need to grow at a 6.4 percent annual rate, requiring around $140 billion of investment, according to ICRA Ltd. Given the weak financial health of many domestic players, and the central bank’s efforts to clean up bad loans, banks may be reluctant to lend the money, the local unit of Moody’s Investors Service said on Aug. 24.
‘India Growth’
The growth in demand will come with a caveat “that the government’s policies are supportive of all these investments,” said Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings. Steel demand will rise, “but it will not be like China growth, it will be more like India growth.”
The government has earmarked a total of 1.9 trillion rupees ($30 billion) for 90 cities so far, with some money coming from the federal government and an equal amount contributed by state or local governments, the Ministry of Urban Development said in June.
