The Indian steel industry has been showing tremendous improvements in terms of growth in capacity, production and exports and has become a major competitor in the global arena, thanks to the forces of deregulation and globalization. Keeping in view the current performance, the future looks bright for the domestic steel industry. India will be among the top five consumers of steel by 2010. The primary objective of this study is to measure an overall index of performance across the Indian steel companies based on 11 financial ratios including the profit ratio for each company by using the globally popular method—the Taxonomic Method. This method is preferred over the parametric methods using flexible functional forms and the Data Envelope Analysis (DEA). The empirical results show that, overall composite index would serve as a better performance indicator than the conventional stand-alone operating profit margin. Statistically speaking, the performance of 11 companies appeared to be converging during 1999-2003. The regression results reveal that the size factor—log (assets)—has been dominant. Contrary to conventional expectations the sign of market share shows positive and significant relation with overall performance. This is, perhaps, attributable to the price controls the steel industry has been subjected to for a long time before liberalization. Also, the larger companies are in the public sector except the TISCO. As a consequence, the expected U-shaped relationship between OPM/CPI turned to be counter-intuitively umbrella-shaped.

The steel industry presents one of the most energy intensive sectors in the Indian economy. India got into steel making in the early 20th century when JRD Tata set up the first steel plant in the country in 1907 at Jamshedpur. There are 11 large (with share 0.5 percentage point) steel companies and another 500 mostly smaller units (of which, over 200 steel companies are listed on the country’s stock exchanges) with installed capacity of about 35 million tonnes but producing 36.15 million tonnes annually. India is the eight biggest producer of steel but presently accounts for less than 5% of the global output of finished steel and 1% of global trade. The Indian per capita consumption of 30 kg is also well below even the Asian average of 128 kg and Chinese average of 200 kg. The US averages around 472 kg; and European Union has a per capita steel consumption of 428.6 kg.

Steel is an alloy of iron and carbon containing less than 2% of carbon with smaller amounts of manganese, silicon, phosphorus, sulphur and oxygen. The Eastern states (Orissa, West Bengal, Bihar, Madhya Pradesh, and Chattisgarh) produce about 83% of India’s crude steel but consume only 24% of finished steel. On the other hand, Maharashtra, Punjab, and Tamil Nadu together consume 37%.