After the presentation of Rail Budget and Economic Survey followed by Union Budget for 2003-04, the emerging impact on the economy in general and industry in particular has engaged our attention. The economy is shaping well in the midst of indifferent signals available on the global scene. The negative growth in agricultural production has reflected a likely 4.4 percent GDP growth in 2002-03 (unless revised at the completion of the year) as compared to 5.6 percent in the previous year. Marginal relief has been provided in rail freight, peak customs duty at 30 percent has been reduced by 5 percent with no change in the duty rates on inputs barring that on Metallurgical coke which would enhance the cost of pig iron production.

After the presentation of Rail Budget and Economic Survey followed by Union Budget for 2003-04, the emerging impact on the economy in general and industry in particular has engaged our attention. The economy is shaping well in the midst of indifferent signals available on the global scene. The negative growth in agricultural production has reflected a likely 4.4 percent GDP growth in 2002-03 (unless revised at the completion of the year) as compared to 5.6 percent in the previous year. Marginal relief has been provided in rail freight, peak customs duty at 30 percent has been reduced by 5 percent with no change in the duty rates on inputs barring that on Metallurgical coke which would enhance the cost of pig iron production.

On an overall analysis the direct impact on steel industry through fiscal route (budgetory measures) is minimal. The 5 percent cut in customs duty was expected and improving the production cost through large scale cut in duty on inputs would have opened the flood gates of definitional cobwebs of final goods, intermediates and raw materials. Under the current market scenario Indian steel industry should rather look for higher plan investment in various end-using segments. The Budget prononcements in this regard are not very encouraging. The physical aspects of investment scene in various sectors are to be considered along with the development of a favourable policy perspective. First, the absolute numbers provide a fairly good indication of what can be expected of central plan outlays in 2003-04. A few sectors have been picked up where capital expenditures for asset creation generate demand for steel. These are the segments which has higher steel intensity in expenditure and therefore the pattern of outlays has a direct bearing on demand for steel.

Proposed plan outlays in steel-intensive segments in 2003-04

Sector	Expected plan outlays in 2003-04 based on growth rates in 2002-03(BE) over 2001-02 (RE): Rs.Crores	Proposed plan outlays in 2003-04(BE) :Rs.Crores	% growth
Energy	41000	43379	5.8
Irrigation/flood control	600	443	(-) 26.2
Railways	12400	11983	(-) 3.4
Other Transport	22000	16800	(-) 23.6
Rural Development (incld.Rural Housing)	7600	6471	(-) 14.9
Water Supply & Sanitation	2600	2750	5.8
Industry & Minerals	9000	7590	(-) 15.7
Urban Development	1915	2163	13.0
Housing	5200	5408	4.0
Total of the above sectors	102315	96997	(-) 5.2

The figures in the second column above for 2003-04 were worked out on the basis of the growth rates observed in budgetary estimates for 2002-03 over the actuals in 2001-02. However it is seen that the total plan expenditures in the revised estimates for 2002-03 are only 0.5 percent higher than BE for 2002-03 and the proposed estimates for 2003-04, albeit 6 percent more than the RE for 2002-03, are less by more than 5 percent in the steel-intensive segments. If the likely inflation rate of 5 percent in 2003-04 is taken into account, there is no enhancement in plan outlays in real terms which would generate incremental demand for steel. The Budget has also mentioned a few area-specific investment like those in roadways,railways,airports,seaports etc. worth of Rs.60000 crores. But most of these projects would have a minimum 3 years'period of completion and are already a part of the above tabular exercise.

It is also necessary to remember that generally 60-63 percent of the plan outlays are earmarked for revenue expenditure leaving the balance 37-40 percent of the expenditures on capital account. Out of the total Rs.97000 crores of plan outlays, the capital expenditure of Rs.39000 crores can roughly be assumed to result in creating demand for steel. At the current average steel price this is likely to generate a demand for at least 26 million tonnes of steel. And if the cosequential generation of demand arising out of multiplier impact of investment( 20 percent in the minimum) is added, the projected consumption of 32 million tonnes of steel in 2003-04 may be a reality.The cause of concern remains about the higher component of plan expenditure diverted from capital account to revenue account. During 2002-03 the plan expenditure on revenue account has gone up by Rs.11000 crores, while the rise in capital account is only Rs.2000 crores.

Since the last one year the events in the international steel market has acted as a predominant demand driver in the domestic front. Thus production and capacity utilisation by the domestic producers are determined almost by an equivalent focus on the domestic and global tonnage. Indian steel exports may be touching 4 million tonnes in the current year. The finished steel component of exports being 90 percent, a finished steel production of nearly 33 million tonnes is envisaged in the current year. For 2003-04 the domestic consumption of 32-32.5 million tonnes may be combined with another 4 million tonnes of finished steel export.

Chinese demand which was sustaining world prices for the last 4 months have shown the first sign of softening in HR Coils. The drop in US import demand has so long been more than made up by the growing chinese requirements.In all likelihood the chinese quota (for HR,CR and Galvanised) to be announced in May'03 may be reworked upwards as domestic availability would still be lower than the growing demand. Since the major destination of Indian exports is China, any softening in demand there is likely to cause a flutter in the export outflow from India. Thus for each major steel producer in the country there would be a frequent interchangability in the domestic and export component based on price realisation. Currently for HR,CR and GP/GC the export realisation being higher than the domestic one, the demand-supply equilibrium has been achieved resulting in higher realisation for all the producers.It must be appreciated that export orders booked today are likely to be shipped in the next two months' time and therefore must be accounted for accordingly. If global prices register a decline in the interim period, it would affect demand-supply scenario in the next 4 months time.

Thus demand pull in the form of projected plan outlays in 2003-04 may be inadequate to sustain demand-supply matching in the domestic steel market in the event of a burst in chinese bubble. While it is unique in the domain of Indian steel scene that global strings are pulling shots in the domestic arena, the predominant role of plan outlays in promoting steel demand remains an area of utmost importance.

(These are the personal views of the author)