Pavan Korada 
New Delhi: Ten days after conducting his first public rally in Visakhapatnam after being elected as the prime minister for the third consecutive time, Narendra Modi has announced a ‘special package’ of Rs 11,440 crore for the Vizag Steel Plant (VSP) on social media platform X on January 18, 2025.
The National Democratic Alliance (NDA) government in Andhra Pradesh and the local media, both print, broadcast, and digital, hailed this announcement as “breathing new life into an ailing steel plant”. While Telugu Desam Party (TDP) national president and chief minister N. Chandrababu Naidu attributed this success to the “double-engine” government, his alliance partner and deputy chief minister K. Pawan Kalyan remarked that this offered “new hope to thousands of families.”
Interestingly, even the opposition YSR Congress Party is claiming credit for this, citing Union minister of heavy industries H.D. Kumaraswamy’s statement that “Despite the downturn during the Covid period, the plant earned profits of Rs 92 crore and Rs 930 crore in 2018-19 and 2020-21, respectively. However, in January 2021, DIPAM decided to proceed with 100% disinvestment — complete privatisation of the unit. At that time, the Andhra government passed a resolution in the assembly opposing this disinvestment decision, even amid the economic downturn.”
However, this announcement raises important questions regarding its timing, the package’s structure, and its long-term implications for VSP’s future.
Timing of the announcement is intriguing
If it is merely political mileage that the NDA government is seeking from this announcement, why didn’t Modi make the announcement during the massive public meeting in the same city of Visakhapatnam on January 8, just ten days prior? In fact, neither Modi nor Naidu nor Kalyan even uttered the words “privatisation” or “steel plant”.
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It is possible that the NDA government deliberately avoided touching upon the emotive issue of privatisation of the steel plant to ensure the narrative was focused on the visit being Modi’s first since his re-election and how he chose to come to Visakhapatnam, emphasising the political importance of Andhra Pradesh in the Bharatiya Janata Party’s (BJP’s) scheme of things.
The special package announced by the Union government comprises two components. A significant portion, Rs 10,000 crore, will be provided as equity. In practical terms, this represents the government acquiring part-ownership of VSP. Since equity does not require repayment, this segment of the package serves as an investment rather than a loan.
The remaining Rs 1,440 crore will be issued as preferential shares, a financial instrument that combines features of equity and debt. Preferential shares grant holders repayment priority over common shareholders in the event of liquidation. Additionally, unlike the equity portion, VSP will be required to buy back these shares from the Union government within a stipulated time frame. This process includes repaying the principal amount and any accrued interest.
While the package appears to offer substantial financial assistance, the structure of the preferential shares raises concerns about the long-term financial implications for VSP, especially if the plant continues to operate under constrained conditions.
The Union government has positioned this special package as a measure to revive the debt-laden VSP. The package, however, does not address the plant’s underlying structural issue – the lack of a reliable and cost-effective raw material supply. Unlike private steel plants across the country, VSP has not been allocated captive iron ore mines, forcing it to procure raw materials at significantly higher market rates.
This absence of captive mines not only exacerbates operational inefficiencies but also perpetuates a cycle of financial strain. With limited access to affordable raw materials, the plant continues to operate below capacity, leading to reduced revenue generation and mounting debt. It seems that these conditions have effectively handicapped the VSP, aligning with the government’s broader 100% disinvestment policy, which prioritises privatisation over operational support.
Without addressing the fundamental issue of raw material costs, the special package may offer only temporary relief, leaving VSP vulnerable to continued financial instability.
The political reactions
The announcement of the special package has sparked various political responses, each with distinct implications. During a press conference following the announcement, Naidu called on VSP employees and workers to focus on achieving profitability. However, this statement contrasts with Union minister Kumaraswamy’s earlier acknowledgement that the plant posted profits even during economic downturn periods, such as the Covid-19 pandemic.
Naidu’s remarks seem to be reinforcing a narrative that public sector enterprises are inherently inefficient or financially burdensome. This perspective has often been used to justify privatisation, framing public sector units as liabilities despite evidence to the contrary, especially in the case of VSP.
Contrary to the narrative that the VSP cannot recover without external assistance, the plant possesses significant resources that could enable it to address its financial challenges independently. For instance, VSP holds approximately 20,000 acre of prime land in Visakhapatnam and Hyderabad worth at least Rs 2 lakh crore. Liquidating a portion of this land could swiftly alleviate its debt burden.
Furthermore, the VSP’s operational potential remains underutilised. The plant is currently functioning at half of its total capacity of 7.3 million tons per year. If allowed to operate at full capacity and provided with access to captive iron ore mines – similar to those allocated to private steel plants – it could feasibly generate sufficient revenue to clear its debts within a few years.
The major issues
The central issue facing the VSP is not inefficiency among its workers or a lack of focus on profitability, but rather the high cost of raw materials. “Producing one ton of steel requires approximately 1,600 kgs of iron ore. While the market price for iron ore ranges from Rs 6,000 to Rs 8,500 per ton, captive mines could provide the same resource at just Rs 600 per ton,” M. Sarat, a senior employee at VSP and president of Human Rights Forum (HRF) told The Wire.
This tenfold disparity in raw material costs places VSP at a significant disadvantage compared to private steel plants that benefit from captive mines. As a result, VSP struggles to achieve full production capacity and profitability, even though its products command premium pricing in the market. Addressing this core issue is critical to ensuring the plant’s long-term sustainability.
The allocation of Rs 11,440 crore raises questions about its intended utilisation. If the entire package is directed toward debt repayment, VSP may face operational constraints, limiting its ability to generate the revenue needed to sustain long-term recovery. Conversely, investing the funds in production could yield profits to address the debt, but without resolving the fundamental issues of raw material costs and capacity underutilisation, the plant is likely to face recurring financial challenges.
Ultimately, the package appears to offer only temporary relief. Without addressing systemic issues – such as the absence of captive mines and unequal treatment compared to private steel plants – the financial and operational difficulties of VSP are likely to resurface in the near future. This raises concerns about whether the package is a genuine effort to revive the plant or a preparatory step to enhance its valuation before potential privatisation.
The announcement of the special package could inadvertently fuel discussions around privatisation. “If VSP struggles to demonstrate significant improvement despite receiving Rs 11,440 crore, the same central government might interpret this as evidence of inefficiency within public sector enterprises. This perception could reinforce the narrative that VSP, like other public units, is a “white elephant,” incapable of delivering returns on public investment,” Sarat pointed out.
Such a viewpoint risks overshadowing the structural challenges faced by VSP, particularly its lack of access to captive mines and the uneven competitive landscape it navigates. The Rs 11,440-crore figure is likely to linger in public discourse, insidiously shaping the narrative not just about the viability of public sector ownership and paving the way for renewed privatisation efforts, but also about how all this happened despite Modi’s help.
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The challenges facing VSP must also be examined within the broader context of disinvestment policies and public sector priorities. Over the past decade, the Union government has written off approximately Rs 14 lakh crore for private companies, including the conversion of Rs 16,133 crore in Vodafone-Idea’s interest dues into equity. “If the government can use taxpayer money to help a private telecom company, why can’t it do the same for VSP, which is a public sector unit?” Sarat asked.
Given the Union government’s Rs 48 lakh-crore annual budget and VSP’s substantial asset base, estimated at Rs 2 lakh crore, many argue that converting a portion of VSP’s debt into equity would be a viable alternative to privatisation. “Such a move could not only stabilise VSP’s financial position but also demonstrate a commitment to sustaining public sector enterprises as key contributors to the national economy and Atmanirbhar Bharat,” political analyst and former MLC K. Nageshwar suggested.
The special package also raises critical questions about the government’s long-term intentions for the VSP. If the Union government views VSP as a “debt-ridden, loss-making enterprise,” why would it expect a private player to find it attractive? This creates a plausible scenario where the Rs 11,440 crore package serves to temporarily stabilise VSP, improving its valuation in preparation for privatisation rather than a genuine effort to ensure its sustainability under public ownership.
India’s history of disinvestment underscores this concern, where public sector units have often been made profitable or operationally sound before being sold to private entities. In VSP’s case, the package could enhance its financial position while parallel insidious efforts – such as encouraging Voluntary Service Retirement (VSR) schemes and pushing for cost-cutting measures – which only mean job losses, more temporary or informal casual workers without any job security, and doing away with Constitutionally-guaranteed reservations in jobs in the public sector – may signal steps toward downsizing and privatisation.
At the heart of the matter are the employees and workers who have kept the plant operational under challenging circumstances. “For over three years, we have continued to protest at our dharna camp day in and day out just outside the main entrance to the plant on the highway alongside our regular work shifts, striving to protect the plant’s public sector status. Don’t my co-workers with their ‘steely’ resolve need some credit too?” asked Sarat.