Poor show by manufacturing is testing steel sector?s mettle

The performance of the manufacturing sector is causing a deep concern for segments that are largely dependent on it, steel being one of them. Steel intensity investment in manufacturing and steel content of some of the finished products in manufacturing are much larger than in those of other sectors. The poor growth in manufacturing of (-) 0.6% and (-) 0.5% in Capital goods sector in first 9 months of this fiscal is closely linked with a drop in steel consumption growth of a mere (-) 0.5% in the April-January14 period.

To perk up investments in the sector, the commencement of work on the Delhi-Mumbai industrial corridor and other industrial zones (total worth of $90 billion) is the only major investment towards developing the national industrial manufacturing zones as mentioned in the policy document of NMCC. When complete, these corridors would be working as springboards for boosting income and employment in the regions and the multiplier impact of consequent development in the peripheries is likely to enhance steel consumption. But things have slowed down and it would be continuing its tardy pace in the next few months.

The manufacturing sector and the Capital Goods sector in particular are facing a crisis situation due to a continuous upsurge in imports of power and electrical equipment from China and want the government to step in by enhancing import duties. It is not known if anti-dumping duty can be imposed on cheap import of this equipment from China.

But from the trend in current international trade, it is quite likely that countervailing duties to counter actionable subsidies provided by the Chinese government to its industries, can be levied after due investigation as have already been imposed by other countries. Also safeguard duties (initially for 6 months) against sudden surge in imports can also be tried.

The loss of production by the indigenous equipment manufacturing industries needs immediate preventive measures as the health of other industries is closely interlinked. A few recent data would establish the truth.

In 2002-12, Indian imports of mechanical machinery increased by a whopping 5.3 times to 1.53 million tonnes in 2012. In the same period, import of electrical equipment went up by 5.7 times to reach 0.2 million tonnes. There was also a significant rise in imports of other transport equipment (other than automotive) to reach 2.6 million tonnes in 2012. As a result of these imports, not only the indigenous capital goods industry lost its market share (assuming they were otherwise capable of producing these items), steel industry in the country were deprived of 3.23 million tonnes of steel order in 2012 alone.

A comparison with China is revealing. In 2012, China exported mechanical machinery of 18.3 million tonnes (equivalent to 13 million tonnes of steel), electrical equipment of 3.3 million tonnes (1.9 million tonnes of steel) and other transport equipments of 17.1 million tonnes (13.6 million tonnes of steel).

The data amply prove that capacity augmentation in steel from the next year onwards is likely to be severely impacted if the above conditions persist in the manufacturing sector. The sectoral interdependence is too strong to be ignored by both the industrial segments.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal.