India, a bright spot in the midst of bleak global outlook

With strong growth and rising real income, there is a perceptible change sweeping across India, while the global outlook has weakened further over the last six months exacerbated by China’s relative slowdown, lower commodity prices and the prospect of financial tightening for many countries. India’s manufacturing rose to 8-month high in March and the core sector also surged to a 15th month high of 5.7% in February 2016, further suggesting the growth story is real and kicking.

This new phase in India’s industrial progress can only be sustained by driving the infrastructure sector which is the cornerstone of the economy. Well realizing the inadequacy of infrastructure  which stunted India’s economic progress in the last several decades, the government has made concerted efforts to shore up this sector as it has a definitive grip  towards turning the economy around.

The PM’s pet programme  Make-in-India, proposed 100 smart cities, improvement in port connectivity, housing for all by 2022, improving basic rail infrastructure and the construction of four rail line projects in three states apart from the high speed trains and industrial freight corridors, will open new avenues for the Indian steel sector. 

The expected rise in steel demand will in turn create demand for steelmaking raw materials like iron ore, coking coal and ferro alloys.  However, ensuring raw material availability, energy security and reduction in costs will pose stiff challenges for the industry. The steel sector has to pitch in for innovative technological solutions to these challenges to be competitive and cost effective.

India has abundant iron ore reserves but the technology for mining high grade ore is lacking which cannot sustain the development of the steel sector. This problem can largely be overcome through the pelletisation route. 

Ferro alloys is another important raw material in steelmaking. It is a power-intensive industry and high tariffs and customs duty on raw materials like manganese ore hinder its growth. Both the inputs must be made available at competitive rates.

The current woes and challenges of the steel industry on account of cheap imports at predatory prices are not going to vanish overnight. In fact, the huge surplus capacities in China, comprising almost 20% of total world capacities and the large export capacities in Japan and South Korea, will remain a major threat for years to come unless we build up domestic capabilities to service the rising domestic demand at quality and cost levels which give adequate comfort to the economics of sectors like manufacturing, infrastructure and construction, power, housing, and even exports. 

The Centre must provide relief and support, both physical and financial, to the steel industry for its immediate concerns. This has to primarily come in the form of Trade Remedial Measures and Special Financial Package that focusses on debt structuring, etc.

The government’s far-reaching reforms, ease of doing business initiative and RBI slashing  rates and easing liquidity in its monetary policy review are the quintessential inputs for the country to emerge as an economically developed nation in the near future and the steel and iron ore sectors will be the critical catalysts in this growing and vibrant economy.