Everyone seems convinced of the India growth story. "China is going to burst, the future belongs to India," some experts say. Maybe the future does belong to India. But growth cannot happen in a vacuum. At some point India's infrastructure needs to back up the growth in the service sector. And critical to infrastructure are basic commodities like oil & gas and iron & steel.
Let us first take oil & gas. More than 70% of India's crude oil requirements come from abroad. When it comes to domestic exploration and production activity, we take one step forward and two steps back. Several years ago, the government began a series of auction of prospective blocks. It has been a lukewarm success. True, the gas find at KG basin is a result of the auction. But several rounds have received poor response because the government has not ironed out key issues like taxation, pricing and production sharing agreements. When it comes to marketing the refined petroleum products, subsidies result in heavy losses for existing players like Indian Oil, BPCL and HPCL. Private players think twice before walking into the trap.
Now consider another key industry for infrastructure - iron & steel. India needs to produce large quantities of steel to build the roads, ports and power plants it requires. India has bountiful iron ore reserves. So, foreign dependence is not a problem here. The problem lies elsewhere. States take forever to grant mineral licenses and resolve land acquisition issues. Several large foreign steel makers have lined up projects for years. They are now getting restless with the interminable delay.
As per the Wall Street Journal, the world's largest steel maker ArcelorMittal is likely to relocate its proposed 12 m tonne per annum (mtpa) plant in Jharkhand that has been stalled for 2 years. The company requires 8,000 acres and locals at the original site are unwilling to part with the land. Korean major Posco which plans to come up with a 12 mtpa plant in Orissa has now waited for years. Frustrated by the delay, it is now exploring new grounds. As per PTI, it is teaming up with SAIL to start a plant in Jharkhand.
The Indian growth story has all several things going for it. The softer infrastructure - a democratic polity, the judicial system, a young workforce, a vast consuming class - is there. But it is high time policymakers focused on the hard infrastructure. For that we need basic commodities. It is high time we get our act together.