The primary determinant of any sectoral growth is provided by what is happening to the macroeconomic front. The trend and behaviour of the leading economic indicators get reflected in the growth numbers of GVA and GDP. A major factor influencing the journey of economic parameters relates to the government policies encircling monetary, fiscal and trade. It is true that the government policy measures by way of influencing the economic indicators also impact the various sectors differently as a good number of sectors supply the basic raw materials to a host of other sectors and this sectoral interdependence has been aptly captured by the Input-Output model developed for the economy.
The latest revised estimates of national income, consumption expenditure, saving and capital formation for 2016-17 followed by the release of second revised estimates of national income 2017-18 by CSO provide data of the trend of a number of major macro indicators in the country for the last 7 years. Let us look at the investment scenario first. It is reflected in Gross Capital Formation which is funded from Gross Savings added with net capital inflows from rest of the world. At constant (2011-12) prices the CAGR of GCF between FY12 to FY17 stands at 3.7% only. The GCF which was 39% of GDP in FY12 has declined to 33.5% in FY17.
Among the components of Gross Saving, it is seen that while non-financial corporations have enhanced their share in gross saving from 28% in FY12 to 41% in FY17, the share of household sector has fallen from 68.2% to 54.2% during the period. There is also a marked change in the character of household saving to move away from saving in physical assets to financial saving that is reflected in the uptick of share market and lower investment in real estate and purchase of household goods.
This explains the subdued demand in real estate for the residential purposes and declining trend in consumer durable segment, both of the factors adversely affecting the steel consumption in the country.
A sectorwise break up of GCF indicates that during the last 5 years, the share of GCF (at constant prices) in steel-intensive sectors like mining and quarrying, manufacturing, electricity, gas, water supply and other utility services, construction, railways, road transport, air and other transport as a percentage of total GCF has come down from 45.3% in FY12 to 42.3% in FY17. The sectors that have experienced larger drop in GCF as percentage of total GCF during the period are mining and quarrying (2.1% to 1.6%), electricity, gas, water supply and other utility services (from 9.6% to 9.2%) and construction sectors (from 7.3% to 4.6%).
Under GCF, it is the composition of GFCF that signifies the proxy investment component. At current prices, the share of GFCF in GDP has secularly come down from 34.3% in FY12 to 28.5% in FY18 (second RE). The break up of GFCF data is available for public and private non-financial and financial corporations, general government and household sector. It is possible to compile the data of GFCF (constant prices) in further sub-group of dwellings, other buildings and structures under each of the above categories to arrive at steel intensive investment component. It is seen that share of GFCF under these sub-groups has come down from 5.8% of total GFCF in FY12 to 5% in FY17. It needs to be given a special boost in the next few years to enable the country to consume more steel effectively.
By plotting the GDP data for FY12 to FY18 along with steel consumption data for these years, the elasticity of steel GDP comes to 0.5 (R square 97%, DW=2.04 on a much shorter series than what is permissible for a robust statistically significant longer series). This is way down from 1.1 derived from a longer series during 1992-93 to 2011-12. At this stage, it is to be appreciated that steel intensity in GFCF (investment) in specific sectors as shown above is bound to come down as new grades of steel with a strong preference by the end using sectors for low volume and high performance steel would make it possible to build a structure with less volume of steel than what it consumed a few decades back.
In some of the traditional uses, steel is also getting replaced with competing materials (aluminium in bus bodies, reinforced plastic in furniture, water tank, PVC Pipes in plumbing, water transportation) and in all these cases investment is likely to be much less steel intensive. On the other hand, steel has been found to be first choice of preference in bridges, ROBs, flyovers, road architecture. The decisive shift observed in some of the construction segments like residential houses, warehouses, pre-engineered buildings for steel concrete composite technology would restore the market for steel. The derivation of cost of construction in terms of Life Cycle Analysis (LCA to be made mandatory in GFA) would facilitate more steel based construction and spruce up the steel intensity graph of GFCF.
(Views expressed are personal)