TRANSMITTAL OF MATERIAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001700150001-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 12, 2016
• Document Release Date: March 15, 2002
• Sequence Number: 1
• Publication Date: September 3, 1963
• Content Type: MF

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3 September 1963
MEKORANDLN FOR. Chief, Dissemination Control Branch, DD/CR
FROM Chief, Publications Staff, ORB
SUBJECT Transmittal of Material
It is requested that the attached copies of CIA/RR CB 63-70.-
Soviet Capabilities to ort lxa nsion of India's Steel Industry,
Au t -Z61. Confidential., be forwarded as fo lows:
2 6--
State, BE Communications Center,
Room 7818, State Dept.. Bldg.
For Embassies in Moscow, Bonn,
Frankfurt, London, Paris, Rome,
Hong Kong, Tokyo, Karachi, and
New Delhi
25X1A
Attachments:
Copies 5 _2i of CB 63-TO
cc: CGS/RB
segues`
The dis;e,;inah0n by
th s !.,fl has been completed:
Date:
~
01
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CONFIDENTIAL
Current Support Brief
SOVIET CAPABILITIES
TO SUPPORT EXPANSION OF INDIA'S STEEL INDUSTRY
26 August 1963
CIA/ RR CB 63-70
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
GROUP 1
Excluded from automatic
downgrading and
declassification
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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SOVIET 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. Political expe-
dience, however, could override the economic factors to the extent
that the USSR would agree to construct the Bokaro plant or, alterna-
tively, propose the expansion of the Bhilai plant beyond that presently
planned. Even if the USSR were to undertake the Bokaro project, more#,
than half of the future expansion of the Indian steel industry through 1971
would come from non-Communist sources.
1. Expansion of Steel Production and Demand in India
Since India achieved independence shortly after World War II, the
Indian economy has developed through successive 5-year plans. During
1951-61, the first two plan periods, industrial production rose 7 percent
annually, but the consumption of finished steel products increased at an
annual rate of 13 percent, or from 1. 3 million tons in 1952 to 3. 9 mil-
lion tons in 1961. Domestic production of steel did not meet consumption
in any year during 1951-61. Net imports rose from 154, 000 tons in 1952
to more than 1 million tons per year beginning in 1957.
Official projections of the industrial growth of India indicate that con-
sumption of rolled steel will increase to 9 million tons in 1966 and to 14
million tons in 1971. Planned production of rolled steel will fall short of
expected consumption, resulting in significant deficits each year during
the period, with anticipated imports rising from 1. 3 million tons in 1966
to 2. 6 million tons in 1971.
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Significant expansion of India' s steelmaking capacity is planned
during the current and following 5-year periods (1962-66 and 1967-71),
as shown in Table 1. A total of 10. 2 million tons of crude steel, an
increase of 4 million tons over present capacity, is planned for 1966
and, although no definite plan has been announced, Indian planners are
thinking in terms of 18 million tons in 1971.
India: Steel Capacity and Production
1962 and Plans for 1966 and 1971
1962 al
1966 Plan
1971 Plan
Crude steel
Capacity
6.2
10.2
18.0 b
Production
5.4
Rolled steel
Production 3.9
7.7
11.4
Imports 0.9 c/
1.3
2.6
Consumption 4.8
9.0
14.0
a. Data are for fiscal year 1963, which ended in March
1963.
b. Not an official plan, but the figure that Indian plan-
ners currently are considering.
c. Imports represent a decline of 0.2 million tons from
those of fiscal year 1962.
During 1962-66, steelmaking capacity is to be expanded by Z. 9 mil-
lion tons 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 expanded from 1 million to 2. 5 million tons; Rourkela
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from 1 million to 1. 8 million tons; and Durgapur from 1 million to 1. 6
million 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
during 1962-66. Consequently, although total crude steel capacity is
planned to reach 10. 2 million tons by 1966, expansion planned to meet
that goal falls short of requirements by 1. 1 million tons, and there is no
foreseeable way in which this deficit could be made up.
Further expansion of India's steelmaking capacity is contemplated
during 1967 -7 1. Privately owned plants are to expand capacity by 2 mil-
lion tons and the publicly owned sector is to increase capacity by 5. 7 mil-
lion tons. Indian planners count on significant further expansion at each
of the three existing government-owned plants, in addition to the con-
struction of the first stage of the Bokaro plant (with a capacity of 1. 4 mil-
lion tons by 1971) and the construction of one or more other government-
owned plants with combined capacity of 2. 2 million tons. This program
will leave India more than 1 million tons short of the tentative goal of
18 million tons, but the USSR has stated that by 1971 it could easily ex-
pand the capacity of the Bhilai plant to 4 million tons instead of the 3 mil-
lion tons now planned.
India will need considerable foreign financial and technical aid and
equipment to develop its steel industry as planned through 1971. If West
Germany and the UK continue to support the expansion of the Rourkela
and Durgapur plants beyond the commitments through 1966, India must
look principally to the US or the USSR for development of the Bokaro and
other plants planned through 1971. The USSR already is committed to
expanding the Bhilai plant to 2. 5 million tons by 1966, as noted above,
and has expressed a willingness to expand that plant further during
1967 -7 1. India and the USSR also have had preliminary talks concern-
ing Soviet aid to construct a fifth government-owned plant. Such a pos-
sibility calls.for anapp'raisal of the capability of the USSR to provide the
Bokaro plant, should the US fail to do so.
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2. 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 begin in 1964
or early in 1965. This schedule is based on the assumption that the
USSR would require no less time to manufacture, assemble, and install
the equipment than was estimated in a report by US Steel Corporation*
on the proposed project. This study, which assumes a contract date of
mid-1963, schedules start-up operations for January 1968 and estimates
that full capacity would be reached in 1971.
Soviet planners currently are subjecting the plans for further
expansion of steel industry capacity in the USSR for 1964-65 to intensive
reexamination. There are as yet no firm indications of the impact this
appraisal may have on expansion of steel plants in 1964-65 -- a period
when the USSR would have to initiate production of some of the equip-
ment for 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, production during 1959-62 was 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 in these
4 years reportedly totaled 2. 5 million tons of pig iron, about 13 million
tons of crude steel, and 11 million tons of rolled steel.
Even on the assumption that Soviet steel plans for expanding
production are now focused on the 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
* A Techno Economic Survey of a Proposed Integrated Steel Plant at
Bokaro, Bihar State, India, prepared by the United States Steel Corpo-
ration for the Agency for International Development, March 1963.
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Table 2
USSR: New Capacity for the Ferrous Metallurgical Industry a/
Planned 1959-65 and Commissioned 1959-62
Planned 1959-65
Original
Seven Year Plan
Type
Commissioned
of Capacity
Minimum
Maximum
Revised Plan
1959-62
Blast furnace
24
30
30
12.7
Steelmaking
28
36
36
16.3
Rolling mill
23
29
29
11.0
a. Excluding additions to capacity resulting from enlarging existing
facilities and from technological and other sources of increased pro-
duction from existing facilities.
planners would require equipment from the USSR similar to that speci-
fied in the US Steel report. The report included two 170-ton basic
oxygen converters for the first stage of the plant. The largest con-
verters of this type built by the USSR so far are 100-ton units. Al-
though designs for a 250-ton furnace reportedly have been completed,
none has been built, and present indications are that none is now sched-
uled until 1966. 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 in pro-
ducing the necessary high-capacity oxygen generating stations. One new
converter has been installed, 3 more are to be in operation by the end of
1963, and 10 additional units are planned to be in production by the end of
1964. If these plans are met it would leave at least two and possibly five
units to be installed in 1965 according to the original program for 1959-65.
Although the USSR could substitute open hearth furnaces in the
Bokaro plant for the proposed oxygen converters, such alternatives would
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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 plants
during 1963-65 are those generated by Soviet export commitments to
the European Satellites. In general, the shipment of most of this equip-
ment to the Satellites is scheduled to be completed by the end of 1965,
although deliveries may extend beyond that date because of delays that
have developed in meeting some of these commitments. Should it be-
come expedient 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 countries -- only $90 million between
January and June 1963 -- that 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
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in response to growing Chinese criticism, Soviet leaders have vigorously
reaffirmed their interest in the foreign lending program. For over-all
policy reasons, the USSR could decide to take on a major project such as
Bokaro which the US has publicly let fall.
On the other hand, the very magnitude of the Bokaro project may
well give the USSR pause. The foreign aid component of the project has
been placed by the US Steel survey team at $892 million by 1971, includ-
ing all the auxiliaries necessary to expand the plant later to 4 million
tons. At this level, it would dwarf any project that the USSR has under-
taken so far in the foreign aid field. This project would more than double
Soviet aid to India - - already the largest recipient of Soviet economic
assistance in the Free World ($811. 1 million extended since 1955).
The Soviet-built steel plant at Bhilai -- for which $249. 2 mil-
lion in Soviet aid has been committed -- has been an outstanding suc-
cess. Production at Bhilai during the fiscal year ending 31 March 1963
has exceeded rated capacity, and expansion of the plant from 1 million
to 2. 5 million tons of ingot steel capacity is well underway. Thus it
could be said that the USSR already has extracted the maximum advan-
tage that is to be gained from providing steel mills to India. There also
apparently is some risk, particularly if the USSR were to attempt to in-
stall the very modern type of equipment envisioned in the US Steel report,
that Bokaro would not be the success that Bhilai has been. The US Steel
report contained reservations about the site as a source of labor supply
and about the lack of planning for a coordinated supply of raw materials
to the plant.
The $811. 1 million total of Soviet grants and credits to India
(only $2. 3 million has been in form of grants) already has been fully
obligated, with an estimated $295. 1 million drawn as of 30 June 1963.
Repayment on Bhilai has started, and the due dates for beginning re-
payment on the Bloc credits are approaching. Although payment is
to be in rupees or in Indian exports and thus does not constitute a direct
drawing on India's low reserves of hard currency, the burden of meeting
its export obligations to the USSR will be heavy for India at a time when
it also is hoping to expand sales to hard currency areas.
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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 be over a 12-year period, beginning after com-
pletion and at Z. 5 percent interest. The first stage of Bokaro is not to
be finished until 1971, sufficiently far off so that India presumably would
not yet begin to worry about repayment problems. In any event, expan-
sion of steel capacity is a vital part of India's economic planning, and
India has been pressing hard for a favorable US decision on Bokaro. It
is accordingly unlikely that India would hesitate through concern over re-
payment problems 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 save approximately $200 mil-
lion annually in foreign exchange.
Analyst:
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