A marginally higher economic performance in the month of August could not make RBI relax its tight monetary policy as it is still grappling with the twin risks of inflation and rising CAD (following exchange depreciation). The immediate impact on cost of credit may dampen the market sentiment for the festive season.
The official publication on Economic Outlook 2013-14 is much less optimistic on manufacturing and industrial growth for the current year as its previous forecast for GDP growth in 2012-13 was overestimated by around 25%. This brings into focus an interesting aspect concerning delayed policy reforms or delayed responses to dynamic changes happening in both internal and external environments, as primarily responsible for the current slowdown. Further, the elusive political consensus, even if achieved after stupendous efforts, on critical issue like land acquisition for industrial purposes, has failed to enthuse the entrepreneurs to come out with investment proposals.
Secondly, the current rate of capital formation as a % of GDP at around 35%-36% should yield a much higher GDP growth than 5% (even assuming capital-output ratio at 4.5). This phenomenon strongly implies that investment has taken place without corresponding generation of output that lagged behind as enabling factors like compensation to displaced persons, raw material sourcing, environment and forest clearances continued to remain unresolved.
The uncertainty on the policy reforms is therefore very much influencing the analysts and the forecasters in assessing the performance of the Indian economy and also of specific sectors. Earlier, we have discussed the lowering of GDP estimates for 2013 and 2014 for India by IMF, OECD, Fitch ratings and Goldman Sachs. In its latest forecast on the Indian steel industry, World Steel Dynamics (WSD), known for its periodic outbursts, has predicted a crude steel production of 78.5 million tonne in 2013 for India, only 1.3% more than last year against the current rate of 2.5% for the current eight months (Jan-Aug 2013), a gross crude steel making capacity of only 132 million tonne in 2025 and actual production of 113 million tonne 12 years later with a capacity utilisation rate at 85.6% which is even lower than that projected for the US, Japan and even Western Europe.
Assuming the current crude steel capacity at 96 million tonne, the above projection indicates a capacity addition of only 36 million tonne in India in the next 12 years.
Very recently, the Prime Minister has talked of 300 million tonne of crude steel capacity in India by 2025 and the recent study instituted by the World Steel Association (India Steel Vision 2020) has projected a capacity of 202 million tonne of crude steel by 2020-21.
These estimates are based on long-term assessment of the Indian economy, while WSD is steadfast in its belief in the perpetuation of the current ailments plaguing the Indian economy in the next decade and beyond that.
The inputs that formed the basis of such prediction need a deeper analysis and the Indian steel industry, some of which have been rated as world class steelmakers by WSD only a few months ago, need to take it as one of those bad dreams before the WSD comes forward to reverse the predicted numbers for 2025.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal