Cautioning that execution of provisions in the new steel policy will remain a key challenge for the government, India Ratings and Research (Ind-Ra) in its latest report has said that the policy which is betting on higher spending on infrastructure and construction sector will though give a boost to the struggling Indian steel industry, but the execution of provisions in the policy will remain a key challenge for the government and therefore to make the policy successful, timely implementation of various steps will be crucial along with ways to build demand leading to improvement in capacity utilisations of existing plants.
The report further said that steel demand will have to grow at a CAGR of around 7 -7.5 percent during the period against a CAGR of 3.5-4 per cent over the last 5 year to meet the expected demand of 230 MT and to increase the steel capacity to 300 MT by 2030-31 would require extensive efforts towards increasing the availability of resources such as infrastructure, raw material and finance. While accelerated spending by government in infrastructure, construction, railways and the defence sector will be the key to achieve the aggressive demand growth, Ind-Ra believes the expected growth in steel demand looks ambitious and may face hurdles like political instability, budget constraint and timely execution of projects.
Furthermore, the agency pointed that the policy also focuses on improvement in the efficiency parameters so as to reduce the cost of production and develop advanced steel products to reduce the dependence on imports. However, it has said that the capacity creation which requires capital expenditure of around Rs 10 trillion will lead to stretched credit metrics on a sustained basis for companies, due to the continuous capex undertaken, and expects that central public sector enterprises will be under pressure to build capacity for catering to any demand- supply gap after considering the capex by the private sector.