Cross-Border Mergers vis-à-vis Investment in the Indian Steel Industry

[By Karan Anand]

The author is a student of OP Jindal University.



The recent announcement by ArcelorMittal Nippon Steel (AMNS) India regarding itsambitious expansion plans at the Hazira steel plant presents a compelling juncture to explore the strategic dynamics within India’s steel industry.[1] In a landscape characterized by heightened industrial growth and governmental emphasis on self-reliance, the trajectory of investments in steel production assumes paramount significance. With AMNS India’s noteworthy investment of approximately Rs 60,000 crore towards capacity enhancement and technological modernization, the industry witnesses a confluence of global expertise and indigenous potential.

This piece aims to delineate the viability and implications of cross-border mergers in contrast to greenfield investments within India’s steel industry. By leveraging the recent developments at Hazira as a transition point, we delve into the strategic imperatives driving investment decisions and their ramifications on industrial sustainability and national economic objectives.

Greenfield and brownfield investment

In the case of Greenfield investment, various ancillary regulations become pertinent and applicable because an entity is being created from scratch. Firstly, there exists a multitude of licensesand registrations that are required. These include MSME/SSI registration which is a mandatory registration for a business to start functioning in India, as per the Supreme Court’s judgmentin the case of Silpi Industries v Kerala State Road Transport Corporation.[2]This registration divides industries into Micro, Small and Medium Enterprises based on the amount invested. In addition, GST registration is compulsory for all businesses involved in the sale and purchase of goods in India. The tax slab for the steel industry stands at 18%.[3]

Entities entering the Steel industry also need to meet certain environmental regulations, which are set in place by the Ministry of Environmental, Forest and Climate Change (MoEF&CC), EAC (Expert Appraisal Committee) and State PCB (Pollution Control Board).[4] The firm entering the Indian market is also required to identify land parcels and fulfill the requirements that are laid down by the Ministry of Steel. In the event that such land is forested, clearance is also required from the State Forest Department. The governing regulationsfor the same are the Forest (Conservation) Act, 1980[5] and Forest Conservation Rules, 2003.[6] The process of securing necessary clearances thus becomes extremely burdensome for firms, extending over 3-5 years, considering the interests of numerous stakeholders involved in the same.

Firms entering the Indian market are also required to comply with the provisions that regulate labour and employment conditions. The Factories Act, 1948,[7] was introduced to regulate the working conditions for labour in factories and workspaces.Any entity setting up a plant must comply with the safety and welfare provisions mentioned in the Act. Such entities must also create a provident fund for employees, for their welfare, medical, maternity and disability benefits and maintain balances in accordance with the State Insurance Act, 1948[8] the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.[9]The case of Hindustan Lever Ltd v Regional Provident Fund Commissioner,[10] laid down that it is the responsibility of the Employer to create a provident fund for employees, and that such compliance is mandatory.

In the case of Brownfield investments, while there may not be compliance with regulations for starting a business, there are still authorities that monitor and regulate the effects and mode of such investment. The Indian regime for Merger control, is governed by the Competition Act 2002, the CCI and notifications from the Ministry of Corporate Affairs.[11] The Competition Act mandates the reporting of all combinations that would breach the prescribed asset and turnover threshold, set by the Commission. These thresholds vary based on the value of the assets and turnover of the parties to the combination and are put for review bi-annually as per Section 20(3) of the Act.[12] The motive of the Competition Act is to ensure that such brownfield investments are not anti-competitive. Moreover, the Competition Act also ensures that there is no abuse of dominant position in the market.

If the combination pertains to a company that is publicly listed, i.e., listed on a stock exchange, then such a combination may also be subject to Securities Exchange Board of India (SEBI) regulations. One such regulation is the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, more commonly referred to as the Takeover Code.[13]As such the regulations pertaining to acquisitions under the code, being Regulation 3 and 4 must be complied with, and announcements must be made upon the meeting of the trigger requirements in the code as per Regulation 3(2).

Comparison from a regulatory standpoint

While the mode of investment that a company opts to use, is extremely subjective, it is also possible to deduce an ideal mode of investment based solely on the regulatory framework. This is especially true for the Steel industry; wherein regulatory compliances are not only capital intensive but time intensive as well.[14]One of the major challenges in this regard is the development and identification of land, fit for the construction and development of a plant. The same can be seen in the case of POSCO, a South Korean firm, which was the world’s fourth largest producer of steelthat sought to enter the Indian Steel market in 2005, by setting up a plant in Odisha. The investment, had it gone through would have been the largest Foreign Direct Investment into India at that time. After 12 years of trying, the deal eventually fell through, due to the unavailability of land that met the various regulations set in place.[15]Thus, greenfield investments aredaunting and often take longer to generate returns thancompanies may expect, due to its lengthy regulatory requirements.

Conversely, Brownfield investments require fewer regulatory requirements, as the foreign entity buys into or redevelops an existing setup, which has already fulfilled the procedural regulations.4This can be seen in the case of the acquisition of Essar Steel which took place in 2017. ArcelorMittal Nippon Steel India (AM/NS India) has purchased infrastructural assets that provide “strategic advantages” to the joint venture in the steel business. The duo has entered into agreement with Essar Steel to purchase 3 ports, 2 power plants and an electricity transmission line.[16]In this case, the acquisitions became functional shortly after the deal, owing to the fewer regulatory requirements.This is only furthered by the fact that there are harsher environmental regulations that are imposed on Greenfield investments, over Brownfield Investment.[17]Greenfield investments, by developing previously untouched land which may be protected by regulatory authorities and entail significant environmental ramifications. They lead to habitat destruction, biodiversity loss, and ecosystem disruption, impacting local flora and fauna. Moreover, the construction of new infrastructure for greenfield projects consumes vast amounts of resources like water, energy, and raw materials, exacerbating environmental strain. Greenfield investments, by their very nature, have a much more detrimental impact on the environment and are thus subject to a higher degree of accountability and regulation.Hence, from a purely Regulatory standpoint,it is evident that Brownfield investmentshold an advantage over Greenfield Investments.

Additional Factors for Analysing FDI in the Indian Steel Industry

While regulatory compliances play a huge role in determining the mode of FDI opted for by foreign firms, there are a myriad of other factors that affect the same. One of the most important factors is the expected Return on Investment (ROI). Greenfield investments require larger investment and time to provide expected ROI, while brownfield investments tend to offer faster ROI by repurposing pre-existing setups.Investors who have a broader investment horizon would benefit more from Greenfield investment, whilst Brownfield investment would appeal more to investors seeking quicker returns.

In addition, the market size also plays a major role in determining the mode of investment. The Indian steel market is a growing market, which has not only expanded over the past 10 years but is also projected to grow up to 300 million tonnes by 2030-2031.[18] This growth has been further facilitated by government policies and is thus advantageous to those who wish to set up greenfield investments, owing to the large market size.[19]

Another important factor is the infrastructural capabilities to support the growth of the industry. India has a high degree of connectivity and access to other ancillary services. This is further enhanced by government initiatives to increase and improve the infrastructural capabilities of the sector, such as the construction of 83,000 km of National Highways to facilitatea greater degree of connectivity.[20]

In addition, there may also exist certain barriers to entry that restrict foreign firms from entering the Indian market.Entry into the steel industry is an extremely capital-intensive endeavor, wherein nearly INR 7,000 crore is required to set up 1 tonne of steel-making capacity through the greenfield route.[21] Moreover, the steel industry is dominated by a few well-established players in the market. As such it may be difficult for new entries in the market to achieve economies of scale and compete with well-established players in the market.[22]


In conclusion, while both greenfield and brownfield investments present distinct advantages and challenges in India’s steel industry, a nuanced assessment reveals that brownfield investments hold a comparative edge. Brownfield investments offer a faster route to market entry with fewer regulatory complexities, leveraging existing infrastructure to expedite operationalization and deliver quicker returns on investment. Moreover, they mitigate environmental concerns associated with greenfield projects, aligning with sustainability objectives. Despite the potential of greenfield investments to contribute to long-term industrial growth, the regulatory hurdles, lengthy timelines, and environmental impacts underscore the pragmatic appeal of brownfield investments. Notwithstanding the aforementioned, the investor must take into account the scale, amount, and the time period of investment, which will significantly impact the choice of investment mode in the industry. These factors serve as a fundamental consideration and set the foundation for all other investment decisions.

[1] ‘Amns India’s Hazira Project to Be Commissioned by 2026: Laxmi Mittal’ (The Economic Times) <> accessed 30 April 2024

[2]Silpi Industriesv Kerala State Road Transport Corporation,[2021]CIVIL APPEAL NOS.1570.

[3]Mazumdar R, “Steel Industry Likely to Benefit from GST, Rate Stands at 18 per Cent” (The Economic Times, May 19, 2017) <> accessed March 5, 2023.

[4]Ministry of Steel, ‘Draft Policy – Promotion of Greenfield investments in the steel sector’<>.


[6] Forest Conservation (Rules), 2003.

[7]The Factories Act ,1948.

[8]Employees State Insurance Act, 1948.

[9]Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.

[10]Hindustan Lever Ltd vs Regional Provident Fund Commissioner, [1995] (71) FLR 46.

[11]“India: The Merger Control Review – Edition 10” (AZB&Partners, September 22, 2021)<> accessed March 5, 2023.

[12]Competition Commission of India, Government of India, ‘’<,INR%201%2C000%20crores%20in%20India> accessed March 7, 2023.

[13]SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

[14] Firoz AS, “Long term perspectives for Indian steel industry” <> accessed March 7, 2023.

[15]Das P, “Where the Public Resistance Is Building over POSCO Land in Odisha” (The Hindu May 20, 2017)<> accessed March 7, 2023.

[16]Zachariah R, “Arcelor-Nippon JV to Acquire Essar’s Steel Infrastructure for $2.4 Billion – Times of India” (The Times of India August 27, 2022) <> accessed March 7, 2023.

[17] Bialek S and Weichenrieder AJ, “Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield – Environmental and Resource Economics” (SpringerLink,September 8, 2021) <>.

[18]IBEF (n 11).

[19]Petrović-Ranđelović M, “Original Scientific Paper Market Size as a Determinant of the Foreign …” (Research GateAugust 2017) <> accessed March 7, 2023.

[20]Narang G, “Steel and Indian Infrastructure” (Steel Industry and Indian Infrastructure – Tata Structura) <> accessed March 7, 2023.

[21]Indian Steel Association, ‘The Indian steel industry: Growth, challenges and digital disruption’<>.

[22]“EquityMaster” (Equitymaster, January 12, 2021)<,of%20scale%2C%20and%20government%20regulations> accessed March 12, 2023.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top