Content
- India’s Green Steel Transition
- Signing of FTAs Is a Start: Measuring Success Through Global Market Gains
India’s Green Steel Transition
Why is it in News?
- India committed at COP30 (Belém, Brazil) to submit a more ambitious revised NDC, signalling deeper economy-wide decarbonisation, with steel identified as a critical hard-to-abate sector.
Relevance
- GS 2 (International Relations): India’s revised NDC, COP commitments, CBAM implications, and climate diplomacy shaping trade and industrial strategy.
- GS 3 (Economy): Industrial decarbonisation, steel sector transition, green hydrogen, carbon pricing, competitiveness, and stranded asset risks.
Practice Question
- Discuss the economic and strategic risks of continued investment in coal-based steel infrastructure in India in the context of global carbon pricing and CBAM.(250 Words)
Basics: Steel Sector and Climate Linkages
Importance of Steel in India’s Growth Model
- Steel underpins infrastructure, housing, manufacturing, and defence, with India aiming to raise production from ~125 MT currently to over 400 MT by mid-century.
Emissions Profile of Indian Steel
- Steel contributes ~12% of India’s total CO₂ emissions, primarily due to coal-based blast furnace routes, making it among the most carbon-intensive industrial sectors.
The Twin Challenge: Development vs Decarbonisation
Avoiding Carbon Lock-in
- Steel plants have long lifespans of 30–40 years, meaning continued investment in coal-based blast furnaces risks locking India into high-emission infrastructure for decades.
Economic Risk of Inaction
- Persisting with carbon-intensive steel risks stranded assets, higher export barriers, and declining global competitiveness as markets increasingly price carbon intensity.
Global Context: Why Green Steel Is Becoming Inevitable
International Transition Trends
- China is expanding scrap-based secondary steel and hydrogen pilots, while the EU has pursued steel decarbonisation for nearly two decades.
Carbon Border Adjustment Mechanism (CBAM)
- The EU’s CBAM will impose carbon-linked tariffs on steel imports, penalising high-emission producers and rewarding early movers in low-carbon steel production.
India’s Industry Response: Early but Inadequate
Corporate Initiatives
- Tata Steel has piloted hydrogen injection, renewable power sourcing, and CCUS; JSW, JSPL explore hydrogen; SAIL is modernising furnaces and testing low-carbon routes.
Key Limitation
- Most initiatives remain at pilot scale, with insufficient transition to demonstration plants or full-scale near-zero-carbon production technologies.
Policy Progress So Far
Greening Steel Roadmap (2024)
- The roadmap outlines phased decarbonisation pathways, signalling long-term intent but lacking enforceable timelines or strong financial incentives to shift away from coal.
Green Steel Taxonomy (Dec 2024)
- India became the first country globally to formalise a Green Steel Taxonomy, defining emission thresholds and enabling certification, disclosure, and potential market creation.
Supporting Policy Signals
- National Green Hydrogen Mission, renewable capacity expansion, and Carbon Credit Trading Scheme (CCTS) targets for 253 steel units show directional momentum.
Major Barriers to Green Steel in India
Technology and Input Constraints
- High cost and limited availability of green hydrogen, insufficient renewable power dedicated to industry, and weak scrap availability constrain rapid scale-up of low-carbon steel.
Market and Finance Constraints
- Green steel projects require 30–50% higher capital investment, face lack of long-tenure low-cost finance, and insufficient risk-sharing mechanisms for first movers.
Institutional and Workforce Gaps
- Fragmented scrap markets, limited gas infrastructure, absence of CO₂ transport networks, and need for workforce upskilling slow transition across large and small producers.
Role of Carbon Pricing and Market Creation
Carbon Price as Transition Enabler
- European experience shows near-zero steel technologies became viable only after carbon prices reached $90–100 per tonne of CO₂, offering lessons for India’s sequencing.
Demand-Side Pull for Green Steel
- Public procurement mandates, certification, and labelling can create assured domestic demand, reducing commercial risk and accelerating investment in clean steel capacity.
Strategic Role of the State
Government as Regulator and Enabler
- The state must set clear short-, medium-, and long-term emission targets, ensuring policy predictability for capital planning while avoiding ad-hoc regulatory shocks.
Infrastructure Hubs and Shared Assets
- Developing green steel hubs with shared renewable power, hydrogen, gas pipelines, and CO₂ evacuation infrastructure can reduce costs and enable cluster-based decarbonisation.
Equity and Just Transition Concerns
Supporting MSME Steel Producers
- Smaller steel manufacturers lack capital buffers and technology access, requiring targeted fiscal support, concessional finance, and technology transfer to ensure equitable transition.
Strategic Significance for India
Climate and NDC Alignment
- Green steel is indispensable for achieving deeper NDC ambition, as industrial decarbonisation increasingly determines credibility of long-term net-zero pathways.
Economic and Geopolitical Advantage
- Early leadership in green steel can secure export competitiveness, attract climate-aligned capital, and position India as a norm-setter in sustainable industrialisation.
Way Forward: Policy-Industry Compact
Key Action Points
- Mandate low-carbon pathways for all new steel capacity, operationalise carbon pricing, scale green hydrogen, formalise scrap markets, and align procurement with green standards.
Core Takeaway
- Green steel is no longer optional; it is central to India’s revised NDC, long-term competitiveness, and global leadership, demanding decisive policy signals and rapid industrial scale-up.
Signing of FTAs Is a Start: Measuring Success Through Global Market Gains
Why is it in News?
- India has signed multiple Free Trade Agreements recently, reviving debate on whether FTAs translate into real global market share gains or remain symbolic without domestic competitiveness reforms.
Relevance
- GS 2 (International Relations): Trade diplomacy, FTAs with major partners, India’s negotiating credibility, and role in shaping global trade rules.
- GS 3 (Economy): Export competitiveness, manufacturing productivity, non-tariff barriers, logistics costs, and global value chain integration.
Practice Question
- Analyse the role of non-tariff barriers in limiting India’s gains from FTAs. What domestic reforms are required to address this challenge?(250 Words)
What Are Free Trade Agreements (FTAs)?
Definition and Core Objective
- FTAs are bilateral or multilateral trade agreements aimed at reducing tariffs and trade barriers to enhance market access, export competitiveness, investment flows, and integration into global value chains.
India’s Recent FTA Push
- India has concluded FTAs with UAE, Australia, EFTA, and is negotiating with EU and UK, reflecting a strategic shift from protectionism to selective trade liberalisation.
India’s Trade Context: The Structural Challenge
India’s Global Trade Position
- Despite being a major economy, India’s share in global merchandise exports remains modest at around 1.8%, indicating limited success in converting scale into global market dominance.
Export Concentration and Vulnerability
- India’s exports remain concentrated in few sectors like petroleum products, gems, pharmaceuticals, and IT-enabled services, limiting diversification and resilience against global demand shocks.
FTAs as Opportunity, Not Automatic Gains
Market Access vs Market Capture
- FTAs only reduce tariffs; actual gains depend on firms’ ability to meet quality, scale, logistics, and compliance standards required to capture and sustain foreign market share.
Evidence from Comparative Economies
- Countries like Vietnam and China have leveraged FTAs to expand exports significantly by aligning domestic reforms with trade agreements, unlike India’s relatively muted post-FTA export response.
Non-Tariff Barriers: The Hidden Constraint
Nature of Non-Tariff Measures (NTMs)
- Advanced economies increasingly rely on product standards, safety norms, environmental rules, and certification requirements, which often restrict exports more than tariffs themselves.
India’s Compliance Gap
- Indian exporters frequently face rejection due to SPS, TBT, and quality non-compliance, raising costs and eroding competitiveness even under preferential tariff access.
Manufacturing Competitiveness: The Missing Link
Scale and Productivity Constraints
- India’s manufacturing sector is dominated by small firms lacking scale, technology, and productivity, limiting their ability to exploit FTA-enabled access to large, competitive global markets.
Logistics and Trade Facilitation Issues
- High logistics costs, estimated at 13–14% of GDP, weak port efficiency, and slow customs clearance reduce India’s export competitiveness relative to East Asian manufacturing hubs.
FTAs and Global Value Chains (GVCs)
Importance of Intermediate Goods Trade
- Modern trade is driven by intermediate inputs; FTAs must enable seamless sourcing and integration into GVCs rather than focusing narrowly on final goods exports.
India’s Limited GVC Integration
- India remains weakly integrated into global manufacturing value chains compared to ASEAN economies, reducing the export multipliers expected from FTAs.
Domestic Policy Alignment: The Decisive Factor
Need for Complementary Reforms
- FTAs succeed only when supported by domestic reforms in labour laws, land markets, infrastructure, credit access, and regulatory predictability that lower production and transaction costs.
Role of Industrial Policy
- Production-linked incentives, skill development, and cluster-based manufacturing ecosystems are essential to convert preferential market access into sustained export expansion.
Strategic Risks of Incomplete FTA Utilisation
Risk of Import Surge Without Export Gains
- Without competitiveness reforms, FTAs can increase imports faster than exports, widening trade deficits and fuelling domestic opposition to trade liberalisation.
Credibility and Negotiating Power
- Failure to deliver post-FTA export growth weakens India’s credibility in future trade negotiations and reduces its leverage in shaping global trade rules.
Way Forward: Making FTAs Work for India
Policy and Institutional Priorities
- India must shift focus from signing FTAs to export readiness through quality infrastructure, standards harmonisation, logistics modernisation, MSME upgrading, and targeted trade facilitation.
Measuring Success Metrics
- Success of FTAs should be judged by sustained export growth, diversification, global market share gains, and deeper GVC integration, not merely by number of agreements signed.
Takeaway
- FTAs are necessary but insufficient; without deep domestic competitiveness reforms, India risks preferential access without market power, turning trade agreements into missed economic opportunities.
