Budget 2022: Steel industry needs budgetary support, incentives to maintain growth trajectory in post Covid era

The timely and successful implementation of the various budget measures for steel industry will be critical while the rise of fresh cases owing to the new variant Delta and Omicron are presenting new challenges, the medium-term outlook remains cautiously positive.

India is third largest producer of steel in the world. (File Photo: Reuters)

By Satish Kumar Agarwal

Steel is a product that initiate use in a wide variety of applications from construction (infrastructure and real estate), industrial machinery to consumer products. A vibrant steel industry lays the foundation for a nation’s growth and development. India is currently the 3rd largest steel producer in the world and demand for steel is projected to reach 212 – 247 MT by 2030-31 as per the draft national steel policy 2017. Notably the per capita consumption of steel in India is projected to reach 160 Kgs, which is much lower than the global average of 208 Kg, indicating the fact that there is much room for growth in the industry.

The sustained domestic demand for steel and government initiatives such as the National Steel Policy 2017 has resulted in enhanced production and steel-making capacity in the country. Steel-making capacity is expected to reach 300 million tonnes per annum and crude steel production is expected to reach 255 million tonnes by 2030–31, at 85% capacity utilisation as per the knowledge paper titled “The Indian steel industry: Growth, challenges and digital disruption” release by PWC in association with Indian Steel Association in 2019. Further, consumption is expected to reach 206 million tonnes with 24 million tonnes of net export during the given time frame (2030-31).

While the impact of the pandemic continues to be felt in the sector, forecast of narrowing fiscal deficit to 6.8% in 2022 from 9.5% in 2021 provided some relief for the industry players. In order to reach the expected 255 million tonnes of crude steel production by 2030–31, production needs to grow at a CAGR of about 7.2%. Construction remains to be the biggest sector driving the demand for steel by contributing about 62% of demand. Despite all the hiccups, construction is expected to re-bound and grow by around 7% in the near term as projected by industry think tanks. The government’s focus on developing the infrastructure sector and the on-going and planned initiatives such as the Bharatmala programme for development of roads, Sagarmala programme for port-led industrial development, the Urja Ganga Gas Pipeline Project, Smart Cities project and projects under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) will all contribute to growth of the steel sector.

We have witnessed the worst ever quarterly contraction of around 23% in the country’s gross domestic product (GDP) in H1, FY 2021. Regardless of this, the macroeconomic outlook for India seems to be promising as per recent reports by industry think tanks. Various economic indicators other than GDP have rebounded with some of the other sectors apart from steel that are seen to be nearing pre-covid levels. Steel consumption which saw a 6% fall in the Q2 of 2021 is now buoyed by the recovery of automobile and construction sector in recent months. CRISIL is optimistic of growth rebound to the tune of 11% in fiscal year 2022 based on the sharp recovery in aggregate GDP as witnessed in the H2 of FY 2021.

We have a growth oriented union budget for FY 2022 that provides a much needed impetus to infrastructure development. Production-Linked Incentive scheme for 13 sectors worth Rs. 2.04 lakh along with the gradual unlocking of the economy will help improve consumption as well as investment. The timely and successful implementation of the various budget measures will be critical while the rise of fresh cases owing to the new variant Delta and Omicron are presenting new challenges, the medium-term outlook remains cautiously positive.

Indian Steel Association (ISA), the industry body of steel manufacturers of the country, ahead of the Union Budget 2022-23, has recently submitted a memorandum in the form of a wish list to government that calls for reduction as well as rationalization of various applicable duties and taxes along with policy measure that aims to boost growth of the steel sector in FY 2022-23 and beyond. 

Major highlights of the memorandum to government submitted by ISA includes reduction of basic customs duty on coking coal, SS scrap, nickel to nil from the current 1 per cent plus 1.5 per cent agriculture cess since the availability of these input raw materials are very low. Apart from these, ISA has also proposed the inclusion of petrol, oil, lubricants and natural gas under the purview of GST.

Currently these are outside the purview of GST, and as such steel manufacturers are not able to avail of any input credit against these materials. The memorandum has also highlighted the need for waiver of coal cess or refund of input tax credit (ITC) on GST compensation cess of Rs 400 per tonne of coal consumed for domestic steel sales. All these are key areas of concerns that call for a conducive policy environment along with budgetary support and incentives for the steel industry to maintain a steady growth trajectory in the post covid era.

(Satish Kumar Agarwal is Chairman and Managing Director at Kamdhenu Group. The views expressed are the author’s own.)

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