Only a few weeks back, we were flooded with depressing assessments of the prospects for emerging countries, including the BRICS, and India in particular. While Goldman Sachs lowered India?s GDP forecast for 2013 to 4%, IMF cut its projection to 5.6% for the current year. The steep fall in the value of the rupee and a fast-widening CAD contributed to stoking these apprehensions.
The official document on the economic outlook for 2013-14, released last week, acknowledged that its GDP forecast for 2012-13 had deviated from the actual by 25% (5% against a forecast of 6.7%), which led it to cut the earlier GDP projection of 6.4% for 2013-14 to 5.3%, only 6% higher than the previous year. The higher forecast is based on much higher growth predicted for the agriculture sector (4.8% compared to 1.9% in the previous year), but seemingly slower growth assumed for manufacturing and the overall industry (1.5% and 2.7%). Notwithstanding the passage of the land Bill, the tardy pace of project construction continues to plague the industrial scene. But, then, the performance of the Indian economy in July and August has been a shade better.
The just-released industrial output data indicate that production went up by 2.6% in July, ably supported by manufacturing growth of 3%. The capital goods segment did especially well, growing 15.6%, while power generation grew 5.2%. But mining continued its southward journey at (-)2.3%. Although there has been a perceptible decline in gold imports, the impact on CAD may be neutralised by the rise in crude oil prices. Also, domestic inflation, particularly that of food, may go up on the rise in diesel prices.
The auto sector?s production growth of more than 8% in August and export growth of over 2% in April-August 2013 period is good news too. The substantial growth in steel imports and marginal growth in crude steel production in August 2013 signal vibrancy in the domestic market.
Studies show that over the last few decades, the steel intensity of investment in India has dropped primarily due to high doses of investment targeting the service and social sectors, which need lower volumes of steel compared to investment in project construction. The long-term steel-GDP elasticity, which was ruling around 1.2, has come down to 1.11 recently. The inclusion of data of the previous year has further brought it down to 1.07. Applying this factor on the projected GDP growth of 5.3% yields steel consumption growth of around 5.7% in the current year. It implies that in the next seven months, the current level of steel consumption, at 30.3 million tonnes, must grow by around 56%. Last year, it went up by 43%. A little extra effort on part of producers but, above all, the creation of circumstances for investment in project construction would still make the destination achievable.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
