Steel sector to have good scenario in current year and the next

By: | Published: April 16, 2019 1:38 AM

The recent repo rate cut by the Reserve Bank of India to 6.0% has been favourably commented by ADB and is likely to enable more investment flow into the economy and would also help private consumption.

Steel sector to have good scenario in current year and the nextSteel sector to have good scenario in current year and the next

The performance of Indian economy in terms of standard economic parameters like GDP, consumption, investment, per capita income, inflation, current account deficit and fiscal deficit can be termed as reasonably good specifically while comparing with the result sheets of other economies, advanced or developing.

There are, however, concerns on the sustainability of these indices in view of some of the downward risks that emerge on the global scene. The publications of World Economic Outlook by International Monetary Fund (IMF) and Asian Development Outlook by Asian Development Bank (ADB) in quick succession in April 2019 have mentioned some pertinent facts on the course of economic growth in 2019 and beyond. Although, the evaluations by two separate agencies do not follow similar trend, the concluding convergence of assessments is apparent.

The global GDP growth is slated to go down to 3.3%, dropping from 3.6% in 2018 displaying a synchronised slowdown by 70% of global economy.

The distorting elements continue to be the escalation of US-China trade conflicts, economic stress in Argentina, Turkey, Venezuela, poor growth in auto sector (with new emission standards) and manufacturing in Germany, financial tightening in countries, including China and others.

These downward risks have led to lowering of the growth prospects in the US ( 1.8% in 2019 and 1.7% in 2020), Latin America, UK (more due to Brexit uncertainties, albeit extended for another 6 months), Canada, Australia and Russia. The silver lining is the belief that the slowdown in global economy may reverse in H2 of 2019.

A new concept Modern Monetary Theory is taking roots. The banks are creating new resources to directly fund government budget deficits almost on the lines of Quantitative Easing rather than funding through the purchase of government bonds. US Federal Reserve, the European Central Bank, the Bank of England and the Bank of China have all gone in for stimulus funding of infrastructure projects and social funding. This is the new role that the major banks are playing to lift up the sagging economies.

The problem centres round the insignificant growth momentum seen in elements of real economy. Industrial production is down. IIP in India has grown 4% during the first 11 months of FY19, while gross fixed capital formation as a percentage of GDP (constant prices) moves up to 32.5% in April-December’19. This needs to scale up substantially and to be led by public investment as has happened in China in all these years. Exports growth is slower as compared to last year. Indian steel export in FY19 at 8.5 MT is around 26.4% lower than the previous year’s level.

IMF has projected 3.3% GDP growth in 2019 would go up to 3.6% in 2020. India with a GDP growth of 7.1% in 2018 is slated to grow by 7.3% in 2019 and to 7.5% in 2020. ADB, on the other hand, has projected Indian economy to grow by 7.2% in 2019 and by 7.3% in 2020 with an inflation ranging between 4.3-4.6% in 2019 and 2020.

What is reassuring in the evaluation by ADB was a reiteration of the capability of domestic financial resilience to mitigate adverse global influences. It is seen that private consumption has played an important role in GDP growth in India despite a drop in rural consumption, while investment growth led by public investment is gradually taking up a higher share in GDP.

The recent repo rate cut by the Reserve Bank of India to 6.0% has been favourably commented by ADB and is likely to enable more investment flow into the economy and would also help private consumption.

In addition, the sustained growth in non-food credit by the commercial banks has helped more liquidity in Indian economy. The improvement in non-performing loans held by banks and positive outcome of IBC provisions in making stressed assets bear fruits are the two positive highlights in India’s growth story.

Steel, being the largest category accounting for stressed assets, is going to experience a favourable scenario in the current year and the next. However, ADB report has expressed concern on fluctuating trend in PMI in manufacturing in India, rising from 52.4 in January to 54.3 in February and falling to 52.6 in March’19. The second area of concern relates to the poor growth in exports. India’s share in global exports that went up from 0.7% in 2000 to 1.7% in 2017 is below 12.7% share by China, 3.9% share by Japan and 3.2% share by South Korea.

It has been suggested that Indian exports need to improve its share in global value chain which is driving the growth in global exports. India can achieve this with vast improvement in quality of infrastructure, adequate finance for industry and infrastructure and acquire immense growth in skill development. These would remain the thrust areas for the current year for India.

The major highlights of global economic outlook clearly charts out a roadmap for growth of industry, of which metal sector is an inseparable component. The global downward risks require country-specific monetary and fiscal strategies that would enable Indian economy to sustain its growth story and minimise the adverse impact of these risk factors.

The writer is DG, Institute of Steel Growth and Development (Views expressed are personal)

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