Implementing Budget proposal would generate good demand for steel sector

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Updated: Feb 04, 2020 9:57 AM

The National Highways Authority of India is set to commercialise the development of over 6,000 km of highways by 2024. Railways is to achieve electrification of 27,000 km of tracks, four station re-development projects, set up a large solar power capacity alongside rail tracks, operate 150 trains through PPP mode, implement 148-km Bengalaru suburban transport project.

Stainless steel sector has been given relief by enhancing customs duty on certain items.

One needs to examine the Budget documents with attention to appreciate the implications of the various recommendations which a cursory glance may otherwise miss. As it is not feasible to pluck out all the relevant aspects of the budgetary announcements having short- to medium-term impact within the confines of this column, we may confine to review the proposed capital investment relevant to the commodity sector, specifically steel and in the process also look at some of the enabling factors arising out of the FY21 recommendations.

As lack of demand has been prescribed the major constraint in the current economic challenge, relief in income tax at the lower income level (`5-15 lakh) without exemptions would leave more disposable income at the hands of the household sector to be spent on consumer durables and real estate, the two steel-intensive segments. The saving propensity of this segment may not be fully wished away and therefore only a part of the increased income would be spent.

The abolition of Dividend Distribution Tax (DDT) would provide relief to a large class of investors including the foreign investors. There are a number of schemes announced for enhancing rural income. A specific mention may be made of allowing the use of shallow/barren lands by farmers for setting up solar power generation capacity (linking solar power to pump sets) and selling it to the grid.

Viability gap funding would be provided for setting up warehouses and cold storages under PPP for agri-warehousing by Food Corporation of India and Central Warehouse Corporation, and the state governments at block/taluk level. A storage scheme for villages also has been proposed.  Steel, being the ideal material for long-span structures, would be required in good quantity. Viability gap funding would also be provided for building hospitals in all aspirational districts and in tier-II and tier-III cities as well as building medical colleges attached to all district hospitals under public-private partnership (PPP) mode.

Turning to investment in infrastructure, the Budget has announced a few steps for FY21. First an investment clearance cell would be set up to institute a transparent modality of getting all projects clearances. Five new smart cities would be developed in collaboration with the states.

Import substitution of textile machineries and equipments would be achieved within next four years by setting up National Technical Textile Mission at an outlay of `1,480 crore. For a change, the government has reiterated the use of mandatory quality order to encourage Zero Defect Zero Effect manufacturing. Steel industry must strive to bring all steel categories under quality control.

Based on the details of 6,500 projects, some under implementation, some already approved and the balance under conceptualisation stage, the major infra sectors under railways, roads, ports, airports, energy, irrigation and dams, piped water supply, oil and gas, and real estate have been identified for investment during FY20-FY25 under National Infrastructure Pipeline (details given in earlier column). A project preparation facility for infra projects  by involving young engineers, management graduates and economists and for government infra projects by involving young people in the start-ups are innovative schemes and would lead to quality detailed project planning and pavement management systems techniques.

In roadways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km each of strategic highways and access control highways would be made in FY20. The National Highways Authority of India is set to commercialise the development of over 6,000 km of highways by 2024. Railways is to achieve electrification of 27,000 km of tracks, four station re-development projects, set up a large solar power capacity alongside rail tracks, operate 150 trains through PPP mode, implement 148-km Bengalaru suburban transport project. Further, inland water ways of 890 km is to be completed by 2022 and 100 more airports would be developed by 2024. A total of `1.7 lakh crore has been provided for transport infra in FY21. What is significant for the steel industry is the expansion plan of national gas grid from 16,200 km to 27,000 km.

For infra projects, `22,000 crore have been earmarked that includes equity support to IIFCL and a subsidiary of NIIF to facilitate long-term financing. If it indeed materialises, the big worries for infra funding would be largely taken care of.
For affordable housing (AH) scheme, deduction up to 1.50 lakh of interest paid on loans for the purchase of houses has been extended by a year and a tax holiday on profits earned by AH developers has also been extended. These measures, if largely implemented as per schedule, would generate good demand for steel in the coming year.

The government has assured the industry that all relevant aspects would be duly considered before allowing imports that may cause injury to domestic industry under FTAs. Safeguard duties and anti-dumping duties would be strictly monitored to increase their effectiveness.

Stainless steel sector has been given relief by enhancing customs duty on table kitchen or other household articles of iron and steel from 10% to 20% (tariff head 7,323).  Import duty on some other products (furniture, pressure vessels, water coolers, refrigeration equipments, etc.) where domestic capacities exist have been marginally raised. On the other hand, the customs duty on specified parts for manufacture of electric vehicles has been reduced to incentivise domestic production.
A 18% increase in capital expenditures for FY21 has been proposed. It is very much expected that the same comes true by year-end (actual capex lower than BE for FY20). All the mega governments projects have been allotted funds which would fuel demand from the industry.

(The author is DG, Institute of Steel Development & Growth.Views expressed are personal)

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