Press "Enter" to skip to content

New challenges await Indian manufacturing sector in new year

manufacturing sector, india, manufactuing sector growth It is quite encouraging that Indian industry has for the last few months consecutively been exhibiting a stable upward growth after so many months of near stagnant trend. (Reuters)

It is quite encouraging that Indian industry has for the last few months consecutively been exhibiting a stable upward growth after so many months of near stagnant trend. The manufacturing sector was identified as the major constraint inhibiting the industrial growth. The manufacturing sector declined to 3.6%, 3.8%, 2.8% and 4.6% annual growth rate in FY14 to FY17 period.
The IIP also dropped to annual average rate of 3.8% during FY14 and FY17. It has been a long wait for the revival of manufacturing sector, especially capital goods, infrastructure and construction and consumer durable segments which are steel intensive. The share of engineering goods and equipment in the total export basket had also witnessed a steady fall over the past few years.

In February 2018, the manufacturing sector grew by 8.7% with manufacture of motor vehicles and trailer, machinery and equipment, manufacturing of other transport and furniture clocking 19.9%, 26.9%, 32% and 12.5% growth, respectively. It is rather satisfying to note that the growth syndrome now spreads to capital goods, infrastructure and construction and consumer durable segments notching 20%,12.6% and 7.9% growth, respectively in February 2018. As a result, the IIP for February 2018 moves up to a growth rate of 7.1%. The real contribution of manufacturing sector can be interpreted as synonymous with the growth of a host of other major sectors like construction, agriculture and even tertiary sectors.

The growth of construction implies more demand for construction equipment, food processing and agricultural equipment segments accompany growth of agriculture, while spread of communication facilities, tourism segments under tertiary sector signal new construction of hotels and building up of communication towers. This sectoral interdependence is remarkably displayed in the growth trend of manufacturing sector that is now rising. The Make in India programme has gradually commenced its upward journey in defence, railways, ports, airports, urban infrastructure and affordable housing sectors. The preparedness of Indian manufacturing sector to cater to the growing needs of these critical sectors would determine the success, efficiency and competitiveness of this sector as the industrial backbone of the country.

As the impact of manufacturing and industrial growth is evident on the development of steel sector with a lag, it is no wonder that in FY18 we could observe a steel consumption growth of 7.8%. A subdued growth in manufacturing till October 2017 restricted the steel consumption growth to a paltry 4-4.5% growth until November 2017. Manufacturing growth would also leave its mark on the import and export steel scenario. For FY18 India exported a total 11.6 MT of steel exceeding steel imports of 8.4 MT thereby emerging as a big net exporter. During the year India imported 2.2 MT of HRC from China , Japan, South Korea and Russia. Apart from tonnages earmarked under Advance License scheme, there is no reason why India being a major HR producer, should import such a large quantity. It has exported 2.95 MT of HRC to countries like Italy, Belgium, Nepal, Malaysia, Turkey and UAE.

India Imported CRC of 1.1 MT primarily of special grades and dimensions for specific components in the vehicle. China and South Korea are the major sources of imports. Autobody sheets are not yet available in full size/width and other dimension required and would remain a challenge before the major steel producers to produce and meet this gap. Its export of CRC of 1.4 MT has been sent to Belgium, Italy, Nepal and Spain. India has imported 1.2 MT of coated products, primarily from China, Japan, South Korea and Vietnam. Being a traditional exporter of coated products, India’s GP/ Coated steel exports of 1.2 MT has gone to Belgium, Italy, Spain and Ethiopia. Indigenous non-availability of CRGO and special grades of CRNO accounts for significant import tonnages of ESS of 0.6 MT during the period.

However, it is anybody’s guess why such a massive quantity of 0.18 MT of tin plate waste and defective tin plates out of a total 0.26 MT of tin plate (69%) continue to be imported. If cheap prices determine the feasibility of import consignment, some specific trade measures need to be taken as cheap imports in most of the cases encourage surreptitious use of the product in application areas where only prime grades are prescribed and therefore violates the quality norms prevalent in the country. It is to be noted that such waste products are banned for use in many of the exporting nations. Steel pipes required by oil and gas sector, those are of higher grades of API (API X-80/100), are not available from the domestic sources. In FY18 the imports of pipes of 0.44 MT has largely arrived from China, Italy and Vietnam. India has also exported Pipes of 0.64 MT to Saudi Arab and USA.

It is interesting to note that India has imported semi finished steel (Rerollable Scrap, Billets, Slabs) of 0.92 MT from Brazil, Indonesia, UAE, South Korea, Hong Kong and Singapore. It has also exported semis of 1.99 MT mostly to Indonesia, Italy, Nepal, Sri Lanka and USA. TMT bar which is available in abundance indigenously has been imported 0.25 MT. This consists of 0.12 MT of SS Bar which may be a shortage item. Wire Rods of HC, Low carbon Boron, Cold Heading Quality and others of 0.19 MT has been imported.

India could export TMT, Wire Rods of 2.3 MT. In FY19 the global trade scenario is going to take a more protective turn. India’s export must look for newer destinations and strengthen its presence in Africa, UAE, Saudi Arabia, Vietnam and the neighbouring states. Steel imports need close monitoring so as to restrict undesirable components.

(Views expressed are personal)

DG, Institute of Steel Growth and Development

Source: Financial Express