India's rapidly expanding economy will drive up demand for steel and turn the country into an importer of the commodity by March 2005, a top industry official said on Wednesday.

India, Asia's third largest economy, is likely to consume about eight to 10 per cent more steel in the fiscal year ending March 2005, riding a boom in automobile and housing sector, Jamshed Jiji Irani, chairman of Indian Steel Alliance (ISA), told Reuters in an interview.

"As a result of the strong economic growth, demand has gone up and I think very soon' the country will be facing a shortage," he said.

India's economy is forecast to grow by more than eight per cent in the current year to March, after expanding by 4.0 per cent -a year earlier. Consensus estimates for growth in the 2004/2005 fiscal year are expected only after the monsoon forecast which is due in April-May.

ISA represents state-run Steel Authority of India, industry leader, Tata Iron and Steel Co (Tisco) the second-biggest producer, Essar Steel Ltd Jindal Vijaynagar Steel Ltd and Ispat Industries Ltd.

"If steel demand keeps on increasing, as it has been for the past year, may be by the end March 2005, there will be a shortage," the 67 year-old Mr Irani said.

That would mark a turnaround from the current situation in which India is exporting steel. During April-December, India exported 3.5 million tonne of finished steel, up 29 per cent from a year earlier. That was about 26 per cent of the total saleable steel produced in India during the period.

Many Indian steel producers have announced plans to increase capacity to meet an expected rise in demand.

"But that is not going to come -next year... it will take - two of three years," Mr Irani, who was the managing director of Tisco for nearly a decade, said.

Tisco has said it plans to raise its annual capacity to about 15 million tonne by 2010 from four million tonne.

But rising demand may not necessarily be good news for steel producers, as ISA had recently agreed on a 13-14.8 per cent cut in steel prices, following protests from end users such as the automobile and construction industries.

The steel industry has been on a roll over the past year, as surging demand from China drove up global prices which, in turn, boosted domestic prices.

But rising steel prices have stoked fears of inflation and the government announced tax cuts to help producers to help maintain prices ahead of general elections in April-May.

Prices of hot rolled coils, the benchmark material in steel, have rallied abput 20 per cent in the past 12 months and Mr Irani said the increase was mainly on account of ballooning raw material prices and partly because of the China effect.

"Raw material prices have gone up by 200-400 per cent in the past year. And that has had an impact on the cost of making steel in India," Mr Irani said.