We are at the end of first quarter of the current fiscal and things are a bit uncertain, although green shoots are unmistakably growing. Monsoon expectations are better than what it was 1 month back. Prices of finished products have come down but still higher than the crisis period level. As a result the latest WPI is positive at 0.79% as opposed to negative rates reported continuously for the last few months, while CPI, a better indicator for cost of living, is positive at 5.76%. CAD is at a record low, a mere 0.1% of GDP. However, Brent crude prices are on the rise and may settle at around $50 per gallon for the next few more months.
Steel and a host of other industrial sectors are eagerly waiting for the stimulus in terms of new projects. Industrial Corridor projects are progressing and the road schemes under PPP mode are having a slow and steady run. This would provide a significant push to industry, although a 12.3% share of stalled projects by March 2016 with near-stagnant private corporate investment causes concern.
In anticipation of higher prices, production rates were higher in April 2016, but the subsequent decline in prices with subdued demand has only added to the inventory with the producers. It is an established fact the buyers and sellers exhibit contrasting patterns of behaviour at times of price fluctuations with hesitant demand indicators. The current scenario of slow movement of order flow is to be judged from this angle.
The convergence on GST is one of the steps that would facilitate significantly doing the business in India and would enhance the FDI flow, now that China is no longer a preferred destination. In the first two months of FY17 steel consumption in the country has gone up by 4.5% compared to last year. It is heartening to note that the consumption growth is achieved by higher finished steel availability of 2.4%. Poor availability of special steel with imports dwindling by more than 29% has hampered the level of consumption.
Except semi-finished steel, in all other categories the imports are lower compared to last year. Interestingly, it is in case of semis, bars and rods (including wire rods) and pipes that exports from India in the first two months are significantly higher than last year. Russia has emerged as cornering the highest growth in steel exports to India with nearly 25% share in HRC and CRC. Thanks to imposition of MIP, the elimination of threat of unfair imports has been converted to higher capacity utilisation by the domestic mills, increased profitability by the producers after a period of regular losses. However, India continues to remain a net importer in steel in the current year to the extent of R4,394 crore in the first two months.
Against cheap steel imports from China, CIS, Japan, South Korea, Turkey and Brazil, a number of countries have adopted import restrictive measures like AD, CVD, safeguard, floor price and other non-tariff measures. Some of these countries are being dubbed as “too protective”, “fortress” and pursuing the much-maligned “mercantilist” policies. This is most unwarranted as every country needs to rescue the domestic industries from the clutches of unfair trade and predatory pricing.
The interest of employment and income generation, corporate profitability, ability to invest in areas with potential to grow through demand from the emerging segments as well as the capacity to repay the loans taken from the banks must be the predominant factors to shape the economic, fiscal and trade policies of the country. The definition of competitive threats from unfair trade has undergone drastic changes in the current scenario of excess supply, subdued demand and loss of jobs and income. Saving the fortunes of the domestic industry is the primary function of the government and is to be distinguished from simple protection of inefficiencies.
The author is DG, Institute of Steel Growth and
Development. Views expressed are personal.