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Dear Readers,

Steel Industry: India is now the world’s second largest steel producer after China. It was the third largest steel producer in 2017. Steel production was 101.4 million tonnes in 2017 compared to 95.5 million tonnes in 2016. The Government aims to increase the production to 300 million tonnes by 2030-2031. Steel consumption is rising at least 5.5% to 6.6% every year, backed by rising demand in infrastructure, automobile and other sectors.

Historically, the steel industry has been passing through cycles of recession and boom. It had its woes due to heavy imports from China and other countries. China’s capacity is over 1000 million tonnes and its production is almost 950 million tonnes. Despite abundance of coal and iron ore, the steel industry in

India has been incurring heavy losses. The government’s policies have impacted the industry from time to time. The industry was bleeding from 1993 to 2003. There-after, the industry recovered and was well from 2004 to 2010. Capacity expansion was undertaken by investing large amounts of equity and debt. The industry again started bleeding from 2011 to 2016 on increase of cheap import of Chinese steel.

Several big, large, medium and small steel industrial assets have become stressed. Many have closed down. Cancellations of mines of coal and iron ores have also affected many units. Large units like Bhushan Steel, Essar Steel, Electrosteel, Monnet Ispat, Jaiswal Neco, Visa Steel and many more were pushed towards insolvency process. Bhushan Steel and Electrosteel have been taken over by TISCO and Vedanta, respectively, wherein banks and lenders had to take a beating of 30 to 40%. The steel sector has started reviving after fixing minimum tariff import prices on large number of items and thereafter imposing dumping duties between August and October 2016. Some large units are now backing in the black. SAIL recorded a loss of Rs. 4851 crore before extraordinary adjustment in 2016-17, while it logged profit of Rs. 816 crore in the quarter ending March 2018.

Overall, the steel Industry is heavily debt-burdened. They have been facing a tough time, with rising raw material cost, power cost, environment issue, global competition and a slowing demand due to poor status of infrastructure, real estate and auto sectors.

The target of achieving a steel production capacity of 300 million tonnes by 2030-31 looks daunting. The present production capacity is at about 95 million tonnes, and there is no sign of any major pick-up in demand for the steel industry. TISCO is planning to raise its installed capacity to 30 million tonnes by 2025 from the existing 18.5 million tonnes. But scaling up at this point on the basis of the government’s target makes little sense and can only make life difficult for both borrowers and lenders. The question of diversion of funds can also come up and promoters would be blamed. Apart from SAIL, several private steel producers have incurred heavy losses due to the high cost of servicing debts, tough competition from China and high cost of raw materials.

There is no level playing field when it comes to competing with Chinese players. Chinese producers get huge incentives and subsidies, to the tune of 13-16 % of production cost. China’s production is almost 52% of the total world production. Even the rate of interest charged in India is very high compared to China. The industry is finding it difficult to service debts.

In FY18, the domestic steel consumption stood at 91 million tonnes and the consumption of steel is increasing at 6%-9% every year. If this pace of consumption is maintained, in 10-11 years total steel consumption would be around 200 million tonnes. Thus, targeting a production capacity of 300 million tonnes over a 10-11 year horizon may result in gross over-capacity. With global economy not picking up, there is very little likelihood of a robust market for steel export. At present only 2% of auto quality steel is being exported to USA. In addition, with the onset of the global trade war, developed economies are becoming increasingly protectionist. The US has imposed restrictions on imports of aluminum and other metals from India. Therefore, over-capacity in steel will once again result in stressed assets. The government should, therefore, revise its target of installed capacity of steel production commensurate with the demand; otherwise there will be stressed assets and NPAs. It is already happening in the power sector due to mushrooming growth of solar and wind power units. Thermal power is affected by shortage of supply of coal and environmental issues. There is a more than Rs. 5 lakh crore worth of stressed assets in the power sector. In the telecom sector there are stressed assets of about Rs. 8 lakh crore. Other than Jio, almost all service providers are bleeding.

Steel import is a major threat to industry. Import of finished steel increased 17% in October 2018 against a fall of 23.4% in export. Domestic demand of steel has touched 91 million tonnes while production was around 105 million tonnes in FY18. Falling prices due to excess capacity in China is a matter of concern to the steel industry in India.

There are many sectors where excess production capacity is created, but are not fully utilised. The assets of the nation are being wasted. Just to paint a good picture for the sake of employment and all, the national assets should not be wasted. Let the investments flow to the productive areas, to the agricultural sector, no need to ask the source of investment. We have to follow the practice of Japan, Germany and many countries had done after the Second World War.

Indian Economy: United Nation’s report says that India will continue to remain the world’s fastest-growing economy in 2019 as well as in 2020. It will be ahead of China in terms of GDP growth. GDP growth is expected to accelerate to 7.6% in 2019–20 from an estimated 7.4% in the current fiscal ending March 2019, whereas China’s GDP growth is estimated at 6.3%. Global growth is estimated at 3%. Global trade tension has its impact on growth. Global crude oil prices are expected to soften going forward. The Prime Minister’s Advisory Panel expects India’s annual economic growth to be in the range of 7% to 7.5% over the next few years. Growth rate can easily be increased by 1% by addressing structural problems through reforms.

RBI Governor Shaktikanta Das has suggested various measures to ease out liquidity situation in the system and to reduce high cost of credit in the light of consistently falling inflation. These are practical steps.

Stressed assets: Since the two years of implementation of the Insolvency and Bankruptcy Code, 52% of the cases ended up in liquidation. What a massive wastage of the nation’s assets! Except the land value, other assets would hardly fetch 10-20% of replacement values. Promoters should be allowed to bid. The Ruias have offered Rs. 54,389 crore against the Mittal’s Rs. 42,000 crore for Essar Steel. NCLT has rejected Ruia’s application. Lenders would be denied benefit of Rs. 12,389 crore additional amounts.

Stock market: These are uncertain times for the stock market. The global economy is stumbling but not falling over. The Indian economy is currently the world’s fastest growing major economy, but that growth is not translating into generation of enough new jobs and not resulting in capital investments towards capacity addition. Indian stocks are also falling due to a number of factors. Investors are losing their confidence; retail investors have lost a lot of money. Rules and regulations are being tightened. Corporate profitability has dipped.  Internal accrual of most of the companies is very low. High tax rate, income-tax rate, other surcharges leave less money in the hands of the investors for reinvestment. They are depending on debts. There will be volatility because of the elections, but the long term scenario appears to be robust. Investors are pulling money out of equities.

Agriculture/Farmer: Agricultural distress has taken a toll on small farmers. MSP price has not helped. Procurement at this MSP is hardly 30%. Farmers have become victims of drought, flood, insects, pests, un-remunerative market prices and so on. Direct remittance to the farmers will not help. The money in their hands get used up for events like wedding, shradh ceremony, or get spent on healthcare or even for vices like gambling and drinking. It is unfortunate that even after 71 years of Independence; our farmers remain vulnerable to natural calamities like floods and drought. We need to invest more on irrigation, create ponds, encourage rainwater harvesting and facilitate the farmers by building modern granaries and cold-storage facilities and also improve the transportation infrastructure to provide easy connectivity to the markets. These would provide the necessary fillip to agro-processing industries, cattle farming and whole lot of allied activities for alternative sources of income and new livelihood and entrepreneurship opportunities for our farmers, as suggested by Mahatma Gandhi Bapuji and also by Dr. Abdul Kalam, former President of India in his book ‘India: Vision 2020’. All Bharatwasis must be ready to make the necessary sacrifice to make this happen for the sake of the survival of their rural brothers and sisters as they are Annadata to all.

Bharatwasis will learn to increase capacity based on domestic and global demand to have maximum utilisation of scarce capital of Bharat and global borrowed capital to save Bharat from external debt trap and save good assets which are becoming stressed assets. Bharatwasis should refrain from making popular regulations to chain the good people from working with conscious integrity. Few bad people will find ways to overcome regulations. Fear psychosis should not restrain anyone from working for the welfare of Bharat.

Awakening

Awake, Divine people, Awake.

He who keeps awake is blessed by the Lord.

He alone is befriended by the Divine forces who keeps vigilant.

In all his noble deeds God assures him success.

God helps only those who work hard with vigour and courage.

Worthy of the Lord's association are not those who are lethargic and sleepy.

None ever comes to the aid of one who is morbid and fatalistic.

The Lord defend and favours.

Only those who work hard.

And work for a benevolent cause.

Those who perform benevolent works.

Become brave and strong.

And their minds and bodies.

Become free from sin and disease.

God helps them to conquer their adversaries.

Like an angry lion.

Driving away a herd of elephants.

Awake the spirit of generosity.

Be not miser in giving charity.

By Dr. H.P. Kanoria

— Based on the Holy Vedas