The heinous crime that was committed in Delhi has not only shaken our inner trust in mankind but also made the commodity market dull and listless. The normal festive mood, boosting sale of goods in the last month of the year, has been replaced by anguish, protests and demands for immediate steps to check the menace.
The events unfolding in the next two weeks would determine if the market sentiment recovers to its normal level.The next three months are, therefore, crucial for the Indian steel market. The purchase by central departments is likely to increase and exhaust the budgetary residues.
A few steps on FDI inflows, the creation of a Cabinet Committee on Investment for single-window clearance, cutting down of subsidies by raising the prices of petroleum products and urea and the announcement of 10 industrial clusters had a positive impact on the market sentiment. However, the impact of all these measures would take time to be effective.
For the steel industry, the prime concern is the falling trend of fixed investment as a percentage of GDP. A number of real estate projects are stalled due to lack of funds as the cost of capital is way too high. The banks are not extending credit for projects that have some long-term duration, just to keep their NPAs under control.
For RBI, controlling inflation at the cost of growth was a preferred policy. Although doubts have been raised as to how effective this policy is in controlling price rise while bringing down the growth rate to 5.3 percent by pushing down investment. Even if the repo rate is brought down by a few basis points in January 2013, the real impact would be felt only after a few months.
Steel consumption is projected to reach a level of around 75 million tonnes reflecting a 5.8 per cent growth in the current year. This rate may almost coincide with the GDP growth in 2012-13. While the performance of the economy and specifically of the Indian steel industry suffers from lack of demand from major sectors and problems relating to supply of raw materials (iron ore and coking coal) in the first year of 12th plan are still respectable when compared to other major steel producing countries, the projections made in 12th plan on economic growth and steel consumption growth appear optimistic.
Already the Planning Commission is talking of a growth rate of 8 per cent against 8.2 per cent which was revised down from the original 9 per cent target. The projection of steel consumption at 113 million tonnes by 2016-17 was made to commensurate with a GDP growth of 9 per cent. With less than 6 per cent growth in the first year, achieving an average 8 per cent growth in the 5- year period would necessitate more than 9 per cent growth in one or two years. For 2013-14, the second year of 12th plan, the GDP has been projected around 7-7.5 per cent subject to implementation of a few more reform measures.
The Planning Commission has drawn up a Scenario-2, which has envisaged a GDP growth of 6-6.5 per cent in 12th plan with insufficient reforms. Steel industry?s growth is intricably linked with GDP growth, which in turn would be determined by fixed investment growth with a higher degree of private participation, expansion of the manufacturing sector and also by a stable agricultural growth to provide an enabling environment to sustain the growth perspective in Indian economy. Let us not make Scenario-2 a reality.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
