Growth imperatives in steel sector need to be addressed quickly

Posted on 08 November 2017

Source: Financial Express

Belying the earlier apprehension, the alloy and SS industry has started looking up. A part of it may be due to a mid-year revision of the availability figures in the official statistics that has made the finished steel availability in this segment to grow by 15.5% in October 2017 itself and by 14.5% during the first 7 months of the current fiscal. As a result, the apparent steel consumption in the country is maintaining its average growth rate of 4.5% in April-October period. Whatever may be the explanation, it looks pretty odd that during the last month, while consumption of non-alloy steel grew by 3.7% only, the alloy and SS consumption went up by a hefty 22.1%. Only 2 or 3 months earlier, the official statistics exhibited a negative growth in alloy and SS sector that pulled down the growth in total steel consumption in the country. The much improved positive growth in steel consumption in alloy and SS segment needs to be explained in terms of growth in different related consuming sectors. Other than utensil sector, the other sectors, namely ABC segment is common to both varieties of steel and therefore, the vast differentials in the growth rates of alloy and non-alloy sectors need a little more elaboration.

On the other hand, this anomaly in a particular month is inevitable if the revision of the figures takes place at a specific point and not spread out over a few months’ period to normalise the variations.

In the recently released Short Range cure Outlook by WSA, India has been projected to consume 87.1 MT in 2017 at an annual average rate of 4.3%. The ongoing rate has already exceeded the projected level. As the official data for the month gets revised after a gap of one or two months, it is expected that steel consumption rate in the country would be able to achieve a 6% growth rate to reach 89.1 MT.

As steel consumption in the country is to reach around 230 MT by 2030-31 as indicated in NSP, it implies that consumption needs to grow at a compound annual growth rate of 7.6% in the remaining 13 years which looks reasonable. The crude steel production growth has already reached 4.7% growth over last year. In the remaining months the brown field capacities that have been installed in the past few months by SAIL, JSW and TSL would come into stream and with higher capacity utilisation in the existing mills to take care of rising market demand in the coming months from Railways, NHAI, Bharatmala, real estate, engineering equipment, automobile, among others, the crude steel production growth is likely to reach 6.5-7% to reach 104 MT by the end of the year.

The capacity augmentation growth from the current level of 126 MT to 300 MT by 2030-31 implies an annual average growth rate of 6.9% in the next 13 years. It is to be appreciated that if the market size in India expands at a 7.6% CAGR in the next 13 years, the country would prefer to generate that much quantity of steel to cater to the demand and looking from this angle, the prospective investors would be keen to invest in creating green field expansion for the steel sector.

In this otherwise near normal scenario for the steel sector in India, two issues need to be addressed adequately. As the fresh capacity creation requires an astronomical volume of fund to be made available mostly through banks and lending agencies including the FDIs, the credit worthiness of the sector is to be the first parameter. But for this to happen, there has to be an enabling business scenario in the country that would facilitate the flow of investment. And if the processes, procedures and regulations of conducting the business are simplified and made user friendly, it has the capability of improving the business outlook significantly.

It is in this context that the recently published report on Doing Business by the World Bank that has placed India 30 notches higher at 100 from 130 rank in 2017 has displayed the predominant role that various economic reforms undertaken by the government can play in promoting investment in a sector that needs it so badly. Although Make in India, affordable housing, massive activities in improving the road and rail connectivity, smart cities, uniform Goods and Service Tax, direct benefits of economic growth to the poor people without intermediaries are contributing to overall improvement in the business environment, in a few major components of business index, namely, starting a business, registering property, dealing with construction permits, enforcing contracts, registering property , trading across borders, among others, India needs a major push to make the country more attractive destination for investment and future growth. 

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