"The upswing in the Indian steel industry appears to be gathering pace and continuing well into the current year. Expectations of further good showing by this industry have been reflected in the recent upward rally seen in the stock markets."
The upswing in the Indian steel industry appears to be gathering pace and continuing well into the current year. Expectations of further good showing by this industry have been reflected in the recent upward rally seen in the stock markets. The resurgent steel stocks, including those of the public sector giant - SAIL, have led the current upward rally in the Indian Bourses. Between January and August 2003 the stocks of SAIL appreciated 63 per cent while the rate of appreciation has been 54 per cent for the shares of Tata Steel. These developments are in deed the measure of the confidence level that the economy has in the future of this industry.
Growth in the steel industry continues to be led by exports. However, unlike the last big surge in overseas sales, the destination of Indian exports this time round is not the USA but the growing Chinese steel markets nearer home in Asia. The proximity of the market has its own benefits in terms of low freight and hence of improved margins for the Indian exporters. India continues to enjoy the special status as a developing country and has been inured from the Safeguard actions put in place by that country. But the warning signs of possible extension of the trade action against India have appeared in the recent weeks as Indian supplies to China crossed the safe limit of three per cent of total Chinese imports. The point of worry is that even though the warnings have come for colour-coated steel and galvanised steel, imposition of the safeguard limits may hurt all other product categories being exported to China. The industry leaders have pointed out that the good point about the Chinese export bonanza has been its coverage of almost all product categories - from non-flats to flat products. This underlying worry apart, it goes to the credit of the Indian steel business that it has been able to exploit the opportunities offered by a resurgent Asia.
On the export front, the other good news is one of gathering forces of recovery in the USA and Japan. According to the latest statistics Japan's economy, long plagued by deflation and negative growth, has expanded for a sixth straight quarter. It is also reported that the Japanese economy has been surprisingly strong in the April- June quarter, helped by a rise in business investment and in consumer spending. This suggests that the recovery this time may have started on a firmer footing after the economy has rationalised and restructured itself. As has been our experience in the past, the state of the Japanese economy has a telling impact on the South East Asian economies because of the high level of interdependence amongst them. It may not be overly optimistic to predict a further strengthening of the Asian recovery on the back of a growing Japan and bullish China.
In the Northern Hemisphere India's largest trading partner, namely the USA, has also shown signs of coming out of the gloom and doom scenario of the last two years. Analysts have forecast a near-term pick up for the American economy and expect the faster pace to continue into the next year. According to the latest poll conducted by the closely watched newsletter the Blue Chip Economic Indicators, the US economy is slated to grow by 3.7 per cent in the Third Quarter. This latest estimate surpasses the earlier prediction of 3.5 per cent and is a full percentage point higher than the actual observed growth rate of 3.1 per cent in the Second Quarter. The survey also observes that `expectations remain high that the US economy is finally poised to post sustainable real GDP growth at or above its trend rate of 3.5 per cent'. These forecasts have also been largely corroborated by the average predictions in the Economists poll of forecasters. This is welcome news for the world economy blighted by the synchronized slowdown post 9/11. The story is different for EU, the other economic super power. Growth in that area remains sluggish with Germany its largest economy showing scant sign of revival in the immediate future. The other dark spot in the world economy has been the downswing witnessed in the leading Latin American economies. Brazil's economy sank deeper into recession with its GDP falling by 1.6 per cent during the second quarter.
Notwithstanding the diverse economic performance of the different regions across the globe, the globally integrated Indian economy should try and exploit the opportunities arising in the neighbouring Asia. The Indian steel industry, in fact, stands to gain from an upsurge in industrial production in the structurally steel-deficient Asian economies. With industrial production growing currently by 16.5 per cent in China, 18.4 per cent in Indonesia, 8.6 per cent in Malaysia and 10.3 per cent in Thailand Indian exports of steel to this region should get a fillip. Keeping the exigencies of multilateral global trade in view, however, it may be advisable for the Indian steel industry to diversify its destination markets. In fact, this is exactly what the industry seeks to do when it sends its exports to the Middle East and Africa. We hope that the Indian steel fraternity will sustain its export efforts with strategies based on circumspection and foresight.
At home the economic situation is getting better each passing quarter. Almost halfway into 2003-04, the Indian economy has shown early signs of revival. Thanks to the good monsoon this fiscal, it is expected that the drought ravaged Indian Agriculture will manage to tote up a good growth rate. It is also expected that with the shadow of a negative growth rate put behind, a resurgent agriculture sector may take the lead in setting the tone and sustaining the nascent forces of economic upswing see n in the first few months of the current fiscal. Based on the quantum and distribution if rainfall in the current fiscal, the CMIE has projected a 7.6 per cent growth in agriculture this fiscal i.e., FY2003?04. This portends well for the Indian economy as a whole. Because industrial activities continue to be determined at the margin by the level of income generated in primary activities. This in spite of some weakening in the relationship between the two sectors noticed in the recent years. According to the September Bulletin of the CSO, recovery in the industrial sector has been reasonably broad based. The CSO survey estimates that 13 out of the 17 two-digit industry groups have shown positive growth year-on-year in July 2003. The highest growth of 25.1 per cent came in `Transport Equipment & Parts' followed by 21.6 per cent in wool, silk and man-made fibres and 16.2 per cent in basic metal and alloy industries. It is worth noting that two of the three high growth sectors represent metal and metal-intensive products. This observed trend probably heralds the return of the brick-and-mortar commodity sectors as driving the process of economic growth.
Available data also suggest that the current upsurge has been largely consumption-led. If the upturn in the domestic economy continues unhindered into the next few months and the world economy consolidates the gains made in the recent weeks, we may very well expect a rise in investment rate in the next year with all the associated expansionary effect on effective demand. As a matter of fact, there has been a distinct increase in the investment intentions of corporate India as measured by the rising number of Industrial Entrepreneur Memorandum (IEM) filed in the last few months of the FY2002-03. According to some estimates the proposed investment based on IEMs fell by a hefty 44 per cent in 2000 from a record high of Rs.l,28,892 crore in 1999 to 13s.72, 332 crore in 2000 and rose by 26 per cent again in 2002. We hope these intentions are translated into actual investments. As the domestic demand for steel has been found to deoend crucially on the performance of its industrial economy and the rate of domestic capital formation, the direction of growth will appear to be beneficial to this core industry.In this backdrop of gathering optimism, the RBI has been cautiously optimistic in its prognostications about the Indian Economy in the immediate short run. The bank projects GDP to grow by about 6 percent in FY2003-04 assuming rainfall to be arround 96 per cent of the long term average. It puts the inflation outlook at arounf 5 per cent - 5.5 per cent, assuming a higher base level of crisisat end-March 2003,a decline in oil prices and favourable expectation of the Monsoon. Non-food credit is expected to grow by 15 per cent to 16 per cent. The optimism of the Bank regarding India's prospects in the short-run finds has been echoed by the International Monetary Fund (IMF). The Fund has recently said that it expects India to grow at about 5.4 per cent this fiscal and to do even better at 5.9 per cent growth in the next year. This would make India one of the leading performers in Asia.
All this is good news for the globalised Indian economy and its growing steel business. May be the world will leave synchronized slowdown behind and embark on course to a synchronized revival
( J P Singh Joint Secretary, Ministry of Steel & Chairman, JPC)
(This is excerpted from JPC Bulletin Aug03)
