Stable economic growth — a great facilitator for steel growth

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Published: August 21, 2018 1:16:41 AM

Indian steel industry is currently operating at 77% capacity utilisation with primary and major producers exhibiting capacity utilisation of around 100%, the capacity utilisation of other sector predominated by SME producers is at a much lower level.

steel, steel growth, GDP, GVA, economic growthForeign exchange reserve as on 10th August 2018 at 0.9 billion would take care of CAD deficits currently capped at 2.5% of GDP.

Amidst a good deal of data and estimates available from various agencies, national and global, on the economic growth of India and other countries, the publication of the report on revision of old and back series of National Statistics based on latest 2011-12 as the base year would go a long way in consolidating the long-term data series on GVA/GDP for India since 1994-95. The availability of 24 years’ data on GVA/GDP, GDP at factor costs and GDP at Market prices, both at current and constant prices, and the composites of GVA would make the forecasts robust. The series also brings to light the direct impact of global downturn in 2008-09 and followed it up with recessionary conditions in 2012-13 to 2013-14.

The recommendations on higher reliance on ASI series for tracing the growth of unorganised, non-listed units, NSSO survey data for unincorporated/Household surveys and MCA data for organised sector can be speedily implemented although the availability of ASI Survey in each 5-yearly period would continue to be an issue. Accordingly the Q1 GDP data for FY19 contributed by industrial growth is likely to be better compared to the last year’s level. After a gap of one and half years, the industrial sector led by manufacturing is growing its share in GDP and this has been made possible by a perceptible shift towards steel-intensive infrastructure development as one of the major drivers of growth in India’s GDP.

Hopefully the trend would be sustained in the balance period of the current fiscal and also in the years ahead as mega infrastructure projects in railways, roads, airports, ports and shipping, petroleum and refineries, thermal and hydel power, mining and steel plant modernisation and expansion areas, urban development works in various states including laying of pipelines, housing projects under central and state governments and Army, once commenced, have some well laid out capex roadmap that must complete within schedule.

Each of these mega projects takes a span of minimum 3-5 years to complete. Even under the private sector and under PPP mode, many real estate development projects have a clear period of completion and abandonment of these type of mega projects would nothing short of an exception. And against this background one must not expect a shortening or cutting down of the project completion period in the coming years. The need to fulfil the massive gap in infrastructure building as the effective tool for economic growth, employment and income generation would remain to be the priority mode of activities of the government in this country in the years to come. The public fund requirements for infrastructure spending, most of which start off their payback period after a gap of 3-4 years would be enormous.

The PSU capex and by some of the major corporate are mostly confined to sectoral development (petroleum, mining, steel, cement) which is also a necessity to maintain regular availability of inputs for growth of infrastructure. The rising direct and indirect tax revenues and plugging the loopholes in tax collection, restricting outflow of subsidies for unintended sectors and more FDI and Portfolio investment would be enlarging the investment kitty in the hands of the government. The devaluation of Turkish Lira in Q1 had a temporary adverse impact on net portfolio investment in the country which went down by more than `53,000 crore in Q1 and then recovering itself in July and August 2018. FDI flows at $44.9 billion in FY18 are respectable.

Foreign exchange reserve as on 10th August 2018 at $400.9 billion would take care of CAD deficits currently capped at 2.5% of GDP. Steel industry is continuing its slow and steady growth in the first few months of the current fiscal. The consumption has grown by 8.1% during April-July 2018 and the crude steel production at 34.9 MT exhibits a growth of 7.5% in the 4 months’ period. The current crude steel capacity at 138 MT has to move up at a consistent rate (6.4% growth per annum) to achieve 300 MT by 2030-31. This, however, depends crucially on the minimum demand growth (7.4% per annum) to reach 230 MT in another 13 years period. Thus the current level of steel consumption at 31.2 MT must grow at a high rate year after year till 2030-31.

Indian steel industry is currently operating at 77% capacity utilisation with primary and major producers exhibiting capacity utilisation of around 100%, the capacity utilisation of other sector predominated by SME producers is at a much lower level. Assuming that most of these unutilised capacities cater to the demand of long products (TMT, Wire Rods and Structural steel) which is a major need of basic infrastructure building, the higher capacity utilisation in this sector would be a necessary component of the pattern of growth of steel industry.

However, the growth of manufacturing and other processing industries including machinery and equipment would be in regular need of flat steel products (Plates, HR,, CR, Coated products and Pipes) and SS and Alloy steel. The stable growth in ABC (Architecture, Building and Construction) and ART (Auto, Railway and Transport) segments would enhance the need for special and value added steel that must be made available indigenously at competitive prices. Steel availability at competitive prices (import parity) would be the winning strategies of domestic players.

(Views expressed are personal)

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