Industrial growth must face challenges comprehensively

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Updated: April 14, 2015 12:14:01 AM

For steel industry it is unfortunate that this sectoral growth is achieved not by enhanced domestic production but by rising imports from China, Russia, Taiwan and Japan. A 54% decline in domestic availability of electrical sheets in February has further aggravated the problem

In the midst of all the debates and arguments generally surfacing while executing  big-ticket reforms like land bill, MMDR, utilisation of insurance and pension funds, there are some indications that the country may be back on track. As India is already considered a safe and preferred destination for global investment, Moody’s rating of the country from stable to positive is only a reiteration of the economic events in the past few weeks.

The latest data on industrial production reveal that it is time to leave the gloomy days behind and look up forward. A 5% growth in IIP February ’15 over last year has been primarily contributed by electricity generation (5.9%) and manufacturing (5.2%). It is gratifying to note that after so many months the mining sector has exhibited a minimum growth of 2.5% in the month. The removal of capping in mining in Goa and Odisha and the impending auctioning of the unallotted and renewal of the leased mines would pave further spate of activities in the sector.

A reasonably satisfying growth in manufacturing has been made possible by a good growth (8.8%) in capital goods segment. Electrical machineries under capital goods sector has exhibited a staggering growth of nearly 36% during the month.

For steel industry it is unfortunate that this sectoral growth is achieved not by enhanced domestic production but by rising imports from China, Russia, Taiwan and Japan. A 54% decline in domestic availability of electrical sheets in February has further aggravated the problem.

The manufacturing of motor vehicles at 9% growth signifies a pick-up in auto sector. This has been further supported by the yearly figures of the auto sector which shows a growth of around 9% in production of all types of vehicles in FY15. The sales growth in passenger cars (5%), 2-wheelers (8%), 3-wheelers (11%) and scooters (25%) signal positive impact out of drop in fuel prices, rise in disposable income and consumer sentiments that augur well for the economy in the coming months.

The overall export growth of 15% of automobile (including components) is impressive, contributed by higher exports of 2/3 wheelers and commercial vehicles. India is in the process of becoming the major global auto hub with a good number of auto majors setting up joint ventures in the country. Here also the sectoral growth is not reflected in higher availability of CR sheets/coils (the primary inputs required by the auto sector) from indigenous sources.

A fall in domestic production of CR products by 8% and a corresponding rise in import of CR by as high as 33% during the first 11 months of the current year has served the requirements of the sector. The growth in manufacturing of other transport equipment has not brightened. There is a massive decline in output of tractors and railway wagons, which has adversely affected the sale of steel structural and plates during the period.

The downward trend in consumer durable segment for the last two years seems to be coming to an end with furniture and room air conditioners sub-segments showing high growth. Ship building and repairs as well as boilers have performed badly during the month signaling much lower capacity utilisation in these segments. Correspondingly consumption of plates in the country indicates only negligible growth.

Hopefully, when the full yearly IIP data would be made available in another one month’s time, it must reflect a healthy growth in all components of industrial production. It is also reported that a good number of finished manufactured items are getting imported in SKD/CKD condition that substitute indigenous manufacturing and production.

The cost, quality and servicing are the three primary elements in deciding the source of procurement. Thus industrial growth poses different challenges to different sectors and they must face them comprehensively.

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

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