The critical importance of investment in infrastructure to provide a much needed impetus to demand for steel and other industrial goods has been acknowledged by the finance minister with his announcement of R3,96,135 crore allotment for this sector in FY18 Budget, a 10.5% rise over the last year. In the Budget, a major part of this capex, around 57.5%, would be spent on railways, roads and rural development and the balance R1,68,477 crore in other components of infrastructure like renewable and new energy, water resources, river development, urban development, drinking water and sanitation. It is heartening to note that budgetary allocations for power have gone up by 51%, shipping by 16%.
Around 1.24% of the capital spending by the government in FY18 would be supported by internal and extra budgetary resources (IEBR) by the PSUs.
The actual spending through IEBR of the PSUs contributes significantly to enhance capital formation in the country. However, an enabling business environment is an essential factor in encouraging the PSUs to carry out the planned investment activities. Including IEBR, the total outlay on infrastructure is likely to be around R5,14,800 crore for the next year.
A few major areas of interest for the steel industry from Budget in Railway sector can be summed up as: 1) Commissioning of 3,500 kms of railway lines, 2) Redevelopment of 25 railway stations under PPP mode, 3) Unmanned railway crossings on broad gauge lines to be eliminated by 2020 implying more number of under and over bridges under Rail safety investment, 4) 2,000 railway stations to be fed with solar power, 5) More private participation and investment in construction and operation of Metro Rail by enacting a new Metro Rail Act and nearly 15% enhancement in Metro Rail Budget and 6) Implementing end-to-end integrated transport solutions for select commodities through partnership with logistic players that would create opportunities for multi modal transport facilities. It has also been stated that rail tariff would be considered not only on cost and quality of service basis but on competition from other forms of transport.
In road sector, the higher outlays for National Highways and NHAI to the extent of 24% and 59%, identification of 2000 kms of coastal connectivity roads for construction and development with significant investment for PMGSY would provide additional demand for steel that would be generated by other constructions (buildings, eateries, hotels, educational institutions) in the periphery as well as more construction of crash barriers, steel-based bridges and culverts, flyovers. The operation and maintenance of select airports under tier-2 cities under PPP mode would attract private investment in the aviation sector.
Power sector investment having a strong linkage with steel demand would be dominated by investment by NTPC, NHPC, REC in areas of new power project constructions as well as in transmission and distribution projects. The support from PPP projects and other private players including those of captive power plants would further enhance steel demand.
The real estate sector has been given a major boost with affordable housing sector being declared an infrastructure sector which would allow the sector to get low cost funds from insurance companies, priority sector lending from the banks and enjoy tax benefits. It has been proposed to construct 1 crore houses by 2019 and the allocation for Pradhan Mantri Awas Yojana has been enhanced by 53% to R23,000 crore in FY18.
It is a big opportunity for promotion of steel pre-fabricated structures of low cost houses as well as for the affordable houses to generate significant demand for steel. The current limit under PMGAY of R2,35,000/- for 269 sq.ft area of low cost houses in rural areas is adequate for steel structures which would be more durable, environment friendly, faster in construction, earthquake resistant and recyclable. It is essential to develop good steel fabricators in different parts of the country to develop steel structures in the housing sector, both in urban and rural areas.
Abolition of Foreign Investment Promotion Board (FIPB) in FY18 would help easy flow of FDI.
Hopefully, it remains to be rigorously monitored that the investment that has been announced in various infrastructure sectors does actually get implemented during the year to have a multiplier impact on other critical sectors of the economy.