"….. As far as the Indian steel industry is concerned, it has extracted some useful mileage from the upsurge in demand for steel within China. With a steadily growing domestic market and a thriving export market in the neighbouring region where India has a locational advantage and hence a competitive edge over other suppliers - Indian steel industry is in a highly positive frame of mind …. "

The impressive performance of the Indian economy in the second quarter of FY2003-04 and a discernible upturn in the global economy - together should bolster the hopes of a fairly enduring revival all around. According to the latest estimates of the Central Statistical Organization (CSO), the economy has grown at the clipping rate of 8.4 per cent in the second quarter of the current fiscal. The sectors clocking the fastest growth rates have been - Agriculture, Forestry & Fishing at 7.4 percent, Manufacturing at 7.3 per cent, Trade, Hotels, Transport and Communication at 11.9 per cent and Financing, Insurance, Real Estate and Business Services at 8.9 per cent. The sharp recovery in the Agricultural Sector, albeit on a negative base rate of growth, holds the promise for setting in motion a multiplier effect by generating additional demand for industrial goods and other services. In general, there is a lot of excitement in the economy on the prospects of India reaching a point of economic take off and possibly entering a virtuous cycle of growth in all economic spheres.

As far as the international trade scene is concerned, Indian exports have held their own, even as the world economy experienced one of the worst periods of sluggish growth in the major economic powers. After a fall in October, exports picked up substantially and grew at the rate of 13.7 per cent in November 2003. Cumulative exports between April - November 2003 grew by 8.8 per cent. Imports, on the other hand, have grown by 21.9 per cent between April - November 2003 compared to the corresponding period last fiscal. More importantly, this growth came on the back of an increase in non-oil imports - a definite indicator of industrial recovery in place. Non-oil imports have grown by 28.4 per cent in the same period. Within the non-oil imports the two categories to register the highest growth rates are import of Machinery except Electrical and Electronics (growing at the rate of 34.3%) and of Electrical Machinery except Electronics (growing at the rate of 27.8%). This observed pattern of import growth is symptomatic of industrial recovery based on capital investment - potentially the most significant trigger for generating and sustaining economic growth over a sufficiently long term. As a matter of fact, these trends of a pick up in industrial and investment related activities have been further corroborated by a rise in non-food lending by commercial banks. The slow growth in non-food credit off-take seen in the initial months of this fiscal seems to have been reversed in the recent weeks. Another source of possible growth will be the stronger than anticipated recovery in agricultural output during Q3 and Q4 of the current fiscal. The good showing by the agricultural sector would mean not only increased demand from the rural households, it will also mean adequate availability of wage goods and industrial raw materials without any pressure on prices. This along with the recession induced restructuring and right sizing of the industrial sector, would make industrial operations more cost efficient and improve the profitability of such activities.

The upbeat mood of the various economic agents has been captured in the unprecedented buoyancy in the capital market. The BSE Sensex registered a growth of 70 per cent in 2003 alone and breached the 6000 mark in January 2004. Moreover, the buoyancy in the secondary markets is soon going to be supported by a number IPOs in the private, the joint and the public sectors. This may, at the least, help industrial investments emerge out of the stagnancy of the past several years. As far as government finances are concerned, there is an improvement in the revenue receipts of the Central Government during the first eight months of the fiscal as a result of a substantial growth in tax revenue. Another good news is that the disinvestments proceeds this fiscal is expected to exceed the budgeted amount of Rs. 13,200 crore due to the forthcoming IPO's of ONGC and GAIL. In spite of these favourable developments, the fiscal conditions are far from satisfactory, especially when state level deficits are also taken into account.

The favourable domestic developments have fortunately been supported by the start of what appears to be a recovery in a few of the traditional economic powerhouses in the developed world. First and foremost, the US economy trotted up a respectable 3.6 per cent growth in Q3 of 2003 after similar performance in the last two quarters. Most importantly, Japan seems to have shaken off its decade long economic torpor and posited a 2.3 per cent growth in the same period. Europe, however, lagged behind its peers in the developed world. It is widely feared that the strong Euro vis-à-vis the US Dollar may make matters even worse in the short run. The Euro has now reached 1.25 against one Dollar and it is expected that the European Central Bank (ECB) will intervene actively to negate a further appreciation beyond Euro 1.20-130 per dollar. In spite of these troublesome developments, there have sporadic improvement in the performances of some of the member economies. However, the continuing sluggishness of the German economy causes concern. It is a matter of great pride to all economies in the Southern Hemisphere that the recent spurt in global economic activity has its epicenter at Asia and more particularly in China and some of its South East Asian neighbours. The Indian economy as part of the comity of Asian nations must utilize the opportunities arising out of the current developments.

As far as the Indian steel industry is concerned, it has extracted some useful mileage from the upsurge in demand for steel within China. With a steadily growing domestic market and a thriving export market in the neighbouring region where India has a locational advantage and hence a competitive edge over other suppliers - Indian steel industry is in a highly positive frame of mind. The rationalization exercises undertaken when the going was tough are yielding rich dividends now in terms of improved productivity of men and materials. In these hopeful times, TISCO has announced its intentions to go up to a total capacity of 15 million tonnes in the course of the next decade and a half. Similarly, SAIL has announced a plan of producing 22 million tonnes along a similar timeline. The problem is that there is already a significant scarcity of the steel makers' raw materials. With further expansion in the Chinese capacity the pressures on prices and availability of input materials will increase manifold unless appropriate steps are taken to augment supplies. For iron ore this may need additional investment in the mining and transportation sector within India. However, dearth of domestic coking coal calls for some innovative trading and exchange arrangements, probably at the bi-lateral and plurilateral levels. All of these will need strengthening and alteration of the policy framework to support the burgeoning steel and other commodity production. It is hoped that such endeavours will be made at the earliest else we may miss the big opportunity of crossing 100 million tonnes of production and consumption within the next decade.

( J P Singh Joint Secretary, Ministry of Steel & Chairman, JPC)
(This is excerpted from JPC Bulletin Nov'03)