The Central populace sector endeavors ( CPSEs ) have played a key and critical function in developing the state on the planetary map. In 1996-1997, it was decided by Government of India that public sector companies holding comparative advantages should be supported in footings of grant of liberty in their thrust to go planetary giants. SAIL was one of the companies identified by the Government to get down the thrust for grant of liberty. This paper will concentrate on the journey of SAIL towards Maharatna position from Navratna and how the strategic determinations of SAIL has affected its public presentation due to economic reforms and fluctuating market conditions in the manner to go a planetary giant.
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Cardinal public sector endeavors ( CPSEs ) play a critical function in the development of the state in planetary sphere holding a 21.99 % of market capitalisation as on 31.12.2010.
Steel Authority of India is one of the CPSE. Steel Authority of India Limited is India ‘s largest steel bring forthing company with a turnover of Rs. 43,935 crore, the company is among the four Maharatnas of the state ‘s Central Public Sector Enterprises. SAIL has five integrated steel workss, three particular workss, one subordinate and nine joint venture companies in different parts of the state. The authorities of India has accorded the position of ‘Navratna ‘ and ‘Maharatna ‘ to Steel Authority of India ( SAIL ) through a memoranda DPE O.M. No. DPE/11 ( 2 ) /97-Fin.A dated 22nd July, 1997 and No. 22 ( 1 ) / 2009-GM-GL-101 dated 19th May 2010 severally. The aim is to give more liberty to the company so that they can take on planetary competition.
At the terminal of twelvemonth 2009, the authorities announced a new policy under which select top executing cardinal public sector units would be delegated well more fiscal and managerial powers than what they already have. The policy approved by the Cabinet seeks to supply farther inducements to public sector endeavors that are in the class of Navratnas and already bask a significant step of operational freedom.
Enhanced Autonomy of SAIL with Maharatna position
The boards of SAIL will hold powers for equity investing to set up joint ventures and entirely owned subordinates in India and abroad. SAIL can set about amalgamations and acquisitions in India or abroad. However, company will hold a ceiling of 15 per cent of its cyberspace worth for investing in a undertaking. There will besides be an absolute ceiling of Rs.5, 000 crore for each undertaking. The board of managers can besides make full up most managerial places without authorities clearance up to E9 degree.
The steel-making giant one time considered a gem in the populace sector Crown in July’1997, faced monolithic hemorrhaging. SAIL, which has the largest work force among corporate entities in the state, had been a profitable endeavor until 1996-1997. However, it suffered a sudden downswing in 1998-1999 and posted losingss of Rs. 1,574 crores. In footings of commissariats of Sick Industrial Companies ( Particular Provisions ) Act 1985, the instance of SAIL was study to BIFR.
Aims of the survey
To analyze the grounds for SAIL ‘s diminution and about at hand autumn.
To analyze what cardinal strategic determination taken
To analyze the consequence of strategic determinations of SAIL
Data and research methodological analysis
The full informations used for the present survey have been obtained from the secondary beginnings ; the information required for the analysis of different periods are collected from
SAIL Annual Reports
Reports of section of public endeavor, authorities of India
Fiscal and business-restructuring program proposed by McKinsey & A ; Co in Feb’2000
Datas published by the Steel Exporters Forum ( SEF )
Reasons for SAIL ‘s diminution and about at hand autumn
1 ) Sluggish demand in the steel consuming sectors
The demand for steel slowed down chiefly due to the hapless take-off of substructure or building, car, oil sector, power sector, fertiliser sector undertakings where the strength of steel ingestion is high and low degrees of foreign direct investing and private investing ( Sridhar, 1997 ) . Fig.3 shows the steady growing of the steel ingestion from 1996 to 2002 ( Roy, 2009 )
2 ) Overall economic decelerate down in the state
All major nucleus sectors of the economic system was confronting an economic slow down. These include power, coal, cement industry, excavation and steel. The slow down phenomenon was non restricted to the steel sector entirely. Merely when the overall economic system of the state picks up, the steel sector would besides demo marks of resurgence.
3 ) Lack of investing by Government/private sector in major substructure undertakings
Due to budgetary restraints, no major building activity in mega undertakings including fertiliser, power, coal, railways etc. was planned by the Government. Despite liberalisation of the economic system and relaxation in the investing norms, private sector investing was yet to happen in the nucleus sectors of the economic system. This besides contributed to decelerating down demand for steel.
4 ) Continuous decrease in import responsibility on Fe and steel
After liberalisation, import responsibility rates on Fe and steel points bit by bit reduced over the old ages. This opened up the domestic Fe and steel sector to international competition. Due to rationalisation in the import responsibility construction in 1999-2000, the rates of basic usage responsibility by and large went up. The autumn in imposts responsibilities attracted despairing steel manufacturers from abroad to India. SAIL had to postulate with steel imports from Ukraine, Russia and other states, which sold steel here at monetary values below their cost of production.
Figure: 4. Data Beginning: Annual Report ( 2001-02 ) , Ministry of Steel, Government of India, Chapter 11, page no.8
5 ) Cost escalation in the input stuffs for Fe and steel
Power duty, cargo rates, coal monetary values etc. have been under the administered monetary value government. These rates have been often enhanced, thereby lending to the rise in input costs for steel devising. Coking coal constitutes about 30 % of cost of steel production in India ( Prakash, 2003 ) .
6 ) Modernization Consequence
Huge investings in update, workss were in a place to accomplish significantly higher production and thereby economic systems of graduated table but the market state of affairs did non allow them to deduce optimal benefits of modernisation. The modernisation programme was being wholly funded by internal resources and commercial adoptions. SAIL ‘s jobs compounded by the high involvement charges it incurred in mobilising commercial adoptions for the programme. SAIL ‘s modernisation thrust to do hot rolled spirals was delayed for seven old ages since 1990 ) because of the holds in acquiring Government blessings. By so the competition had already moved in with upgraded engineering.
7 ) Amalgamation of VISL
Visvesvaraya Iron & A ; Steel Limited ( VISL ) merged with SAIL in 1998-99. At the clip of meeting, it was a loss doing company.
8 ) Retirement age from 58 to 60 old ages
By increasing the age of retirement from 58 to 60 old ages in May 1998, the Company overlooked the recommendation of Disinvestment Commission of March 1998 for downsizing the work force.
In order to help the Company to better its hapless fiscal wellness and do it profitable on sustainable footing, the Government of India approved a large restructuring bundle for Steel Authority of India Ltd. ( SAIL ) in February 2000 to be completed over a 2-year period. But this determination was delayed.
While O.K.ing it, the Government of India ( GOI ) noted that since fiscal re-structuring alone was non a long term solution, Ministry of Steel ( MOS ) signed a Memorandum of Understanding ( MOU ) with SAIL for execution of a concern restructuring with elaborate mileposts. The fiscal re-structuring steps aimed at extenuating the fiscal hazard by bettering the Company ‘s debt service capableness while the concern re-structuring steps aimed at supplying long-run fight to the Company in its nucleus concern of C steel.
SAIL direction appointed Mckinsey, a World Bank sponsored MNC consultancy house, to propose restructuring of the organisation. In March, 1999, Mckinsey gave the undermentioned recommendations: –
1 ) Sale of Alloy Steel Plant Durgapur, Salem Steel Plant and VISL.
2 ) Denationalization of IISCO.
3 ) Advised SAIL to cut down its work force from 1, 70.000 to 1, 00,000 by 2003 and increase the work load on the workers.
4 ) Advised to split the four incorporate steel workss into two strategic concern units ( SBUs ) , one for level merchandises, consisting the Bokaro and Rourkela workss and the other for long merchandises, consisting the Durgapur and Bhilai workss.
5 ) Advised SAIL to revamp its Central Marketing Organisation ( CMO ) in order to salvage on operating costs, to better quality
6 ) Inventory- decrease
7 ) Advised to be on the Core countries
SAIL did non accept all the recommendations given by McKinsey.
Strategic Decisions taken by SAIL & A ; its consequence
1 ) SAIL planned a cost-reduction mark of Rs. 1,000 crores in 1997-98. The program was to utilize less coal, addition outputs and better operational public presentation at each phase of treating to cut costs. A elaborate micro-planning was made to cut downing costs. In the first six months of 1997-98 ( stoping September 1997 ) , the company reduced costs by Rs. 277 crores. In five old ages from 1997-98, a cost economy of over Rs 3,000 crore was achieved – Rs 731 crore in 1997-98, Rs 812 crore in 1998-99, Rs 533 crore in 1999-2000, Rs 525 crore in 2000-01 and Rs 450 crore in 2001-02 ( Sinha,2002 ) .
2 ) Divestments and long-run rental of houses in steel works townships. The upfront realisation was Rs. 172 crore.
3 ) For SAIL, work force costs entirely accounted for 16.69 % of the company ‘s gross gross revenues in 1999-2000. This was the largest per centum, as compared with other steel manufacturers such as Essar Steel ( 1.47 % ) and Ispat Industries ( 1.34 % ) . During 2000-01, 2001-02 & amp ; 2002-03 ( upto 30th September2002 ) , the Company separated 10368 employees through VRS against the proportionate mark of 25,000. In the procedure, the Company was unable to utilize to the full the subsidized loan of Rs.1500 crore guaranteed by the Government to cut down its work force.
4 ) The Company was losing to a great extent in IISCO, SSP, ASP, & A ; VISL, but it failed to sell them off on precedence footing. Due to socio-political opposition from employees and political parties, non/ inadequate-response etc, ” marks were non achieved. Alternatively the Company opted to deprive net income bring forthing power workss. Due to divestment of power workss to joint ventures formed on 50:50 footing with other public sector projects, the Government of India continued to stay, in kernel, a major stakeholder in all the power workss. Further, the Joint Ventures have refused to accept the inordinate work force and the Company continued to be saddled with the loss doing units and incur heavy losingss.
Steel Authority of India Ltd, Tata Steel and Kalayani Steels Ltd signed a joint venture understanding for the formal creative activity of metaljunction.com Pvt. Ltd, to pull off their e-marketplace, metaljunction.com in 2000.
The twelvemonth 2003-04 was a singular 1 for the international steel industry. After a drawn-out period of depression, the industry was able to resile back into the thinking during 2003-2004, following strong resurgence of steel demand, triggered chiefly by China. As the months passed, there were symptoms of all circular recovery and shortly the demand rush in South East Asia, Europe and USA strengthened the positive tendency.
Quite in melody with the planetary recovery, steel demand in the domestic market besides headed northerly, backed by 8.2 % growing in GDP during 2003-04. Fabrication was up by 7.3 % while the consumer durable goodss sector grew by 11.5 % . Demand for steel increased by 5 % in 2003-04. Steel ingestion projected to turn by approximately 6 % to 7 % in 2004-05 with continued growing in building and cars, besides improved mentality for the general technology sector.
The twelvemonth 2003-04 was singular for SAIL. SAIL was bestowed with the esteemed national award for ‘Excellence in Cost Reduction ( Manufacturing Sector ) ‘ for the twelvemonth 2003 and the Golden Peacock Innovation Award presented by the Institute of Directors farther acknowledged its attempts in the country of research and development. Besides these, the company received several reappraisals in the media for authoring one of the most dramatic turnarounds in the history of the Indian corporate universe.
The on-going modernisation procedure, cost decrease in production, optimal use of resources, non-selling off of IISCO, SSP, ASP, & A ; VISL clubbed with the strong demand of steel in 2003-2004 led SAIL to resile back on the net income of Rs.2512 crore from a loss of Rs.304 crore in 2002-2003.
The growing program envisaged full use of all bing assets along with technological up step in identified countries to raise hot metal production to about 20 million dozenss per annum by 2012 from the current degree of 13 million dozenss and the proportion of finished steel to be enhanced to a degree of above 95 % , from the bing degree of approximately 80 % ( in 2003-2004 ) .The Corporate Plan was visualized in 2004 at an investing of about Rs. 25,000 crore up to 2011-12. From fiscal 2003 – 2004 onwards, SAIL ne’er stoping journey towards excellence started and received “ Maharatna ” position in May, 2010.