Indian Union Budget 2021-22: The Union Budget for FY22 has been hailed as growth oriented and the path it has chosen to achieve this is through investment. A Covid ravaged economy has made the government to enhance its expenditure (revenue and capital) significantly from the budgeted Rs 7.96 lakh crore to Rs 18.5 lakh crore in FY21 by massive market borrowings and other sources and led to an unprecedented fiscal deficit of 9.5% of GDP in FY21, which is slated to come down to 6.8% in FY22. The government targets to bring the fiscal deficits down to 4.5% of GDP by FY26. It is to be noted that revenue expenditure component that was 87.3% of total expenditure and capital expenditure the balance 12.7% in FY21(RE) has been planned at 84.1% and 15.9% respectively in FY22 (BE).
Looking at the investment push in FY22, it is seen that budgetary support for capex at Rs 4.4 lakh crore in the year end is now planned at Rs 5.6 lakh crore in FY22, a jump of 27.3%. With internal and extra budgetary resources, the overall capex in the next year has been planned at Rs 11.4 lakh crore against Rs 10.8 lakh crore actually achieved in FY21(RE). It may be mentioned here that investment in infrastructure (economic and social) is guided by National Infrastructure Pipeline (NIP) document that compiles a total of 7400 projects (217 projects completed) and stipulates a requirement of Rs 111 lakh crore by FY26. The document spells out that while central and state governments would account for 79% of the total investment, the private investment is to fill the gap of 21% of capex.
The steel industry would be a major beneficiary in terms of generation of demand in 9 identified infra segments, namely roadways, railways, power, housing and urban affairs, new and renewable energy, water resources, airports, rural infra and shipping. Under road sector, an additional 11,000 km of National Highway corridors of Bharatmala project would be completed by March ’22. Economic corridors (Tamil Nadu, Kerala, West Bengal, Assam, UP, Chhattisgarh, AP) would be done. Railways have been allocated Rs 1,07,110 crore budgetary allocation. DFC in eastern and western region, north-south corridor, gauge conversion and electrification works would be undertaken. Expansion of Metro under construction in 27 cities (Kochi, Chennai, Bengalaru, Nagpur etc) and discom restructuring including creation of power infrastructure would be the priority area of investment. Ports, shipping and waterways development would be the part of a multimodal transportation system. City gas distribution, extension of Ujjwala scheme, new gas pipeline project are other major infra projects.
It is needless to mention that enhancement of investment in infra sector has a huge multiplier impact on other interconnected sectors of the economy (input-output model). Studies have shown that one rupee increase in capex of central and state governments contributes to rise in output in the central government by Rs 3.25 and in state government by Rs 2.00. Output growth is synonymous with demand creation for steel and other commodities, job creation and income growth. Funding of this massive increase in investment (capex) requires innovative schemes (setting up of development finance institution, more thrusts on InvITs, REITs, asset monetisation, strategic disinvestment of PSUs, increased FDI in insurance sector, aiming for more private corporate investment through PPP mode etc).
The government is keen to double the current recycling capacity of 4.5 MT LDT by 2024 by more breakage of ships. The vehicle scrappage policy (private vehicles more than 20 years and commercial vehicles more than 15 years) is announced to increase domestic scrap (good quality) availability for steel making.
To address the rising steel prices issue, the government has intervened in the form of reducing basic customs duties on long products/flat products including semis from the current 12.5/10.0% to uniform rate of 7.5%. In addition, the basic duty of 2.5% on melting scrap (including SS) has been abolished and 5% customs duty on copper scrap has been brought down to 2.5%. Simultaneously the ruling ADD CVD imposed on flat products/ wire rods/high speed steel (including SS) has been temporarily revoked for next 6 months (up to September ’21). As major imports of flats are sourced from Japan and South Korea (52.3% of total imports during April-December 2020) with whom India has signed FTAs, the duty reduction has little impact on them. However for the balance items (1.53 MT of imports during Apr-Dec ’20) that includes China ( 20.0% share of imports), it would imply a reduction of Rs 2460/- of the landed cost of imports of HRC at the current export offer from China. Further, the current floor prices in ADD on HR/CR/wire rods fixed 4 years earlier are much lower compared to the prevailing global prices and therefore ineffective.
Thus, on overall analysis, the Budget provides a good platform for accelerating the engine of growth for Indian steel industry in terms of demand pull by increased capex in infra, the most steel intensive sector and providing support to indigenisation of other end using segments like automobile and auto components, defence, power distribution, renewable energy, heavy machineries etc. Under such an enabling environment, adequate steel availability from domestic sources is to be ensured by the steel manufacturers.
The author Former DG, Institute of Steel Development and Growth
Views expressed are personal