India’s Iron and Steel Industry: Productivity, Energy Efficiency and Carbon Emissions

Historical estimates of productivity growth in India's iron and steel sector vary from indicating an improvement to a decline in the sector's productivity. The variance may be traced to the time period of study, source of data for analysis, and type of indices and econometric specifications used for reporting productivity growth. We derive both growth accounting and econometric estimates of productivity growth for this sector. Our results show that over the observed period from 1973-74 to 1993-94 productivity declined by 1.71% as indicated by the Translog index. Calculations of the Kendrick and Solow indices support this finding. Using a translog specification the econometric analysis reveals that technical progress in India's iron and steel sector has been biased towards the use of energy and material, while it has been capital and labor saving. The decline in productivity was caused largely by the protective policy regarding price and distribution of iron and steel as well as by large inefficiencies in public sector integrated steel plants. Will these trends continue into the future, particularly where energy use is concerned? Most likely they will not. We examine the current changes in structure and energy efficiency undergoing in the sector. Our analysis shows that with the liberalization of the iron and steel sector, the industry is rapidly moving towards world-best technology, which will result in fewer carbon emissions and more efficient energy use in existing and future plants.