Steel & Metals Manufacturing in India: FDI, PLI & Environmental Compliance

Why Steel Manufacturing in India Demands Foreign Investor Attention

India produced 152 million tonnes of crude steel in calendar year 2025 — a 6% year-on-year increase — and its installed steelmaking capacity reached 205 MT in FY25, up 10% from 186 MT the prior year. The National Steel Policy 2017 targets 300 MT capacity by 2030-31, requiring approximately 95 MT of additional capacity over the next five years. This capacity gap represents one of the largest greenfield investment opportunities in global heavy manufacturing.

Between April 2000 and June 2025, India's metallurgical industries attracted FDI inflows of Rs. 1,60,000 crore (USD 18.67 billion). The sector allows 100% FDI under the automatic route, meaning no prior approval from the RBI or central government is required. For foreign steel manufacturers evaluating the China+1 strategy, India offers a combination of policy certainty, domestic demand scale (1.4 billion consumers driving infrastructure and urbanization), and direct cash incentives through PLI schemes that no competing destination matches.

FDI Framework for Steel and Metals Manufacturing

100% Automatic Route: What It Means in Practice

India permits 100% foreign direct investment in the steel and metals sector through the automatic route. This means a foreign company can set up a wholly owned subsidiary in India without seeking prior approval from the Reserve Bank of India or the Department for Promotion of Industry and Internal Trade (DPIIT). The investment is reported post-facto through FC-GPR filing within 30 days of share allotment.

Key regulatory requirements for steel sector FDI include:

• Entity registration: Incorporate a private limited company or register a branch office through the SPICe+ form on the MCA portal
• Industrial license: Not required for most steel products. Required only for items reserved for the public sector (atomic energy-related metals, railway rolling stock) or items under compulsory licensing
• Environmental clearance: Mandatory for all steel plants — obtained from the Ministry of Environment, Forest and Climate Change (MoEFCC) under the EIA Notification 2006
• BIS certification: Compulsory for steel products sold in India under Quality Control Orders (QCOs)
• State-level approvals: Land allotment, power connections, water supply agreements, consent to establish from State Pollution Control Board (SPCB)

FDI Pricing and Valuation

Share issuance to foreign investors must comply with FEMA pricing guidelines. For unlisted companies, shares must be issued at or above fair market value determined by a SEBI-registered merchant banker using the Discounted Cash Flow (DCF) method. The valuation report must be obtained before each capital infusion round.

Recent Major FDI Transactions in Steel

PLI Scheme for Specialty Steel: Structure and Incentives

Scheme Overview

The Production Linked Incentive (PLI) Scheme for Specialty Steel, approved by the Cabinet in July 2021, is India's primary fiscal incentive mechanism for attracting investment in high-value steel manufacturing. The scheme operates through multiple rounds, with the third round (PLI 1.2) launched in November 2025.

Incentive Structure

The PLI scheme provides incentives of 4% to 15% on incremental production value over the base year (FY 2024-25), covering five financial years from FY 2025-26 to FY 2029-30. The incentive percentage varies by product category:

Third Round (PLI 1.2) Key Numbers

• 85 MoUs signed with 55 companies
• INR 118.87 billion (USD 1.39 billion) committed investment
• 8.7 million tonnes of specialty steel capacity to be added by FY 2030-31
• Covers 22 product sub-categories across four product groups

Cumulative PLI Performance

Across all three rounds, the PLI scheme for steel has attracted committed investment of Rs. 43,874 crore (USD 5.12 billion), direct employment of 30,760 people, and estimated production of 14.3 million tonnes of specialty steel. The scheme specifically targets products where India currently depends on imports — CRGO steel for transformers, stainless steel for construction and process industries, and coated steels for automotive and appliance sectors.

Eligibility Requirements

To qualify for PLI incentives, companies must:

• Be registered under the Companies Act, 2013 as a company or LLP
• Demonstrate minimum investment capacity (varies by product category)
• Achieve incremental production targets above the base year
• Manufacture within India — contract manufacturing is not eligible for PLI claims
• Meet quality standards prescribed by BIS for each product category

Environmental Compliance Framework

Environmental Clearance Process

Every steel manufacturing facility in India requires environmental clearance under the Environment Impact Assessment (EIA) Notification 2006. The process involves:

1. Screening: Determine if the project falls under Category A (central government clearance) or Category B (state-level clearance). All integrated steel plants and most standalone steel facilities exceeding specified capacity thresholds are Category A
2. Scoping: Expert Appraisal Committee (EAC) defines the terms of reference for the Environmental Impact Assessment study
3. EIA study: Conducted by a NABET-accredited consultant, covering air quality, water resources, land use, biodiversity, and socioeconomic impact. Typically takes 6-12 months
4. Public hearing: Mandatory for Category A projects. The State Pollution Control Board conducts the hearing and submits proceedings to MoEFCC
5. Appraisal and grant: EAC reviews the EIA report, public hearing outcomes, and compliance plan. Clearance is valid for 10 years (recently extended from 7 years)

Pollution Control Board Compliance

Steel manufacturers must obtain two critical permits from the State Pollution Control Board:

• Consent to Establish (CTE): Required before construction begins. Specifies emission limits, effluent standards, and pollution control equipment requirements
• Consent to Operate (CTO): Issued after construction, upon verification that pollution control systems are installed and operational. Must be renewed periodically (typically every 5 years)

All steel facilities must install Continuous Emission Monitoring Systems (CEMS) and submit real-time emissions data to the CPCB. Non-compliance triggers penalties, closure orders, and environmental compensation levies.

Carbon Credit Trading Scheme

India's Ministry of Environment, Forest and Climate Change issued emission intensity targets for the iron and steel sector in June 2025, covering 253 obligated entities. Key requirements:

• Specific emission benchmarks set per tonne of crude steel produced
• Compliance period: 2025-2027 (first cycle)
• Companies exceeding targets earn carbon credits; those falling short must purchase credits or pay environmental compensation
• ArcelorMittal Nippon Steel India's Hazira facility — India's largest obligated entity — must reduce emission intensity from 2.2701 to 2.1696 tCO2/tonne during 2025-27

EU CBAM: The Export Compliance Challenge

From January 1, 2026, the EU's Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase. Indian steel exporters to the EU must now:

• Purchase CBAM certificates equal to verified embedded CO2 multiplied by the weekly EU ETS price
• Report actual emissions per shipment (default values apply only during the transition period, which ended December 2025)
• Factor in an estimated cost increase of USD 240-500 per tonne for high-emission production routes by 2030

The free-allocation factor drops from 97.5% in 2026 to zero by 2034, meaning full carbon cost exposure is inevitable. Indian steelmakers exporting to the EU may need to reduce prices by 15-22% to absorb the initial tax burden, according to the Global Trade Research Initiative.

CBAM Readiness Strategy for Foreign Investors

Foreign companies setting up steel operations in India should prioritize low-carbon production technologies from inception:

• Hydrogen-based DRI: JSW Steel is constructing a green steel facility in Maharashtra's Salav with 4 MTPA capacity based on DRI from natural gas and renewable fuels, targeting commissioning by FY31
• Electric Arc Furnace (EAF) route: Lower emissions than blast furnace-BOF route, and increasingly cost-competitive when powered by renewable electricity
• Carbon capture: The Steel Ministry allocated Rs. 455 crore under the National Green Hydrogen Mission for pilot green hydrogen projects in steel production

Green Steel: India's Emerging Competitive Advantage

India's green steel demand is projected to reach 4.49 MT by 2030, driven by construction, infrastructure, and automotive sectors adopting sustainability mandates. The green steel premium — the cost difference between conventional BF-BOF steel and hydrogen-DRI/EAF steel — is narrowing, with multiple studies projecting cost parity between 2030 and 2040.

For foreign investors, entering India with green steel technology offers a dual advantage: domestic PLI incentives for specialty and green steel production, plus CBAM-compliant export capability to the EU market without carbon border charges. The combination makes India potentially the most cost-effective base for green steel manufacturing serving both Asian and European markets.

Green Steel Taxonomy and Standards

India is developing a national green steel taxonomy to define what qualifies as green steel for procurement, certification, and export purposes. The taxonomy will establish emission intensity thresholds for different production routes (BF-BOF, DRI-EAF, scrap-EAF, hydrogen-DRI) and create a certification framework. The Steel Ministry has allocated Rs. 455 crore under the National Green Hydrogen Mission specifically for piloting green hydrogen in steel production. Several major Indian steelmakers, including JSW Steel and Tata Steel, have announced green steel capacity targets — JSW is constructing a 4 MTPA green steel facility at Salav, Maharashtra, using DRI technology with natural gas and eventually green hydrogen. For foreign companies with proprietary green steel technology — particularly in hydrogen-based direct reduction, electric arc furnace optimization, or carbon capture and storage — India represents a large and policy-supportive market for technology deployment. The Indian government actively encourages technology partnerships, and DPIIT has established a single-window system for large-scale manufacturing investments that can significantly expedite approvals for projects bringing advanced technology.

State-Level Investment Incentives

Beyond central government PLI schemes, individual states compete aggressively for steel investments through industrial policies:

BIS Certification and Quality Control Orders

India mandates BIS certification for steel products sold domestically through Quality Control Orders (QCOs). As of 2025-26, the following steel products require compulsory BIS certification:

• Hot-rolled structural steel (IS 2062)
• TMT bars for construction (IS 1786)
• Cold-rolled steel sheets (IS 513)
• Stainless steel flat products (IS 6911)
• Stainless steel seamless pipes and tubes (mandatory from August 1, 2025)
• Wire rods (IS 1875, IS 7887)

Foreign manufacturers must obtain BIS certification before commercial sale in India. The process involves factory inspection by BIS auditors, product testing at recognized laboratories, and ongoing surveillance audits. BIS certification typically takes 3-6 months and requires a local authorized Indian representative (AIR) for foreign manufacturers.

Raw Material Sourcing and Supply Chain Advantages

Iron Ore Availability

India holds the world's fifth-largest iron ore reserves at approximately 34.3 billion tonnes, with major deposits in Odisha (51% of reserves), Jharkhand, Chhattisgarh, Karnataka, and Goa. This domestic availability is a critical advantage for steel manufacturers — unlike Japan, South Korea, or the EU, Indian steel producers can source primary raw materials domestically, reducing exposure to global commodity price swings and supply chain disruptions.

Key raw material considerations for foreign investors:

• Iron ore: Auction-based mining leases available through state mineral development authorities. Captive mining permits allowed for integrated steel plants with production capacity above 2 MTPA
• Coking coal: India imports approximately 85% of its coking coal requirements, primarily from Australia and Mozambique. This remains the most significant cost vulnerability in Indian steelmaking. The government is actively promoting coal gasification and alternative reduction technologies to reduce import dependence
• Scrap steel: India's ship-breaking industry in Alang, Gujarat, is the world's largest, providing recycled steel inputs. The Bureau of Indian Standards recently eased norms to integrate ship recycling with the steel industry more effectively
• Ferro alloys: India is a leading producer of ferro alloys (ferro manganese, silico manganese, ferro chrome), providing domestic supply for alloy steel manufacturing

Logistics and Infrastructure

The Dedicated Freight Corridor (DFC) — both the Eastern DFC (1,337 km) and Western DFC (1,504 km) — significantly reduces transportation costs for steel producers. The Eastern DFC connects coal mines in eastern India to steel plants and ports, while the Western DFC links manufacturing hubs to the Jawaharlal Nehru Port Trust (JNPT). Rail freight charges for steel have been reduced by approximately 20-25% for DFC-routed cargo.

India's port infrastructure has also expanded substantially, with Sagarmala Programme investments creating additional cargo handling capacity. Major steel-exporting ports include Paradip (Odisha), Visakhapatnam (Andhra Pradesh), Hazira (Gujarat), and JNPT (Maharashtra). Port turnaround times have improved to under 2 days at efficient ports, down from 4-5 days a decade ago.

Perform Achieve and Trade (PAT) Scheme

The PAT scheme under the Bureau of Energy Efficiency (BEE) mandates energy intensity reduction targets for energy-intensive industries, including iron and steel. The scheme operates in cycles:

• Coverage: 478 facilities across six sectors, including iron and steel
• Mechanism: Each facility is assigned a Specific Energy Consumption (SEC) target. Facilities that exceed their targets earn Energy Saving Certificates (ESCerts), which can be traded on the India Energy Exchange (IEX). Facilities that fail to meet targets must purchase ESCerts or face penalties
• Compliance periods: Three-year cycles, with the current cycle covering 2023-2026
• Impact: The PAT scheme has achieved cumulative energy savings of approximately 26 million tonnes of oil equivalent (Mtoe) across all sectors since inception

For foreign investors, PAT compliance should be factored into energy system design at the project planning stage. Steel plants using energy-efficient technologies (DRI-EAF, waste heat recovery, cogeneration) are better positioned to earn ESCerts and generate additional revenue.

Tax Incentives and Corporate Tax Structure

Foreign companies setting up new steel manufacturing facilities in India can benefit from several tax advantages:

• Concessional corporate tax rate: New manufacturing companies incorporated after October 1, 2019, that commence production before March 31, 2024, were eligible for a concessional rate of 15% (effective rate ~17.16% including surcharge and cess). While this window has closed, the standard corporate tax rate for existing companies stands at 22% (effective ~25.17%), which remains competitive globally
• SEZ benefits: Steel manufacturers in Special Economic Zones historically received a Section 10AA income-tax holiday (100% exemption for the first 5 years, 50% for the next 5 years, and 50% of ploughed-back profits for a further 5 years). Note the sunset: this income-tax holiday is closed to new units — only SEZ units that commenced operations on or before 31 March 2021 qualify. New SEZ units set up today do not get the income-tax exemption but still benefit from customs duty exemption on capital goods and inputs, and from GST advantages on exports
• Accelerated depreciation: Plant and machinery used in manufacturing qualifies for accelerated depreciation, reducing effective tax liability in the initial years of operation
• R&D deduction: Expenditure on in-house R&D facilities approved by DSIR qualifies for weighted deduction, encouraging investment in specialty steel development and green manufacturing technologies
• Custom duty exemptions: Specified capital goods and raw materials for PLI-eligible manufacturing may qualify for concessional customs duty under specific notifications

Cost Structure: Setting Up an Integrated Steel Plant

The capital expenditure for an integrated steel plant varies significantly based on technology, capacity, and location. Indicative costs for a 1 MTPA capacity greenfield integrated steel plant:

For a secondary or specialty steel plant (50,000-200,000 TPA), total capex is considerably lower — in the range of INR 200-800 crore (USD 23-93 million) depending on product complexity and technology. These smaller facilities are ideal for foreign specialty steel companies entering India for the first time, particularly under the PLI scheme which provides 4-15% incentives on incremental production.

Compliance Checklist for Foreign Steel Manufacturers

Setting up a steel manufacturing operation in India involves layered compliance across multiple regulators:

1. Entity setup: Private limited company registration via SPICe+ (7-15 business days)
2. FDI reporting: FC-GPR filing within 30 days of share allotment to foreign investor
3. FLA Return: Annual return to RBI by July 15 for all companies with FDI
4. Environmental clearance: Category A clearance from MoEFCC (6-18 months)
5. SPCB consents: Consent to Establish + Consent to Operate from State Pollution Control Board
6. BIS certification: For each product category sold domestically (3-6 months)
7. GST registration: Required in each state where manufacturing or sales occur
8. IEC code: Required for import of raw materials or export of finished products
9. Factories Act registration: With state labour department before commencing manufacturing
10. Transfer pricing documentation: Required for all intercompany transactions with foreign parent/affiliates

Key Takeaways

• 100% FDI under automatic route means no government approval needed — only post-facto FC-GPR reporting within 30 days of share allotment.
• PLI incentives of 4-15% on incremental production value make specialty steel manufacturing in India among the most fiscally incentivized in the world, with committed investment of Rs. 43,874 crore across three rounds.
• Environmental compliance is non-negotiable — steel plants require Category A environmental clearance, SPCB consents, CEMS installation, and compliance with India's new carbon credit trading scheme covering 253 steel entities.
• CBAM exposure from 2026 means green steel capability is not optional for export-oriented operations. Factor hydrogen-DRI or EAF technology into facility design from day one.
• State competition for steel investment is fierce — negotiate land, power tariffs, stamp duty exemptions, and capital subsidies before finalizing your plant location.