Private sector investment slows to a crawl

THE investment cycle isn’t turning just yet with the private sector in no hurry to add capacity, data from Centre for Monitoring Indian Economy (CMIE) for the three months to June show. The value of new projects in Q1FY17 at an anaemic R1.3 lakh crore was lower 60% sequentially, falling below the average of R2 lakh crore recorded in FY16 and at a fourth of the average between FY06 and FY11.

Moreover, the value of stalled projects at R11.2 lakh crore remained near an all-time high, with three-fourths of these promoted by the private sector. Projects have been stuck either because regulatory clearances haven’t come through or because inputs are in short supply.

Further, most promoters are also not able to cobble together the necessary funds to put up a venture and even those that can aren’t sure they want to add capacity at a time when the outlook for demand is hazy.

Loan growth in the last three months or so has remained subdued at around 9-10% year-on-year and bankers confirm there are few takers for project finance. Most high-frequency indicators suggest the economy remains sluggish. An index of eight core sectors that make up 38% of the Index of Industrial Production rose just 2.8% in May compared with 4.4% last year. Auto manufacturers clocked in smaller volumes of medium and heavy commercial vehicles in June, a fall of 4%.

THE minimum import price (MIP) for steel imposed in February for six months could be extended by another six months from August 31, the current date of expiry.

Heeding the demand of primary steelmakers, the steel ministry has already recommended to the Prime Minister’s Office (PMO) extension of the MIP, sources said.

India had imposed the tariff measure on 173 products to rein in cheaper imports from China, Japan and Korea among others in the range of $341-$752 per tonne. “I think that it should be extended,” steel secretary Aruna Sundararajan told FE, echoing the voice of the industry which believes that had MIP not been imposed, the steel industry’s survival would have been at stake.

Tata Steel managing director TV Narendran also said MIP should “certainly” continue in India, particularly since the international market for steel is passing through a turmoil. “MIP does stop people from selling steel in India at a loss. Before MIP, most of the companies were selling steel in India at a loss, never at a competitive price,” he said.

“Our view is that if anybody wants to participate in India’s growth, they should come and invest in India. We have no problem in competition. India is one of the countries which gives 100% ownership and anyone can come and invest here with 100% ownership, which many countries do not allow,” Narendran added.

Jindal Steel & Power chairman Naveen Jindal also pitched for continuation of MIP on steel as it provided the much-needed relief to the domestic industry that was reeling under severe stress due to imports from China and other surplus nations, and other factors, including anaemic demand. “MIP should definitely continue. If it doesn’t, the Indian steel industry would be badly impacted,” he said.

The industry is not unnecessarily worried over raising the price range of the MIP. This is because steel price, particularly hotrolled coil prices, had never gone up to the MIP level in India even as the world price went higher. Narendran said this was because there is enough capacity in India. The steel price will continue to be deter mined by demand and supply, he said.

However, the industry has asked for some alteration in the list of the products now covered under the MIP which the steel ministry is currently considering.

Aimed at bailing out the domestic steel industry reeling under severe stress for the last two years due to imports at predatory prices, subdued demand and poor prices, the government in the recent past extended a great deal of support to it, starting with raising rate of basic customs on both flat and non-flat steel to 15% from 10% in the Budget for 2016-17.

It had also hiked the import duty in August 2015 on flat steel from 10% to 12.5%, long steel from 7.5% to 10% and semi-finished steel from 7.5% to 10%. The government had also imposed in June 2015 an anti-dumping duty for five years on imports of certain variety of hot-rolled flat products of stainless steel from China ($309 per ton ne ), Korea ($180 per tonne) and Malaysia ($316 per tonne).

Further, the government imposed a safeguard duty of 20% in March 2016 on hot-rolled flat products of non-alloy and other alloy steel, on coils of width of 600 mm or more.