Stalled projects get a much- needed relief with the latest restructuring formula announced for the debts of power distribution companies. The states can take over 75% of the debts (50% in FY16 and 25% in FY17) of around Rs 4.3 lakh crores which for the next two years would not be taken into consideration while calculating their fiscal deficits and would substantially bring down the interest outgo. The balance debt not taken over by the states would be converted into loans or bonds by the banks/financial institutions with interest rate not more than bank’s base rate plus 0.1%. As power supply is extremely critical for growth and progress of the state’s economy, the proposal should have a good number of takers.
It is sincerely hoped that such heroic efforts on the part of the government to put oxygen to the perennially sick discoms in various states are simultaneously matched by rigorous endeavours on the part of the state electricity boards (SEBs) to improve the Plant Load Factors and to eliminate unlawful withdrawal of electricity without payments.
As per official reports around 38% of the stalled projects have received various clearances and would see the light of commissioning shortly. With the latest innovative schemes, it is expected that the SEBs perform much better to pave the way for substantial investment in the sector in the coming months.
It is a universal truth that industrial growth comprising of mining (14%), electricity (10%) and manufacturing (76%) at 8-10% annual growth rate can be sustained with adequate investment made for capacity augmentation, process improvement, innovativeness in technology and development of effective supply chain management.
The global commodity market is exhibiting a downward trend in production and prices, the major reason being the shrinkage of demand from China. Freight rates have declined steeply due to much lower intake from China. It is therefore interesting to note that even in the current period the Gross Fixed Capital Formation (GFCF) as a percentage of GDP is around 48% in China as against 28 % (Q1 of FY16) in India. Out of this around 16% has been earmarked for manufacturing and another 11% for infrastructure building. Further, another 11% has been invested in real estate in China. Thus nearly 38% of GFCF is steel intensive.
The average infrastructure investment comprises not more than 7% of GDP in India and along with real estate it may reach 12-13%. Private corporate investment in manufacturing has been languishing and can at most be taken as another 5-6%. Thus in India the steel intensive component of GFCF is only 17-19%. This needs to be stepped up significantly for the turnaround of steel industry.
The current market scenario is not supportive of infusion of fresh investment as indicated by the latest PMI in India at 50.7 in October ’15, a 0.5 drop from September. While current order booking is marginally better than previous months, the future booking scene particularly in the global market is not bright due to depressing prices and rising unemployment, protective measures adopted by many countries against cheap imports, thereby restricting market access for exports, and uncertainty on account of impending rise in interest rate by USA. The PMI has improved in China, USA, Japan, Brazil, EU-28 and Russia in October compared to last month.
To improve the business sentiment in India, it is imperative that a firm roadmap and implementation strategies are drawn up for various pending reform measures like GST, speedy clearance of stalled and new projects, elimination of unproductive procedures and rules to ease the doing business in India. The government should go slow in FTAs and CEPAs and encourage FDI in setting up indigenous manufacturing facilities in India to meet the internal demand in lieu of importing finished products or merely assembling them in India.
The improvement of market scenario is conditional on promotion and support of domestic industry and protecting them from unfair trade practices by other players.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal