Indian Union Budget 2021-22: The Union Budget for FY22 has been hailed as development oriented and the path it has selected to attain this is via investment. A Covid ravaged economy has created the government to boost its expenditure (income and capital) substantially from the budgeted Rs 7.96 lakh crore to Rs 18.5 lakh crore in FY21 by huge market place borrowings and other sources and led to an unprecedented fiscal deficit of 9.5% of GDP in FY21, which is slated to come down to 6.8% in FY22. The government targets to bring the fiscal deficits down to 4.5% of GDP by FY26. It is to be noted that income expenditure element that was 87.3% of total expenditure and capital expenditure the balance 12.7% in FY21(RE) has been planned at 84.1% and 15.9% respectively in FY22 (BE).
Looking at the investment push in FY22, it is noticed that budgetary assistance for capex at Rs 4.4 lakh crore in the year finish is now planned at Rs 5.6 lakh crore in FY22, a jump of 27.3%. With internal and added budgetary sources, the general capex in the next year has been planned at Rs 11.4 lakh crore against Rs 10.8 lakh crore essentially accomplished in FY21(RE). It may perhaps be described right here that investment in infrastructure (financial and social) is guided by National Infrastructure Pipeline (NIP) document that compiles a total of 7400 projects (217 projects completed) and stipulates a requirement of Rs 111 lakh crore by FY26. The document spells out that even though central and state governments would account for 79% of the total investment, the private investment is to fill the gap of 21% of capex.
The steel sector would be a main beneficiary in terms of generation of demand in 9 identified infra segments, namely roadways, railways, energy, housing and urban affairs, new and renewable power, water sources, airports, rural infra and shipping. Under road sector, an added 11,000 km of National Highway corridors of Bharatmala project would be completed by March ’22. Economic corridors (Tamil Nadu, Kerala, West Bengal, Assam, UP, Chhattisgarh, AP) would be performed. Railways have been allocated Rs 1,07,110 crore budgetary allocation. DFC in eastern and western area, north-south corridor, gauge conversion and electrification performs would be undertaken. Expansion of Metro beneath building in 27 cities (Kochi, Chennai, Bengalaru, Nagpur and so forth) and discom restructuring which includes creation of energy infrastructure would be the priority region of investment. Ports, shipping and waterways improvement would be the component of a multimodal transportation technique. City gas distribution, extension of Ujjwala scheme, new gas pipeline project are other main infra projects.
It is needless to mention that enhancement of investment in infra sector has a enormous multiplier influence on other interconnected sectors of the economy (input-output model). Studies have shown that one rupee boost in capex of central and state governments contributes to rise in output in the central government by Rs 3.25 and in state government by Rs 2.00. Output development is synonymous with demand creation for steel and other commodities, job creation and revenue development. Funding of this huge boost in investment (capex) demands revolutionary schemes (setting up of improvement finance institution, more thrusts on InvITs, REITs, asset monetisation, strategic disinvestment of PSUs, enhanced FDI in insurance coverage sector, aiming for more private corporate investment via PPP mode and so forth).
The government is keen to double the existing recycling capacity of 4.5 MT LDT by 2024 by more breakage of ships. The car scrappage policy (private automobiles more than 20 years and industrial automobiles more than 15 years) is announced to boost domestic scrap (very good excellent) availability for steel generating.
To address the increasing steel rates problem, the government has intervened in the kind of minimizing standard customs duties on extended solutions/flat solutions which includes semis from the existing 12.5/10.% to uniform price of 7.5%. In addition, the standard duty of 2.5% on melting scrap (which includes SS) has been abolished and 5% customs duty on copper scrap has been brought down to 2.5%. Simultaneously the ruling ADD CVD imposed on flat solutions/ wire rods/higher speed steel (which includes SS) has been temporarily revoked for next 6 months (up to September ’21). As main imports of flats are sourced from Japan and South Korea (52.3% of total imports throughout April-December 2020) with whom India has signed FTAs, the duty reduction has small influence on them. However for the balance things (1.53 MT of imports throughout Apr-Dec ’20) that incorporates China ( 20.% share of imports), it would imply a reduction of Rs 2460/- of the landed expense of imports of HRC at the existing export offer you from China. Further, the existing floor rates in ADD on HR/CR/wire rods fixed 4 years earlier are substantially decrease compared to the prevailing worldwide rates and thus ineffective.
Thus, on general evaluation, the Budget delivers a very good platform for accelerating the engine of development for Indian steel sector in terms of demand pull by enhanced capex in infra, the most steel intensive sector and giving assistance to indigenisation of other finish applying segments like automobile and auto elements, defence, energy distribution, renewable power, heavy machineries and so forth. Under such an enabling atmosphere, sufficient steel availability from domestic sources is to be ensured by the steel producers.
The author Former DG, Institute of Steel Development and Growth
Views expressed are private