Source: Financial Express
For the last few months the global interests in Indian economy have been on the rise. Be it World Bank in Ease of Doing Business or Moody’s in its rating of credit worthiness or IMF or ADB in their forecasts of GDP growth for the current year and the next, Indian economic growth and the process in which it is progressing have been positively commented upon. The CSO estimates have shown that the economy has grown by 6.3% in the second quarter of the current fiscal which exceeds the first quarter’s growth by 0.6% and the trend is upward . In order to translate these high to higher projections into reality, a number of mega projects have been announced in road, rail, airport, port connectivity, a massive housing scheme for all income categories, the fast expansion of banking practices among the low income unorganised sector to mobilize saving and elimination of intermediates in reaching the economic benefits direct to the saving accounts of the millions of countrymen who were outside the official financial reach are all steps in the right direction.
The government endeavor to provide a boost to the growth drivers in the economy was not equally matched by the private corporate sector which is yet to shake off the pull down factors and continues to grow on a subdued note. It is a bit puzzling that when the outside world is highlighting the green shoots observed in various sectors, the domestic corporate sectors are yet to crowd in the public investment binge. During the last five years, while the public investment as a percentage of GFCF has marginally increased from 7.3% in 2011-12 to 7.4% in 2015-16, the corresponding share of private corporate investment has come down from 27% of GFCF to 21.7% during the period. It only reflects more saving propensity on the part of private sector as the per capita income has grown by 5.3% in last six years. While the saving as a percentage of GDP by private corporate sector has gone up from 9.5% in 2011-12 to 11.9% in 2015-16, the saving by household sector has gone down by 4.4% to reach 19.2% by end of FY16. The declining trend in investment by the private corporate sector has an adverse impact on growth in manufacturing sector including construction. The share of manufacturing in GVA at 17% in 2011-12 stands at 18% in FY17, while the share of construction at 9.6% in 2011-12 stands at 8.0% in FY17. It is interesting to observe the implication of this pattern of growth on steel consumption in the country.
Steel consumption has been increasing at a monthly average rate of 4.2-4.5% as per JPC figures. In November ’17 the country has consumed 1.9% more steel compared to corresponding month of last year, and in the first eight months of the current fiscal, the consumption is higher by 4.2% over last year’s level. During the past eight months there has been fluctuating growth in non-alloy and alloy and SS segments with wide variations. The movement of economic fundamentals should have a uniform impact broad segment wise and as there are commonalities in the pattern of consumption of the major sectors, the upward trend in one part of steel categories can hardly be compatible with a downward movement in other steel categories unless there are large variations in the production and availability estimates.
During April-October’17 the consumption of HRC, plates, coated products have gone up by 11.6%, 1.4%, 11.9% respectively compared to last year. In the long products, the consumption of bars and rods (TMT and wire rods) and railway materials has gone up by 1.4% and by 18.1% respectively. During the period, the consumption of structurals , CRC, electrical sheets, tin plates, large dia pipes have dropped by 2%,6.6%, 20.7%, 0.9% and 6.5% respectively. The non-alloy steel in the country has increased by 4.2% during this period, almost by the same level as non-flat alloy steel as per the statement. However, the substantial growth of flat alloys by 38.5% has taken the growth rate in alloy and SS segment at 8.4% taking the total steel consumption once again to 4.5%. Higher production and higher imports of flat alloys and SS compared to last year contributed to the consumption growth in the current year. Railways are consuming SS products in wagons and coaches and therefore railway expansion accounts for higher flat alloys and SS consumption including imports of the same by ABC segment. But a subdued growth in manufacturing is hurting the consumption of CRC, electrical sheets (less power projects), tin plates and large dia pipes. When are we coming out of 4.2-4.5% monthly growth syndrome? The domestic production and higher import flows (elements in apparent consumption) are the characteristics of higher market demand. In the balance period of Q3 and total Q4, apparent consumption growth must be at 6-8% to take the total growth beyond 4.5%.