For nearly three long years (1999-2002), everything that could possibly go wrong had gone wrong with the Indian steel industry. The cost of debt was high, demand was soft both in India and abroad, and prices were under tremendous pressure. So much so that some of the big producers, like the Steel Authority of India (sail), racked up huge losses. And then in April 2003, steel companies started riding out of the trough in what is a cyclical industry. China stepped up its purchase of global steel to build up its infrastructure, especially for the 2008 Olympics, other markets also started looking up, and Japan and the European Union cut steel production to maintain prices. Besides, demand from within the country-for housing and road construction-had started reviving. Result: the price of benchmark hot rolled (hr) coil, the primary input for user industries, have been on a roll. From Rs 17,100 per tonne in June 2002, the hr coil price has risen to Rs 31,861 per tonne currently.

The almost once-a-fortnight increase in prices of steel has the user industries up in arms. Says Jagdish Khattar, Managing Director, Maruti Udyog: "If my car weighs 800 kg, almost 600 to 650 kg of that is steel. So even a small fluctuation in the price of steel can have a serious impact on prices.'' Adds Amitabh Mundhra, Director of the Kolkata-based Simplex Concrete Piles: "It is simply profiteering on the part of the major steel producers through the formation of a cartel, which is responsible for the surge in steel prices.''

Is there a steel cartel around? In terms of price setting, there certainly is. For example, the Indian Steel Alliance-comprising top producers such as Tata Steel, sail and Essar Steel, among others-has been setting the benchmark price for the product. But is there a cartel in terms of unduly profiting from the robust demand? Maybe not. Allow us to explain.

The main reason for the hike in steel prices, its producers say, is the huge jump in the prices of raw materials. Prices of metallurgical coke, for instance, have shot up from $120 a tonne in December 2002 to $465 in February this year. Iron ore, another important input, saw prices quadruple to $120 a tonne in that time. Other inputs such as melting scrap (up 222 per cent) and pig iron (209 per cent) have also gone up in tow. According to Indian Steel Alliance's Chairman J.J. Irani, prevailing prices of hr flat products are not only realistic but on par with those of 1997-98 before the crash happened. Says B. Muthuraman, MD, Tata Steel: "The revision in global prices of hr coils is in tandem with the rise in input costs."

Numbers bear Muthuraman out. While the cost of raw material as a percentage of net sales for eight of the top steel companies (Tata Steel, sail, JVSL, Jindal Steel, Jindal Iron & Steel, Ispat Industries, Essar Steel, and Bhushan Industries) has fallen from a high 50 per cent in March 2002 to about 40 per cent in the last quarter of 2003, the figure has remained more or less stable between December 2002 and December 2003 (see Under Pressure). That means the steel producers have increased prices to protect their profits margins, but not-as some are alleging-to gouge their customers. Agrees Rakesh Valecha, steel analyst at international credit rating agency, Fitch: "All this controversy is the result of the impression that steel prices have become abnormally high. But the rise in prices of hr products is simply an end result of rising input costs and business cycle phenomenon."

But, this being an election year, the irate customers have managed to get the government's attention. The import duty on steel has been dropped by 5 percentage points to 15 per cent, excise duty has been halved to 8 per cent, and there's even a temporary curb on exports. As a result, the Indian Steel Alliance has cut prices by about Rs 4,000 a tonne and promised not to hike prices until June this year.

Steel producers, however, aren't amused. One of them points out that in the years when steel prices were falling, the prices of all white goods, and cars too, continued to rise. Which means, he argues, either the prices of steel had no significant role to play in the final market prices of these products, or that the manufacturers did not bother to pass on the gains from low steel prices to consumers. Now, that's an argument hard to beat.

Q&A
Border Music

Global book and music retailer borders' Director George Mrkonic looks for retail opportunities on his first visit to India, as he tells Abir Pal, during a snappy Q&A session.

What brings you to India?

I'm a director of Syntel (an it solutions hotshop) and I decided it was time I put a face to the business in India. Most of the other directors have been here and I wanted to see the new campus in Pune.

What were your first impressions?

One hears so much talk about the vibrancy of the market and the opportunities, but it's only now that I've got a real taste of things.

What are Borders' plans for India?

Well, I visited a local bookstore chain in Mumbai and I must say that I was very impressed. It further reinforced my belief that India would be a logical market expansion (for us).

Have you firmed up any specifics?

We're still evaluating and accessing the market. The only hitch is the restriction on foreign direct investment (in retail). Traditionally, Borders prefers to enter new markets on its own.

Both music and book retail businesses have been hit by the shift to electronic delivery...

Digital delivery of books is still far away. Any such move will first happen in periodicals and newspapers. People still look at websites as supplements rather than replacements. Music is a different story. More and more are getting increasingly comfortable with downloading. I feel people will still continue to frequent stores, to pay royalty and burn CDs or to build up their DVD collection.

PARALLEL
India Shining

There's one theory that the size of a country's parallel economy is directly proportional to the quantum of power lost in transmission and distribution (T&D losses). Some economists insist this cannot really be applied to India, where the services sector is the driving force behind the economy. Others say it can. For our part, we took GDP estimates for the year 2003-04, assumed T&D losses to be the 23.5 per cent they were last year and calculated the size of the parallel economy. The result: Rs 730,000 crore. That's a start.

-Supriya Shrinate

Reliance Does An iMode...
... but will it work?

Killer App: Taron Mohan of PhoneyTunes.com demos his application at DAKC

On march 31, 2004, at a press conference held at its designed-to-impress HQ at Dhirubhai Ambani Knowledge Centre (DAKC), Reliance Infocomm announced the winners of a mobile applications contest it had launched in October 2003. The company received 130,000 ideas in response; 20,000 were shortlisted in the first stage and cleared for development; 26 applications were shortlisted in the second stage; and 15 winners were picked out of these. One winning entry, a platform for multi-player gaming, came from Gametrick Entertainment, a start-up with revenues of barely Rs 20 lakh a year. "Reliance Infocomm lays equal emphasis on data and voice, while most other telcos are focused mainly on voice-related applications," says Ashwin Kumar, the CEO of Gametrick. "This gives us a better opportunity to innovate." Taron Mohan, the Chief Executive of PhoneyTunes.com, the company behind another winning entry, a morphing application, couldn't agree more and gushingly refers to Reliance's 6 million-plus customer base and high-speed network. The company has every right to showcase the success of its competition. Only, this is more than a competition. Reliance Infocomm seems to have taken a leaf from the strategy-book of Japan's NTT DoCoMo that threw open the source code on which its service was based to developers hoping that the applications developed by them would, in turn, boost traffic and attract new customers (the ploy worked). "Our idea was to proliferate as many services as possible for the rim (Reliance IndiaMobile) user," says Mahesh Prasad, President (Applications and Solutions Group), Reliance Infocomm. "And no matter how many people we hire, we cannot cover such a gamut of ideas and applications." The contest is the visible manifestation of Reliance's Dhirubhai Ambani Developers Programme, the only programmer-inclusion scheme of its kind in the country (with some 11,000 active programmers). Next step: "We plan to leverage this population of developers to provide customised solutions to small- and medium-enterprises that subscribe to our broadband service," adds Prasad. That's a thought.

-Swati Prasad

IPO
Jinx-breaker

It began well, but rapidly degenerated into a tragedy of errors. Things began well: the ONGC IPO was sold out within 15 minutes of opening, and eventually subscribed 6.44 times over. Then came reports that the exchanges had miscalculated the extent of over-subscription. And the snafu over the allocation of shares-some high networth individuals discovered that they had been allotted all shares they had applied for-by registrar MCS. It truly looked like India's most valuable company was labouring under a hex. Until, of course, one of its employees Virender Sehwag became the first Indian cricketer to score 300, and a rejuvenated market ensured that its share continued to trade over the issue price of Rs 750.

-Ashish Gupta