Execution of new steel policy a key challenge for govt: Ind-Ra

22 May 2017

Execution of provisions in the new steel policy will remain a key challenge for the government, India Ratings and Research (Ind-Ra) said.

“Ind-Ra believes the policy (National Steel Policy 2017) will give a boost to the struggling Indian steel industry. However, the execution of provisions in the policy will remain a key challenge for the government,” it said. To achieve the planned steel demand of about 230 million tonnes (MT) by 2030-31, it will need to grow at a CAGR of around 7-7.5 per cent, as against 3.5-4 per cent in the last 5 year.

In order to achieve the aggressive demand growth target, government’s focus on building steel demand will be the key, which requires accelerated spending in infrastructure, construction, railways and the defence sector. The policy also focuses on taking steps to encourage the higher use of steel in projects by replacing other materials with steel wherever possible.

The expected growth in steel demand looks ambitious and may face hurdles namely, political instability, budget constraint and timely execution of projects, Ind-Ra said. To meet the demand growth, the government plans to boost the steel capacity to 300 MT by 2030-31, which would require extensive efforts towards increasing the availability of resources such as infrastructure, raw material and finance.

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, the rating agency. Ind-Ra expects central public sector enterprises to be under pressure to build capacity for catering to any demand- supply gap after considering the capex by the private sector.

Capex undertaken by public sector enterprises may further stretch the metrics of public undertaking, unless the government infuses funds to support capex instead of adding debt. Apart from resources, other hurdles also needs to be addressed like improvement in the approval processes for setting up plants, which generally leads to delays in the completion of projects.

Source – www.moneycontrol.com