India?s steel consumption in the current fiscal may expand at just a trifle above half the pace it had grown last year as a macro-economomic crisis coupled with high-interest rates have squeezed demand from key industries, according to government and industry officials.

Steel demand in India?the world?s fourth-largest producer by volume?grew 9.9% in the fiscal through March 2011 on robust consumption by automobile, household appliances and construction sectors. With the economy reeling under the collateral impact of a sovereign debt crisis in Europe and frequent increases in domestic interest rates to rein in inflation this fiscal, demand for vehicles and housing has suffered. The Reserve Bank has raised key policy rates 13 times totalling 375 basis points since March 2010 to suck excess liquidity from the system, driving up borrowing costs substantially.

Steel consumption during the April-January period rose just 4.7% to 56.81 million tonne, provisional data by the steel ministry showed. Imports declined marginally to 5.58 million tonne, while exports grew close to 24% to 3.42 million tonne during the period. In December, steel secretary PK Mishra had said steel demand might grow by 8% in 2011-12.

?The growth rate was low for various reasons, including low activities in construction, infrastructure investments and automobiles,? said A S Firoz, chief economist in the steel ministry. Steel demand in India usually weakens during the June-September monsoon season as construction activity slows due to rains, and consumption reaches its peak during the last quarter of

the fiscal.

Government and industry officials expect higher pace of consumption in February and March, but that is unlikely to drive up the overall growth for the fiscal to anywhere near

the target.

State-run Steel Authority of India chairman CS Verma said the January-March quarter is important as it marks the end of the 11th Five Year Plan. ?It?s going to be a brisk quarter. I don?t see major fluctuations in pricing and demand would firm up too,? he said.

Firoz said rising confidence of investors and consumers, and a low base due to slow growth this fiscal may mean steel demand will rise in 2012-13.

The country?s steel production between April and January rose 6.9% from a year earlier to 58.25 million tonne, the official data showed. It plans to raise its annual steel-making capacity to 120 million tonne over the next two years from around 84 million tonne.

In December, the government raised export taxes to 30% on both iron-ore fines and lumps from 20% to discourage overseas despatches of the raw material and promote domestic steel making. India exported 97.64 million tonne of iron ore in 2010-11.