Steel sector must support recent manufacturing growth

By: |
New Delhi | Published: March 20, 2018 2:25:51 AM

There has been a burst of industrial activities in the last two months which is much welcome as it provides a sound base for the growth of various sub segments of the industry.

steel, steel sector, steel industry, manufacturing growthThe revival of industrial production and manufacturing for the last few months may be compared to the PMI movement. (Reuters)

There has been a burst of industrial activities in the last two months which is much welcome as it provides a sound base for the growth of various sub segments of the industry. In December 2017, IIP rose by 7.1% with manufacturing growing at 8.4%. It was followed by an another7.5% jump in IIP and an 8.7% growth in manufacturing in January 2018. Assuming that the rise in manufacturing sector has a lagged impact on steel consumption in capturing the corresponding rise in other processing and ancillary units serving the manufacturing sector, the consumption of steel went up by 7.2% in January 2018 and a rise of 7.4% in the following month. Specifically the capital goods segment rose by 14.6% and the consumer durable segment by 8%, and more importantly, the infrastructure and construction goods segment rose by 6.8% in January. It is possible that the low base of these sectors in the previous months has made this growth look rosier, but it needs to be acknowledged that the industry sector is turning around towards machinery- and equipment-based manufacturing and construction activities. The manufacture of machinery and equipment has observed a growth of 10.1% in December 2017 followed by a rise of 14.9% in January 2018. The manufacture of motor vehicles, trailers and semi-trailers went up by 25.9% in December 2017 and clocked a 26.6% rise in January 2018. Among other steel-intensive manufacturing sub-segments, the manufacture of other transport equipment and furniture observed a growth of 11.8% and 33.1%, respectively, in Jan 2018. The production of bodies of trucks, lorries and trailers went up by a staggering 267.5% in January 2018. Accordingly, the automobile sales in the latest April-February 2018 have achieved a growth of 3.7%. The sales of two-wheelers and commercial vehicles went up by 12% and19.3% in the corresponding period. The consumption of plates, CR coils/sheets and structurals is growing at a faster rate in the recent months while consumption of railway materials grew by nearly 20% in April-January 2018. It is to be noted that while electricity generation has gone up by 7.6% in January 2018, the indigenous manufacture of electrical equipment has gone down by a whooping 13.8% in the first 10 months of the current fiscal, thereby, leading to a rise in imports of electrical sheets by as high as 108% during April-February 2018.

The revival of industrial production and manufacturing for the last few months may be compared to the PMI movement. India had a manufacturing PMI of 54.7 in December 2017 which was followed by PMIs of 52.4 and 51.2 in January and February 2018.
Increasing production and value addition in various components of industry like mining and quarrying (2.5% growth in April-January 2018), manufacturing, electricity, gas and water supply and construction signal a hitherto slow-contributing segment to consumption of steel. IIP and manufacturing indices grew by 3.3% and 2.8% in FY16 and by 4.6% and 4.4% in FY17 and 2.5% and 2.1% in April-October 2017. Steel consumption rose by 5.9%, 3.1% and 4.5% in 2015-16, 2016-17 and April-October 2017. It would be fair to perceive that it was primarily the push from the infrastructure and construction sectors that steel consumption owes its growth momentum, despite both these sectors suffering from slow growth in GFCF (proxy for investment) as a percentage of GDP. These two primary sectors account for nearly 62% of steel consumption in the country.

In comparison to China where the machinery and equipment segment comprises around 22% of steel consumption, in India this share is only 15%. The current emphasis by the government in developing multi-modal logistics network would necessitate a more structured thrust towards developing a robust and the competitive manufacturing sector in the country. The series of industrial corridors network, some of which are already in different phases of development, would contribute to create manufacturing clusters with concept of shared infrastructure (common facility centres)for the growth of the MSME sector.

Thus it is heartening to note that India is standing on the threshold of a high industrial growth era primarily supported by unleashing the potential of its manufacturing segment. A lot of challenges need to be squarely faced namely, productivity growth in manpower, technology infusion, quality prescription, improvement in logistic support and availability of funds for capacity augmentation. A great deal of work is awaited on improving the image of Indian manufacturing in the global market so that the share of engineering goods in the total export basket experiences a consistent growth in the coming years.

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