Entering in the penultimate year before the general elections in 2014 aspirations are soaring high about an imminent policy push by the government to kindle growth and demand in economy.
Even the year is expected to end on a dour note with GDP hovering around 5.5%.However analyst has forecast growth of nearly 6.5%in 2013 backed by rekindled activity in economy.Infrastructure is touted as the ticking keg powders which can single handedly turn the tide of economy.Planned expenditure of USD 1 trillion in 12 FYP has aroused hopes of runaway growth acceleration.
Steel being a key component in infrastructure buildup will certainly see revival in demand to the tune of 1.1 time of incremental growth in GDP as thumb rule.
One of the major roadblocks on the economic highway is the tight credit policy followed by the RBI to rein in inflation.Off late RBI has been repeatedly disappointing the market with roll over in lending rates even though half measures like open market operations and reduction in Cash Reserve Ratio(CRR)has done little to spruce up the market.
Off late though analyst have been bidding for credit loosening in Q4 and bulk of 2013-14 with inflation tamed in at below 7%.Domestic steel industry in India is saddled with over capacity and stiffening competition from imports under FTA.Remarkably the flat steel market has remained unmoved for the last 2 years with domestic mills swinging to the vagaries of exchange rate and import threat rather than to the core demand ruling the roost in developing economy.
Steel consumption growing by a meager 4.2%(April-Nov)over last year and the figure even more abysmal at 3.7%for non-alloy steel panacea was never more desirable.In the eventuality of domestic steel demand not growing as expected in the medium to long term,steel producers would have to focus on exports to maintain their operating rates at profitable levels a challenging proposition given the current slowdown in the developed world.
An over-capacity situation in China would certainly dent India's drive to ramp up exports.With drastic cuts in production by European steel makers,the EU region hardly is a destination worth pursuing while other parts of the world are too competitive.
In the backdrop emerging global challenges governments'infrastructure push supported by liberal credit policy seems to be the only vent for the domestic mills.Fast tracking of key infrastructure projects and increased efficiency in execution holds the key to a turnaround.
