Higher steel consumption is long believed to be the barometer of industrial growth in the country...
Higher steel consumption is long believed to be the barometer of industrial growth in the country. Industry has grown by 2.2% in the first eight months of the current fiscal, while consumption of steel went up by 1.3% during the period. Taking into account the next two months, India has consumed around 3.5% more of steel against last year and, therefore, expectedly the IIP for the same period (to be known by the next month) must also reflect a higher growth.
Now with the change of the base year, the inclusion of new sets of industries would lead to reporting of higher volumes of output than captured so long. Unfortunately, this growth story has a weak link that is not palatable to the growth of Indian economy.
A 3.5% growth in steel consumption was achieved through 5.3% growth in indigenous steel production for sale and 61% hike in imports of steel. The consumption growth could have been higher, but for a four times rise in inventories due to subdued demand. The rise in import volume has penetrated into the market share of a few major steel producers.
Currently, steel imports constitute around 12% of total consumption. This is approximately 4% more compared to what it was in last year. The decline in market share of major producers (SAIL, Tata, JSW, Essar, JSPL) is the direct outcome of rise in imports.
From customers’ point of view, the imported steel available at a cheaper rate and otherwise satisfying the quality parameters at their end is always preferred. Industrial production deprived of the contribution from basic industries (on account of low capacity utilisation of the domestic players) can make it up by higher output of the end products industries catered to by the customers of imported steel.
While the country collects higher customs duties by increased steel imports, it loses excise duties and other indirect tax revenues by cut in domestic steel production, lower income and employment opportunities by the people associated with it. The banks’ NPAs go up due to inability of domestic producers to pay back loans in time. The Railways and road transport earn less revenue due to poor movement of raw materials and finished products, much more than increased movement of imported steel.
It is possible to attach values to each of these aspects and quantify the cost benefit analysis of higher imports of steel. Similar exercise in other countries have shown that in totality an import led consumption growth has a disastrous impact on the existing players in terms of economic margin, long-term prospects and viability.
India needs to make up its huge deficit of infrastructure, be it in rails, roads, urban facilities, ports, airways, oil and gas, irrigation or communication. The dream of 100 smart cities can be fulfilled only by strengthening the domestic industry that is capable of supplying basic ingredients in a cost-effective and efficient manner. While Indian steel industry is genuinely seized with the threat of rising imports that is in turn facilitating the excess capacities in other steel producing countries like China, Japan, South Korea and CIS to get a regular outlet in Indian market, the industry must take care of the procurement cost at the customers’ end, match the quality parameters of imports and improve other non-pricing factors.
Experience has shown that delays in project execution have cost value realisation dearly in the post modernisation phases, as most of the demand of non-repetitive nature were serviced from alternate sources including imports leading to surplus capacity in the existing unit. A pro-active government provides invaluable support to the domestic industry in a situation of sudden surge in imports, but the industry needs to play its cart with more pragmatism and less emotion.