Two good news are making rounds. One, monsoon is projected to be above normal. Second, industrial production for February is 2% positive. Agricultural GDP has risen by 1.1% as per advanced estimates for FY16 (as against -0.2% in FY15). This year’s Budget has put a special thrust on investment in agriculture and better infrastructural facilities for the rural sector for which an enhanced expenditure of Rs 13,274 crore (against Rs 9,583 crore in 2015-16) has been earmarked.
Reasonably good food production removes the major plank of poverty in our country and restrains the additional pressure to move to cities in search of employment. As the employment intensity of the organised manufacturing has been continuously declining, the elimination of additional pressure is likely to rejuvenate the sector.
IMF in its latest World Economic Outlook has mentioned favourably about the contribution of higher private consumption as an offshoot of low energy prices and higher real income. It has been projected that higher investors’ sentiment reflected in high PMI in March at 52.4 and positive industrial output would pave the way for recovery of private investment. While India’s GDP at 7.5% in 2016 would exceed that of China by 1.3%, in another 5 years’ time India’s GDP growth at 7.8% would leave behind Chinese growth by a clear 1.8%.
It is gratifying to note that a few steel intensive sub-sectors under manufacturing have exhibited positive output in February. These are fabricated metal products (17.2%), machinery and equipment (11.1%), other transport equipment (11.8%) and furniture manufacturing (27.9%).
However, the production of capital goods still remains a cause of worry. Apart from poor offtake from the various segments of heavy engineering and shipbuilding equipment, the declining output trend in capital goods (- 9.8%) is the direct result of increasingly high imports of finished capital goods under ITC-HS code of chapter 73. It is also alleged by some quarters that restricted imports of different steel categories under chapter 72 are now shifted to rising imports under chapter 73. This increasing trend of higher indirect imports of steel needs an immediate thorough analysis. Alternatively, the trend indicates a primary malaise that Indian manufacturing sector has been suffering from shades of deindustrialisation and having been turned into assemblers rather than actual manufacturers.
Physical output of consumer durables has been on the rise for the last few months. In February, the consumer durable sector notched up a respectable growth of 9.7% as against a negative growth of 3.8% in corresponding month of last year. The consumer durables which comprise a few major steel-intensive sub-segments like air conditioners, refrigerators, electric motors, passenger cars, 2-wheelers, bicycles etc., are enjoying the fruits of enabling policy prescriptions like reduced interest rates on personal loans, policy reforms in real estate, stable growth in equity markets, etc. The marginal decline in consumer prices at 4.83% in March (5.26% in February 2016) has raised hopes that price stability is the outcome of rising output in the sector that would be further rekindled once the benefits of seventh pay commission are made effective in the later part of the current fiscal.
It is now an established fact that import restrictive measures by the government have genuinely helped the domestic steel players from the negative impact of the predatory prices by China, CIS, Japan and Korea. And the latest prima facie acceptance of the anti-dumping petition by the domestic players against China, Japan, South Korea, Russia, Brazil and Indonesia strengthens the fact that anti-dumping duty offers a permanent solution to the woes of the domestic players as relief under MIP may be considered temporary.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.