Needed: A Steely Resolve

The new National Democratic Alliance government is faced with some unique challenges emanating from the economy, the steel sector included.

- Sumit Maitra

After a turbulent period over 20152016, world steel industry recovered from 2017, supported largely by planned supply discipline steps taken by Chinese Government, resulting in closure of 150 million tons of old steel capacity and another 170 mt of alleged illegal induction furnaces. After two consecutive years of elevated steel production and profitability, things are back to the long term average trend.

While demand has turned subdued again and is expected to continue for sometimes, costs, in terms of higher raw material prices, continue to soar. Add to it there are increasing threats of cheaper imports or even dumping as global trade disputes play out.

Some of these challenges can be addressed to some extent through immediate policy interventions and for some challenges, long term policy decisions are needed.

With the new government settling only a few days back, clear signals are yet to come out about the directions that fresh economic policies might take.

“The election verdict has made India more predictable relative to rest of the emerging markets especially given the risks arising out of a prolonged US-China trade war. Broadly speaking, the relatively low expectations could set the stage for any potential upside surprise from economic stimulus and reforms. Such steps in the form of demand stimulus, tax compliance, labour and land reforms will have positive implications for private capex cycle where some green shoots are visible. Union Budget in July is likely to be the first event to watch to provide a direction to government’s new policies.

While the focus on infrastructure and social expenditure (farmer income support, pension) is already known, potential surprise can come from how government creates a demand stimulus or boost private capex cycle,” Rahul Singh Chief Investment Officer, Equities at Tata Mutual Fund says.