"According to the IISI, China's steel demand is expected to rise this year to surpass 285 million tonnes, up 22 per cent from 2002. The institute also estimates that it could rise an additional 13 per cent next year. The Europe stagnating and the USA economy showing weak signs of revival, the other notable growth centers are all in the Asian region."

The upswing in the performance of the Indian economy, first witnessed in the last fiscal, continues into the current year. According to the latest official data on macro indicators, the GDP growth rate in the first quarter of FY2003-04 has improved to 5.7 per cent from 5.3 per cent in the corresponding period recorded last year. Last year was a year of recovery from the stagnation resulting from a worldwide economic slow down and the troubled times in our own domestic economy caused by widespread drought. The fact that the economy has not only sustained the momentum but also managed to better the growth rate - is possibly the best news we have had so far this year. The improved performance of the GDP has been fuelled primarily by a substantial increase in the growth rate of the `manufacturing' sector - from 3.8 per cent in Q12002-03 to 6.4 per cent in Q1 this fiscal. The other sector experiencing considerable acceleration in growth is `trade, hotels, transport and communication', which grew at 9.6 per cent in Q1 this year compared to 6.9 per cent last year. All the other economic sectors logged positive growth rates but at a slower rate than the post-stagnation rates achieved last year. The steadily growing `manufacturing' sector should portend better times. The good news is that by all appearances the manufacturing sector's growth rate has started inching towards the double digit magic figure of 10 per cent considered essential for attaining the National target of a 8 percent economic growth. A resurgent manufacturing sector backed by rising agricultural income should also lead to greater capacity utilization and eventually to higher levels of investment and unleash the forces of sustainable economic growth.

Emboldened by the good performance of the economy in the current quarter along with the news of some revival in the world economy, leading economic forecasters have made significant upward revisions in their predictions of the state of the Indian economy at the end of this fiscal. With a more than expected improvement in all the contingent conditions i.e., adequate rainfall, satisfactory operations in the capital market, improvements in the fiscal situation and revival of the world economy, the NCAER in its most recent short-term projections has scaled up GDP growth rate for FY2003-04 to 6.6 per cent - 7 per cent up from 5.8 per cent - 6.0 per cent stated in June. On a similar vein, the RBI has also revised its earlier GDP projections upwards to 7 per cent - 7.5 per cent.

The most heartening trend observed in the recent rally has been the continuing improvement in the performance of the industrial sector along with strong performance of those service sector activities linked intimately to the real sector. Another good sign is the 28 per cent increase in non-oil imports, which is a lead indicator of expected increase in investment spending in the economy. Exports have also grown at a fairly reasonable rate of 9 per cent much below the targeted double-digit growth rate of 12 per cent and more but commendable nonetheless in view of the sluggish conditions in the global markets. The monetary lead indicators of economic recovery however have yet to show an adequate degree of improvement needed to support heightened real sector activities. For example, the off take non-food credit, bank credit to the commercial sector etc. have not grown in a manner to inspire confidence of a sustained longer-term recovery. According to many analysts the slow growth in money and credit may remain a factor clouding the prospects of a comprehensive economic recovery. On the other hand, some analysts feel that the pattern of financing economic activities in a globally integrated capital market may have changed somewhat from that observed earlier. According to the NCAER, the reason for the decline in the off take of non-food credit even as industrial activity improves, may be traced to the firms' increased access to low cost External Commercial Borrowing (ECB) and a larger pool of reserves and surplus available with the corporate sector. The developments on the international front have also not been unambiguously good. The improvements in the trade performance and a billowing foreign reserve balance have been accompanied by disturbing trends in the appreciating external value of the Rupee with the potential of destabilizing Indian exports and a sudden influx of short-term overseas funds. The RBI has tried to stem the inflow of funds by reducing rates of interest and thereby attempting to reduce the arbitrage advantage. Even though these inconsistent developments continue to cast a shadow on the improvements apparent in the short run, the nation seems to be in a highly optimistic mood if the stock market revival is a yardstick to go by.

The upturn in the general economy has had a positive effect on the Indian steel industry. Production has increased by about 7.3 per cent in September 2003 compared to the corresponding period last year. The steel price rise both in the domestic and the overseas markets, however, seems to be plateauing out. This month as in the previous months of this fiscal, the steel market seems to be driven primarily by exports. The picture, however, is likely to change as industrial production and hopefully industrial investment enters into a sustained phase of growth. The international market is still growing on the back of a rapidly growing steel demand in China. According to the IISI China's steel demand is expected to rise this year to surpass 285 million tonnes, up 22 per cent from 2002. The Institute also estimates that it could rise an additional 13 per cent next year. With Europe stagnating and the USA economy showing weak signs of revival, the other notable growth centres are all in the Asian region.

It is in this respect that the Indian steel producers may enter a period of high growth if the strategy of regional co-operation between South East Asia and India is pursued vigorously. The failure of the Cancun Summit has, in some ways, reduced the possibility of an increased market access of Indian industrial products into overseas markets. India has, however, in the course of the last decade discovered the benefits of a rules-based open economic system. The Indian steel industry has benefited hugely from its deregulation and liberalization in terms of not only market access but also efficiency enhancement, cost reduction and product diversification. Therefore, the recent attempts at regional co-operation and integrated markets as visualized in the FTA (Free Trade Arrangement) with Thailand may herald the beginning of a new era for the Indian industry, in general and the steel industry, in particular.



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