Proving its mettle: Indian market seems tantalisingly poised for steel producers to put their bets in
Updated: Nov 19, 2020 5:04 PM
Steel has an output multiplier effect of 1.4x, while it has an employment multiplier effect of 6.8x.
Underpinning this demand will be government policies, such as Domestically Manufactured Iron and Steel Products Policy.
By Ishaan Jain
As India moves towards realising its vision of becoming Atmanirbhar, one article that will contribute to this vision is steel. Steel is more ubiquitous than one can think and constitutes most items that surround us these days.
From houses to utensils to spectacles and automobiles, most objects are made of steel. In fact, phones like iPhone X are also made of steel. The metal is used across sectors, including building and construction, infrastructure, auto, capital goods, and consumer goods.
Steel has an output multiplier effect of 1.4x, while it has an employment multiplier effect of 6.8x. It contributes ~2% to India’s gross domestic production and employs ~6 lakh people directly and 20 lakh indirectly.
India is not only the second-largest steel producer, with crude steel production of 111 million metric tonne, but also the second-largest steel consumer globally. The pandemic has been unable to dent the growth of crude steel production and consumption in India, as both continue to rise steadily over FY21 on a month-on-month basis.
Majority of India’s production capacity of 142 million metric tonne comes from domestic producers, including Steel Authority of India, Tata Steel, JSW Steel, Jindal Steel and Power Limited and Rashtriya Ispat Nigam Limited.
The entry of ArcelorMittal, world’s largest steel producer, and Nippon Steel, world’s third-largest steel producer in India (through the acquisition of Essar Steel) only reaffirms how lucrative the Indian market is for the global steel producers.
But despite such towering statistics, India’s per capita steel consumption stands surprisingly low at 74.1 kg in FY19. In contrast, the global average per capita consumption for 2019 stood at 229.3 kg. However, the ministry of steel has set the bar high.
The National Steel Policy aims to increase this per capita steel consumption to 160kg by FY31. Further, the policy also envisages India’s production capacity to reach 300 million metric tonne by FY31. This indicates a huge demand potential, waiting to be untapped by steel producers. And at the centre of this demand, will be government projects and initiatives.
The Indian government has put immense focus on developing the nation’s infrastructure, something which will play right into the alley of the Indian steel industry. The accompanying graphic illustrates a few schemes (housing for all, infra projects, such as highways, piped water connections, airports) that will drive India’s steel demand over the medium-term.
Underpinning this demand will be government policies, such as Domestically Manufactured Iron and Steel Products Policy. The Domestically Manufactured Iron and Steel Products Policy signals a preference towards domestically manufactured iron & steel products in government procurement. Besides, under the Atmanirbhar Bharat initiative, a fund of funds with a corpus of Rs 10,000 crore will be set up for MSMEs, and all businesses will be provided collateral-free automatic loans of up to Rs 3 lakh crore.
Investor sentiment will also be boosted by the central government’s recent announcement of corporate tax rate cuts (bringing down the effective corporate tax rate for new manufacturing companies to 17.16%).
Another key step taken by the government is the formation of Project Development Cell in the ministry of steel, with a mandate to provide support and facilitation to investors investing in the sector.
Invest India, the national investment promotion and facilitation agency of the government of India is working closely with the ministry of steel to identify and facilitate investors, develop investible projects, undertake the resolution of policy issues, and implement projects in a fast track manner.
Going forward, the nation’s domestic steel consumption is expected to increase significantly to ~160 million tonnes per annum (mtpa) by FY25. This increase will be in line with India’s vision to become a $5 trillion economy.
The Indian market, over the next few years, seems tantalisingly poised for steel producers to put their bets in. The investors would need to be patient as the investment will be a long-term game–seeds sown today shall reap the benefits in the future.
The author leads the metal & mining sector, Invest India, the National Investment Promotion and Facilitation Agency, Government of India. Views are personal