Budget 2021: Increased capex to spur steel demand in India, say steel makers & experts

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February 01, 2021 8:23 PM

Union Budget 2021: ArcelorMittal Nippon Steel India CEO Dilip Oommen said heavy spending on infrastructure and increased spending for capital expenditure creation are “welcome moves.”

budget 2021, steel industryThe increased capital expenditure will help the steel industry

The increased capital expenditure for infrastructure projects in Union Budget 2021-22 will push the demand for steel in the country, steel players and experts said.

To augment the country’s infrastructure, the Budget proposed significant enhancing of capital expenditure to Rs 5.54 lakh crore in the next fiscal, besides creating institutional structures and giving a big thrust to monetizing assets to achieve the goals of the National Infrastructure Pipeline (NIP).

“For 2021-22, I propose a sharp increase in capital expenditure and thus have provided Rs 5.54 lakh crore which is 34.5 per cent more than the BE of 2020-21,” Finance Minister Nirmala Sitharaman said in her Budget speech for financial year 2021-22.

RINL CMD P K Rath said the increased capital expenditure  with enhanced outlay for infrastructure projects including highways, housing, metro, railways etc augurs well for the long product category of steel.

SAIL Chairman Soma Mondal said the Budget has put emphasis on accelerating the growth momentum of the country by targeting infrastructural growth including road, rails, urban, power, ports, shipping etc.

“The NIP incorporates 500 more new projects. The creation of Development Financial Institution (DFI) will help address the funds requirements of different agencies.

“The announcement of Production Linked Incentive Scheme, Vehicle Scrapping Policy, coverage of 1 crore more families under Ujjwala Yojana etc. will boost domestic production. All these measures and thrust on infra development will have a major positive impact on the demand for steel in the long run,” Mondal said.

In his reaction on the Budget, Joint MD, JSW Steel and Group CFO Seshagiri Rao said a slew of measures announced in the health and education sectors are the foundation for sustainable development of the economy. The steel sector will benefit due to higher outlays on infrastructure and public capital spending.

JSPL M D V R Sharma said overall this is a progressive budget, which will help boost growth, job creation with a focus on nation-building. “The government has given adequate support for creating an Aatmanirbhar Bharat”.

The increased capital expenditure will help the steel industry. The vehicle scrapping policy will not only help reduce pollution and accidents but will also help decentralization of the steel industry, Sharma said.

The announcement of the National Hydrogen Energy Mission is a great step toward greener manufacturing and sustainable development. Rs 25,000 crore of spending on roads sector in West Bengal is a great initiative, he added.

ArcelorMittal Nippon Steel India CEO Dilip Oommen said heavy spending on infrastructure and increased spending for capital expenditure creation are “welcome moves.”

He said asset creation in roads, rails, pipelines, textile parks, power sector, etc. is a forward-looking initiative. DFI has been conceptualised and lending portfolio of Rs 5 lakh crore in 3 years is a step in the right direction.

Speaking specifically on the announcements related to steel sector, Oommen said “If there was no reduction in customs duty on finished and semi-finished steel, it would have helped the domestic steel sector instead of some non-FTA neighbouring countries.”

In order to provide relief to MSMEs, which have been hit hard by the high cost of raw materials, import duties on a number of steel items have been slashed, while on certain steel products the anti-dumping duty (ADD) and countervailing duty (CVD) have also been revoked.

Tata Steel CEO and MD, T V Narendran also said that reduction of customs duty on steel products will have no significant impact on the industry as most of the steel imported into the country today comes from countries with whom India has an FTA (Free Trade Agreement) and hence they enjoy zero import duty.

However, the increased capex in the infrastructure sector, including the healthcare infrastructure, will have a multiplier effect as it will create demand across product categories, including steel.

Kamdhenu Group Chairman and Managing Director Satish Kumar Agarwal said “We are quite positive on the future with the government very bullish and focused on building infrastructure in the country in various areas  – agriculture, railways,  health, roads, housing and affordable housing, etc.”

So overall there is expected to be a lot of infrastructure building activities in the coming future and all that would lead to increased steel demand. he added.

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA on steel sector said the Budget has made a strong push for infrastructure led growth in the country, with capital outlay for infrastructure projects raised by almost 35 per cent for  2021-22.

Investments in core sectors like railways, roadways, urban infrastructure, affordable housing, power, and petroleum and natural gas, which have the potential for spurring demand for metals, have seen a healthy increase across the board, he said.

However, reduction in customs duty on certain finished steel products and semis would affect domestic prices of such products, thereby adversely impacting the margins of affected players, the expert noted.

Saurabh Bhatnagar, Partner and National Leader, Metals & Mining, EY India said the Budget announcements are largely around making steel available in the right quality and quantity at competitive prices to enable speedy infrastructural development planned for the country.

“Reduction in customs and anti-dumping duty on steel imports and zero customs duty on scrap imports will benefit the secondary steel manufacturers to supply steel for construction of roads, ports and bridges and add to a more cost effective supply base for steel,” he added.

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