Union Budget 2021 Expectations for steel sector: The Indian economy, which is likely to be degrown by 7.7% in FY21 (official estimates) and slated to rise by 8.8% in a V-shaped recovery assessed by the IMF and by 5.4% projected by the World Bank, should be equally supported by a pro-growth and pro development Budget.
Union Budget 2021-22 Expectations for steel sector: Already a good deal of recommendations from industry bodies, associations, experts, economists and analysts have reached the government for the Budget.
The Indian economy, which is likely to be degrown by 7.7% in FY21 (official estimates) and slated to rise by 8.8% in a V-shaped recovery assessed by the IMF and by 5.4% projected by the World Bank, should be equally supported by a pro-growth and pro development Budget. The advance estimates on GDP has clearly spelt out that government expenditure would be growing at 5.8% in FY21, thereby raising its share in GDP to 13.0%. Although this is much lower as compared to expenditures by some welfare states, the Covid has made it imperative for this element to raise its share in GDP.
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The growth rate in government expenditure is likely to grow much ahead of the rate at which private final consumption expenditure would rise (-9.5%) during the year. Likewise it is definite that revenue expenditure for FY22 for healthcare, pharmaceutical would be enhanced significantly for much wider distribution of the vaccines, treatment facilities and physical infrastructure for patients. This additional expenditure must not be at the expense of expenditure in other critical areas like family welfare, education, housing, water supply and sanitation.
As agriculture is the lone sector exhibiting a positive growth of 3.4% in FY21, the reforms introduced in the sector would likely to enhance the intervention by the government to spend more fund on PDS, crop purchase and fertilisers.
The Budget needs to enhance public investment in infrastructure summed up in gross fixed capital formation (GFCF). This element as a percentage of GDP has been declining from 31.9% in FY19 to 27.6% in FY21 (AE). The experience in the last few years has well established the fact that increasing level of public investment in infrastructure sector is the necessary and sufficient condition in inviting private investment in a specific sector.
Government investment in railways in areas like rolling stock procurement, station development, laying down of new tracks, doubling of the tracks, etc have attracted the private sector to come in owning private trains by procuring wagons and coaches, innovative station designs and construction. Government investment in ongoing and incoming metro network projects would have to continue unabated in FY22.
Public investment in the oil and gas sector would also generate demand for steel and other commodities. The increasing public investment by means of providing subsidies to low- and middle-income groups under PMAY-U and G in affordable housing schemes is also attracting private developers to invest in the schemes.
In FY21 Budget, Rs 4.1 lakh crore were earmarked for infrastructure sector and this needs to be enhanced to Rs 7 lakh crore in order to push up GDP growth and create income and employment opportunities. The enhanced public investment would require increased public borrowing which with interest rate coming down would still be considered manageable. The long-term sources of infrastructure funding by InviTs and REITs must be encouraged in the Budget.
The import duties on non-essential imports may be enhanced, however, there is a need to reduce duties on essential imports like metallurgical coal, nickel, ferro alloys (indigenously not available) and melting scrap (including SS). This would help reducing cost of production of steel of all categories. There is some talk of GST rationalisation. The rising GST receipts signal growth in commodity and service sectors. The resultant rise in fiscal deficit from the target level of 3.5% of GDP may exceed 6.5% in FY21.
The author is former DG, Institute of Steel Development and Growth
(Views are personal)