It is a growth oriented, as also a growth dependent, Budget. Steel survives on the growth of the economy. The finance minister has sought to create conditions for larger investments in the economy, especially in the infrastructure sector. If that comes through, the steel sector stands to make huge gains.

Meanwhile, with the floor prices of steel still on, imports of HR coils would be difficult. The problem was with the increased imports of seconds and defective steel. The import duty on seconds and defectives of HR coils has been raised from 25 to 30 per cent. But, with the elimination of the 10 per cent surcharge on import duty, the effective increase stands at only 2.5 per cent.

The removal of surcharge is unlikely to change the competitive position of the Indian products vis-a-vis imports. Over the year, depreciation of the rupee against the US dollar has provided additional protection to the domestic industry. In fact, the steel makers should be happy that the overall tariff protection to the industry has remained more or less unchanged. The finance minister's announcement that the government would bring the peak rate of duty to about 20 per cent in another three years is something the industry should take seriously and start preparing for such a scenario.

The global steel prices, despite some small increases (about $10-15 per tonne for HR coils), are still so low that unless non-tariff measures are used, the government may not be able to help the industry by using the tariff mechanism within the provisions of the World Trade Organisation.More than the low prices in the world market, the Indian steel makers are finding their markets blocked by trade cases. Trade cases are the offshoot of the weak global market. If the prices are low, you sell cheap. The Indian players are not price makers. If they want to remain in business or are committed to their buyers, they have to sell at the ruling prices and inevitably face the threat of a dumping case. If in the process exports drop, the industry has to turn homewards. This is where the steel industry desperately wants a strong domestic market. The Budget promises a lot despite the fact that the current state of affairs in the economy is not something to write home about.

The Economic Survey released a couple of days ahead of the presentation of the Union Budget painted a rather dismal picture of the economy. The Survey had expressed concern over the huge fiscal and revenue deficits. No wonder since government spends nearly 70 per cent of its tax revenue on interest payment! The economic growth rate has slowed down to 6 per cent from 6.4 per cent in the previous year. FM expects that his measures will pull up the rate to 6.5 per cent. What is a matter of larger concern for the steel industry is that the gross domestic investment rate (expressed as a percentage of the GDP) in India still remains low in the vicinity of 23 per cent - 23 per cent in 1998-99 and 23.3 per cent in 1999-00. The savings rate has also remained stagnant at around 22 per cent. These were the figures in 1991-92 when the economy was faced with an all round crisis. The increases shown in the real gross fixed capital formation as a percentage of the GDP from 23.5 per cent in 1998-99 to 23.8 per cent in1999-00 was also very small. The Survey did not find a clear trend in the investment scenario in the country in the current year till the last reports came in.

The Survey had found a drop in import and domestic production of capital goods despite a larger disbursement of funds from the financial institutions. There was an increase in FDI as well. The Survey clearly asserted that there was a lack of investment demand in the economy.

Naturally, steel demand is coming under pressure at present and to come out of this situation the sector needs growth in investment demand in the domestic market.

The finance minister is certainly in the right direction although on a difficult spot to raise investor confidence and bring in a turnaround in the economy. He has put infrastructure on the priority and improved investments will help the steel sector. There is little hope for an immediate increase in the domestic private consumption. The real consumption growth rate has decelerated in 1999-00 to 5.8 per cent from 7.9 per cent in the previous year. The excise duty cuts and rationalisation, if passed on, will support consumption demand. The expected increase in auto demand, for example, will help steel growth - both for mild and alloy steel.

But there were some adverse impact on the steel industry on account of rail freight hike on steel and coal. The 2 per cent increase in freight in steel and coal and another 3 per cent on a wide variety of products will make things a little more difficult for the industry which is currently trying to grapple with a host of externalities that have threatened the profitability of the industry. The increase, per se, has been small and much below the average rate of inflation.

Yet, the overall impact on account of coal, steel and other products cannot be written off. More than the real increase, it is the timing of it that has affected the industry more. There were a few other minor provisions related to the steel industry that the FM has brought in his budget. The removal of excise duty on steel going for reconstruction of earthquake devastated Gujarat will not be of any consequence to the steel industry in terms of larger steel demand but will help reduce the cost of reconstruction. The steel industry may gain a little from the reduction of import duties for raw materials used in the manufacture of refractories used in the industry.

(The author is associated with Steel Exporters' Forum. Views expressed here are his own)