The Indian economy is passing through a phase of slowdown. Steel prices are falling and the government’s fiscal deficit is expected to rise. The national Budget is expected to announce many areas where public investment will be high. The corporate sector will also be benefited when public investment will rise. There are possibilities of increasing the Public Private Partnership (PPP) mode of investment in sectors like railways, roadways and other infrastructure projects. There is also a possibility of increasing FDI in infrastructure.
In all these sectors, steel is used extensively. Therefore, the demand for steel will increase. If the government increases its expenditure in infrastructure, it will pave the way for crowding in of private sector investment in the economy. Recently, the Indian government has announced its plan to invest more than 100 lakh crore in the coming few years. In this plan, both the private sector and state governments will have shares of the expenditure. In FY 18-19, the government has invested 6% of its GDP in infrastructure.
Some of the big projects like Sagarmala, Bharatmala and coastal shipment development are in focus for the central government. In all these projects, the requirement of steel will be huge. Another important project has been the Housing for All. Millions of houses will be constructed in rural and urban areas. This will also boost the demand for steel.
In the last few years, state expenditure on infrastructure has been on the rise. This is due to the bigger revenue share of the state. This has been a result of the implementation of the last Finance Commission’s recommendations. Spending on infrastructure has been higher. One can consider Ujjwala Yojna of the central government. Cooking gas connectivity has been expanded to remote areas. This has also increased the demand for steel. There are some other programmes that include the supply of piped water to all households. But there is a problem. The tendency of using PVC pipes is rising and that is not user-friendly. Use of iron pipe lines needs to be encouraged. At the same time, construction of water tanks is also taking place where the requirement of steel is quite high.
There are also several challenges. The Indian economy has been slowing down. Therefore financing of all infrastructure projects may remain incomplete. The target of the FRBM Act for fiscal deficit cannot not be maintained if the government
has to develop infrastructure at the desired level. The government may need to issue financial bonds for this purpose. One can think of the Chinese experience in this regard. Most of the states of China also issued bonds for their own infrastructure development. At present, China has achieved a remarkable infrastructure base.
It is not easy for the industry to go for more green field projects. There are problems in acquiring new land, having environmental clearances and ensuring rehabilitation of the people in proposed site of the project. Therefore, the need is to focus more on brown field projects. In almost all the existing steel producing plants, large portions of unused land is available for enhancing capacity. These steel manufacturing units can also earn additional revenue by selling their excess thermal power from their own captive power plants.
Steel is used mostly used in infrastructure, real estate, and housing. Rail, road and telecommunication are also steel intensive. About 22% of steel in India goes to the engineering industry including consumer durables. In this situation, Indian steel producers should concentrate more in producing Light Gauge Steel Frame which can be used in many consumer durable items. Now a considerable portion of it is being made by PVC or plastic items. Another fact is that we import engineering goods made by steel to a large extent (around six to seven million tonne per year). These are mainly assembled here. If the required steel is available in India, these would be made by Indian capital goods producers. Lastly, our rural demand has been rising. It has now been increased to 28 kg per capita. There is a huge scope in enhancing steel consumption in rural areas and that should be encouraged.
As told to BE’s Kishore Kumar Biswas by Susim Banerjee, DG, Institute of Tseel Development and Growth.