Current business scenario may yield positive results

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Published: January 28, 2015 2:10:58 AM

There is every reason to believe that India appears to be the most favoured destination for investment.

There is every reason to believe that India appears to be the most favoured destination for investment. A low rate of inflation (negligible in December ’14) has at last prompted RBI to bring down borrowing cost by 25 basis points and industry is eagerly looking forward to some good measures of investment and reforms in the General Budget. The environment is ripe for growth in manufacturing that can only pull up GDP with appropriate allocation of resources in the selected sectors, the primary being the infrastructure.

The government is seized with the possible steps to bring down undesirable and unplanned subsidies to build up resources for productive investment in all sectors that are generally not found commercially attractive for the private entrepreneurs. The investment from them, which also includes FDI, is largely earmarked for manufacturing. The overall business scenario and the government policy perspectives are the two major determinants for flow of private investment in this sector.

Over the years the various manufacturing segments in our country have become too interdependent as domestic market remained the growth driver and no major sector could either grow or plan for growth unless there was a conducive environment of demand emanating from the other players in the set. Basic Metals that provide the crucial linkages for industrial growth draw its mettle from machinery and equipment sectors, including electrical and transport equipment and these segments consisting of small and medium players need investment as well as positive outcome of the reform measures in labour, procurement policies, loan disbursement, etc.

Steel is a classic example of this growing dependence on domestic manufacturing to be able to chart out its own growth plan. The declining trend in commodity prices — be it oil, steel, coal, iron ore, scrap, aluminium — has made the export realisation in these commodities unviable, at least for the high cost producers.

Surplus capacity in all the major steel producers has made the global pricing scenario worse. Data from World Steel Association indicate that 13 million tonne of additional availability of crude steel in 2014 as compared to the previous year has come from India (2 MT), US (1.5 MT), Middle East(2 MT), Russia (2 MT), SE Asia (1 MT) and South Korea (5 MT). While domestic market growth is taken as a springboard for capacity expansion in India, the US, Middle East, SE Asia, Russia and S Korea have planned to take advantage of the falling prices in the export market to raise exports and the emerging demand for flat products in India to set up downstream facilities. POSCO, whose big ticket investment in new steel plant in Odisha is uncertain, has set up plants in Maharashtra to produce around 2.5 million tonne of autograde steel sheets, galvanized sheets and electrical steel sheets which would provide an outlet for their own HRC.

India can well aspire to become the number three steel producer in the world by 2015 by closing the gap of less than 5 million tonne of crude steel between it and the US. The additional availability of steel from ISP/SAIL, Tata/Kalinganagar, JSW/Bellary, RINL and JSPL would enable India to surpass the US shortly. More steel availability from Brown field expansion can be sustained partially by higher exports but mostly by enlarging the domestic market.

The current growth rate of steel consumption at a mere 1.4% during April-December ’14 needs to be pushed up to 7-8% in the minimum to take care of fresh availability of steel. With an industrial growth of 8-9% contributed by manufacturing growing at 7-8%, the market absorption (domestic plus exports) of additional steel should not create any logjam. Backed up by appropriate policies and investment, this wishlist can become a reality.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.

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