Last week brought some good news for Indian steel industry. The government has advised RBI to formulate effective and innovative policy measures that may include some tough decisions as the affected banks have been hesitant to adopt or not willing to take up new measures, for fear of violating the existing norms.
The public sector banks whose exposure to steel industry is maximum may be particularly relieved. The total stressed assets including NPAs of banks have reached nearly Rs 9.64 lakh crore. Of this, the NPAs of 39 banks accounted for nearly 9.3% of the advances extended to the industry as on December’16. There is no denying that for the last 3 years, the PSU banks, followed by major private sector banks, have become extremely apprehensive to advance loans even for working capital requirements by the small and medium enterprises in the steel sector.
The loans for capacity augmentation were scrutinised with a number of question marks, the past records of repayment, the future market scenario, among others.
The last named factor would continue to dominate all further advances by the financial institutions in the post loan-restructuring phase. It is indeed heartening to note that the government has been taking a slew of measures that would expand the market for Indian steel industry and create fresh requirements for the commodity.
First, the Budget for FY18 has earmarked `3.96 lakh crore for investment in infrastructure sector. A few mega projects, namely, DFC, industrial corridors, Metro Rail and roadways are continuing with full scale. The Sagarmala project which envisages a port-led road-rail-port connectivity throughout the country would require steel and cement clusters of 40MT each to cater to the fresh requirement emerging out of the construction.
Although no firm estimates are available on the infrastructure spending in the first two months of the current fiscal, the incremental demand being received by the industry need to be improved substantially in the coming months in order to realise the full impact of the investment.
It may be mentioned that GDP growth from 7.1% in third quarter of FY16 to around 7.5-7.7% in first quarter of FY18, that is being currently projected, has to be primarily contributed more by fixed asset investment than by consumption to generate more demand for steel.
This implies that all the mega projects announced must commence in full swing after completing the necessary clearances. The reforms being made in each state on ‘Doing Business in India’ are likely to facilitate this process significantly.
Secondly, Indian steel industry has been provided with a series of steps to get over the injuries suffered by them from imports of cheap and dumped steel from China, South Korea, Japan, Indonesia and Russia by way of safeguard duty, MIP and anti dumping duty.
The total imports that reached 12.7 MT in FY16 has subsequently come down to 7.9 MT in FY17 and in the first month of the current fiscal at 0.6 MT is down by 23% compared to last year. Thus, the import penetration in the domestic market that reached 14.4% in FY16 has come down to 8.6% in FY17 and the market size of the domestic players got boosted up to that extent.
Thirdly, the latest announcement by the government on preference for India made steel in all government funded projects with 15% value addition in production would provide a ready market assurance to Indian steel at least for 20% of the demand. It is indeed unfortunate that some media reports have denounced this step calling it a protective step to support the unsupportable in a globalised market. The intention of the government to extend a helping hand to an industry having invested thousands of crore to expand capacity to supply steel for nation building and suffering from surplus steel from all over the globe imported at predatory prices has been thoroughly misunderstood.
Fourthly, it is universally known that steel scores over other competing materials especially concrete under life cycle analysis (LCA). It goes to the credit of MOS that the government has introduced LCA in general finance rules as one of the criterion of selecting material in the bidding process. All these recent developments have far reaching implications for the sustained growth and development of Indian steel industry that needs to focus on being globally cost competitive and channelising fresh capacities into value added products for catering to the emerging demand from the end using segments.
(Views expressed are personal)