The commencement of the New Year coincided with a positive signal for industrial production. Undoubtedly, the release of the Advance Estimates on GDP and industrial output figures for December 2012 dampened the overall spirit. A growth rate of 2.4% in industrial output in January 2013 is encouraging, especially when it has been contributed by a 2.7% rise in manufacturing and a 6.4% increase in power generation. The downward trend in the capital goods and the consumer durables sectors has been reduced to only -1.8% (- 2.7% in the previous period) and -0.9% (- 7.5%), respectively. One may argue that one month?s figure is too short a period to draw any conclusion of trend reversal. But, as it has emerged after a gap of three months, the positives are not one-off.
In order to sustain the pace, the RBI needs to cut interest rates by at least 25-50 basis points in the next policy announcement. That would only supplement the government?s efforts to boost the rate of investment in critical sectors. There is an improvement in the fuel-supply arrangements that CIL has entered into with power producers, which should speed up the investment scenario. In fact, the Supreme Court?s announcement to delink environmental clearance from forest clearance has already facilitated work on some stalled road projects. It would have a positive impact on some steel projects too.
Another good signal is the growth in steel exports. During the first 11 months of the current fiscal, India exported around 4.9 million tonne of steel, which exceeds last year?s level by 10%. More specifically, in case of bars and rods, HR coils and galvanised sheets, India?s exports were up 65%, 23% and 16%, respectively, over the last year. The higher growth in exports will provide an additional outlet for increased availability in the coming months of 2013-14.
The traditional markets for Indian exports, such as the US, are closing the door on Indian shipments as they continue with previously imposed anti-dumping and countervailing duties against HR exports from India, Thailand and Indonesia by carrying out Sunset Reviews.
Indian steel producers, therefore, have diversified their exports, which has led to the emergence of the UAE, Thailand, Saudi Arabia, Kenya, Bangladesh, Sri Lanka, Vietnam and Russia (comprising 41% of total exports) as the major export destinations in the current year. For the first 11 months of the current year, the net import value stands at around R29,600 crore.
This has added to the widening of the current account deficit. Only an increase in steel exports in the coming months may help the country bridge the gap.
In the current year, growth in steel consumption (4-4.5%) is likely to be lower than the growth in GDP (5%). This proves that slower growth in the investment rate pulls down growth in steel consumption.
Besides, stalled projects, while having a positive impact on capital formation, do not contribute
to value-addition in terms of a higher GDP. Hopefully, the teething troubles faced in the current year would be largely taken care of in the coming year by proactive policy planning,
which will also enable the market to absorb a corresponding rise in prices.
author is DG, Institute of Steel Growth and Development. The views expressed are personal