SOVIET CAPABILITIES TO SUPPORT EXPANSION OF INDIA'S STEEL INDUSTRY

Created: 8/26/1963

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CONFIDENTIAL

Current Support Brief

SOVIET CAPABILITIES TO SUPPORT EXPANSION OF INDIA'S STEEL INDUSTRY

3 CIA/RR

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

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APPROVED FOR

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CAPABILITIES TO SUPPORT EXPANSION OF INDIA'S STEEL INDUSTRY

Should the US refuse to aid India in the development of the Bokaro steel plant, the importance of the plant to India's economic planning probably would prompt India to turn to the USSR for such assistance. Economic and technological considerations at home and the limited success of large-scale economic assistance programs abroad appear to dictate against the USSR undertaking the project. Politicalhowever, could override the economic factors to the extent that the USSR would agree to construct the Bokaro plant or, alterna-

planned. Even if the USSR were to undertake the Bokaro project,than half of the future expansion of the Indian steel industry1 would come from non-Communist sources.

Since India achieved independence shortly after World War II, the Indian economy has developed throughear plans. , the first two plan periods, industrial productionercent annually, but the consumption of finished steel products increased at an annual rate ofercent, or fromillion tons2 totons Domestic production of steel did not meet consumption in any year. Net imports roseons2 to moreillion tons per year beginning

Official projections of the industrial growth of India indicate thatof rolled steel will increaseillion tons6 and toillion tons Planned production of rolled steel will fall short of expected consumption, resulting in significant deficits each year during the period, with anticipated imports rising fromillion tons6 toillion tons

Significant expansion of India's steelmaking capacity is planned during the current andear6s shown in Table 1. otalillion tons of crude steel, an increaseillion tons over present capacity, is planned6 and. although no definite plan has been announced, Indian planners are thinking in terms ofillion tons

Table 1

India: Steel Capacity and2 and Plans61

Million Metric Tons

s/

Plan

Plan

steel

b/

steel

c/

Data are for fiscalhich ended in

an official plan, but the figure that Indiancurrently are considering.

eclineillion tonsof fiscal

, steelmaking capacity is to be expanded bytons in India's three government-owned plants: Bhilai, built by the USSR; Rourkela, built by West Germany; and Durgapur, built by the UK. Bhilai is to be expandedillion toillion tons; Rourkela

illion toillion tons; and Durgapurillion toillion tons. Financial and technical aid and equipment for each of these plants will be provided by the foreign government which originally built it. No expansion is planned for privately owned Indian steel plants. Consequently, although total crude steel capacity is planned toillion tonsxpansion planned to meet that goal falls short of requirements byillion tons, and there is no foreseeable way in which this deficit could be made up.

Further expansion of India's steelmaking capacity is contemplated. Privately owned plants are to expand capacity by 2tons and the publicly owned sector is to increase capacity byil lion tons. Indian planners count on significant further expansion at each of the three existing government-owned plants, in addition to theof the first stage of the Bokaro plantapacity ofil lion tonsnd the construction of one or more other government-owned plants with combined capacity ofillion tons. This program will leave India moreillion tons short of the tentative goal ofillion tons, but the USSR has stated that1 it could easilythe capacity of the Bhilai plantillion tons instead ofil lion tons now planned.

India will need considerable foreign financial and technical aid and equipment to develop its steel industry as planned If West Germany and the UK continue to support the expansion of the Rourkela and Durgapur plants beyond the commitments ndia must look principally to the US or the USSR for development of the Bokaro and other plants planned The USSR already is committed to expanding the Bhilai plant toillion tonss noted above, and hasillingness to expand that plant further. India and the USSR also have had preliminary talksSoviet aid toifth government-owned plant. Such acalls foranappraisal of the capability of the USSR to provide the Bokaro plant, should the US fail to do so.

Soviet Capabilities

a. Equipment and Construction Considerations

For the USSR to meet India's schedule for the Bokaro plant, construction and installation of basic facilities should begin4 or early This schedule is based on the assumption that the USSR would require no less time to manufacture, assemble, and install the equipment than was estimatedeport fjj

on the proposed project. This study, whichontract date ofchedules start-up operations for8 and estimates that full capacity would be reached.

Soviet planners currently are subjecting the plans for further expansion of steel industry capacity in the USSRo intensive reexamination. There are as yet no firm indications of the impact this appraisal may have on expansion of steel plantsa period when the USSR would have to initiate production of some of thefor the Bokaro plant under the schedule presented in the US Steel report. The original maximum targets for adding new capacity in the USSR probably have been discarded, in view of the problems encountered to date in expanding capacity and the fact that, despite lags in installing new facilities, productionas considerably larger than was expected on the basis of the original control figures of the Seven Year Plan for those years, as shown in Table 2. The excesses inears reportedly totaledillion tons of pig iron, aboutillion tons of crude steel, andillion tons of rolled steel.

Even on the assumption that Soviet steel plans for expanding production are now focused onthe original minimum goals of the Seven Year Plan, considerable difficulty would be encountered in meeting these requirements and, in addition, in supplying equipment for Bokaro. This difficulty would be particularly apparent if it is assumed that India's

Table 2

USSR: New Capacity for the Ferrous Metallurgical Industry a/nd

Million Metric Tons

Type cf Capacity

Blast furnace Steelraaiing Rolling mill

3

Original .Seven Year Plan

9

Pevised Plan

6 29

Q-6a

3

additions to capacity resulting from enlarging existing facilities and from technological and. other sources of increasedfrom existing facilities.

planners would require equipment from theThe report includedon oasic

oxygen converters for the first stage of the plant. The largestof this type built by the USSR so faron units. designson furnace reportedly have been completed, none has been built, and present indications are that none is Moreover, the Soviet oxygen-converter program has lagged throughout the plan period, not only because of prolonged delays in designing and building converters but also because of failures inthe necessary high-capacity oxygen generating stations. One new converter has been installed,ore are to be in operation by the end of

dditional units are planned to be in production by the end of

these plans are met it would leave at least two and possiblyto be installed5 according to the original program .

Although the USSR could substitute open hearth furnaces in the Bokaro plant for the proposed oxygen converters, such alternatives would

not be available in equipment for rolling and finishing lines. It is in the production and installation of finishing facilities that the USSR is most deficient and has fallen considerably behind schedule during the current plan period. To supply the rolling and finishing equipment proposed for Bokaro not only would delay further the Soviet program but also would further postpone the achievement of the variety and quality of steel mill products required by Soviet steel-consuming industries.

Additional demands on Soviet metallurgical equipment plantsre those generated by Soviet export commitments to the European Satellites. In general, the shipment of most of thisto the Satellites is scheduled to be completed by the endlthough deliveries may extend beyond that date because of delays that have developed in meeting some of these commitments. Should itexpedient to do so, the USSR might encourage the-Satellites to turn to Free World suppliers in order to use available Soviet resources for the Bokaro project.

The USSR has only relatively small programs for metallurgical plants in the Free World, aside from commitments to supply equipment for expanding the Bhilai plant in India and the Helwan project in the United Arab Republic.

b. Financial Considerations

There is evidence in the decline of Sino-Soviet Bloc extensions of economic aid to underdeveloped countriesillion between January and3hat disappointment with results of aid already extended, together with pressures in the domestic economy, has caused some reassessment by the Bloc of its foreign aid program. Soviet leaders have spoken of the limited potential to the USSR of foreign aid and have suggested that underdeveloped countries should rely more on their own resources or seek more aid from the West and the UN. In negotiations with India particularly, the USSR has sought to link future aid more closely with bilateral trade, suggesting that it would construct consumer goods plants, repayment for which would be made by exports of the products from these plants. In recent weeks, however, and partly

in response TO growing Chinese criticism, Soviet leaders havetheir interest in the foreign lending program. Forolicy reasons, the USSR could decide to takeajor project such

Bokaro which the US has publicly let

On the other hand, the very magnitude of the Bokaro projectgive the USSR pause. The Jordan aid component of the project

illion

ing all the auxiliaries necessary to expand the plant later to 4

tons. At this level, it would dwarf any project that the USSR hasso far in the foreign aid field. This project would more than double Soviet aid to Indialready thc largest recipient of Soviet economic assistance in the Freeillion extended.

The Soviet-built steel plant at Bhilaiorin Soviet aid has been committedas been an outstanding Production at Bhilai during the fiscal year endingarchexceeded rated capacity, and expansion of the plantillion tons of ingot steel capacity is well underway. Thusbe said that the USSR already has extracted the maximumthat is to be gained from providing steel mills to India. Thereis some risk, particularly if the USSR were to attempt tothe very modern type of equipment envisioned in the US SteelBokaro would not be the success that Bhilai has been. The UScontained reservations about the siteource of laborabout the lack of planningoordinated supply of rawthe plant.

illion total of Soviet grants and credits to Indiaillion has been in form of grants) already has been fully obligated, with an1 million drawn as ofepayment on Bhilai has started, and the due dates for beginningon the Bloc credits are approaching. Although payment is to be in rupees or in Indian exports and thus does notirect drawing on India's low reserves of hard currency, the burden of meeting its export obligations to the USSR will be heavy for Indiaime when it also is hoping to expand sales to hard currency areas.

If construction of the Bokaro plant were undertaken by the USSR under terms similar to those for Bhilai and other Soviet projects in India, repayment probably would beyear period, beginning afterand atercent interest. The first stage of Bokaro is not to be finishedufficiently far off so that India presumably would not yet begin to worry about repayment problems. In any event,of steel capacityital part of India's economic planning, and India has been pressing hardavorable US decision on Bokaro. It is accordingly unlikely that India would hesitate through concern overproblems to ask the USSR to take up the project if the US turns it down. This is particularly likely when it is considered that the rolled steel produced by the Bokaro plant would savennually in foreign exchange.

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