Budget 2013-14: How can govt influence demand for steel
Markets have to look up and the Government has to create conditions so that demand goes up.
Jindal Steel and Power (JSPL)
Markets have to look up and the Government has to create conditions so that demand goes up. Some of the measures that need to be taken for this in the Budget are:
- Demand for steel needs to be stimulated. It has slowed due to less infrastructure spend. Even future capacity expansion has been affected due to slowdown in mining activities in states like Karnataka, Goa and parts of Odisha. Other impediments include difficult to get environment and forest clearances as well as acquisition of land for large projects. The Government has to give enough stimulus to enable the steel sector to grow.
- Increase Infrastructure Spend: Infrastructure spend has to be increased to 8-10 percent and it should be more than $100 billion.
- Administrative Simplification: Introduce a Direct Tax Code and a common Goods and Services Tax (GST) to simplify the tax regime.
- No dumping should be allowed in steel in India. The main challenge is China. They produce 750 million tones of steel and can easily dump it in India. If that happens, then the baby will die in its cradle. The domestic steel capacity has to be protected and we project that from under 100 MTPA, it will rise to 130 MTPA by 2018. This will make India the second largest steel maker in the world from its current fourth position.
- The Government must recognize the contribution made by the private sector in the growth of the economy, especially in the power sector where the maximum capacity is from the power sector. However, there are lots of discrepancies in rules made for the private sector vis-à-vis the government sector. For instance, for land acquisition the private sector has to get affirmation from 80 percent of the land owners as against 60 percent by government companies and 70 percent by PPP joint ventures.
- Interest rates need to be brought down. At 12 percent, the cost of borrowing is too high. Futher 18-19 percent IRR is not easy given the competition. If the Government reduces the interest rates, the IRR expectation will also come down. Further, vehicles need to be created for commercial borrowing. The private sector must be encouraged to participate and funding needs to be done for 25 years instead of the 5-10 years restriction now.
- Invite foreign companies to invest in pension funds. This will provide a big stimulus to funding as the government cannot meet all its financial needs.
- The Government needs to make a choice between inflation management and growth management. Growth is a priority, hence measures must be announced in taking the economy forward.
- Disinvestment of government holdings in public sector units must be hastened.
- The growth in the power sector has slowed down in the last few years and measures need to be initiated to arrest the slide. The gap between demand and supply is set to widen, hence measures to stimulate growth need to be taken, like:
a) Resolve the fuel issue by auctioning coal mines in a transparent manner. The private sector must be encouraged to get into the mining sector.
b) Forest and environment clearances need to be given faster for hydro projects.
c) There should be liberal funding for the private sector. The 30 percent equity is unrealistic and should be brought down to 10 percent.
d) Initiate Distribution Reforms: The State Electricity Board (SEB) Reform Bill must be cleared by the Parliament soon. This will help them buy power and focus on generation shedding rather than load shedding.
- The Government needs to take steps to ensure balanced growth. For example, while some states like Gujarat and Chhattisgarh have surplus power, Andhra Pradesh and Tamil Nadu are deficient in power.
- Cost of power in various cities needs to be brought down as it is prohibitive for the growth of the sector.
- The Government must empathise with the issues facing power producers. A flexible approach needs to be taken to keep the sector running.