Editorial – September 2019

chandekarDear Readers,

The Indian economy was doing quite well for the last decade or so and that is the reason many international companies as well as the investing community was eyeing on this newly awakened elephant. This was especially true after the global economic meltdown in 2008 when most of the developed world economies crumbled and India was one of the few growing economies on the planet. This upward journey continued till the end of 2016 but after that the GDP growth rate started slipping. There may be long term benefits of a move like demonitization but on a short term basis, the cash in the market was eroded. Many cash based (legitimate) businesses had received severe jolt and few did not survive this sudden blow.

Big steel corporates were not affected by demonitisation but small mills doing business in cash and evading the tax suffered a lot. I do agree that it is a good transition and has helped the country to strengthen the mainstream economy. Even with respect to GST, the initial teething problems seem to have reduced and the implementation part has started becoming more smooth.

Indian_Auto_Sector

With all the above reasoning, one cannot deny the fact that the country is presently witnessing an economic slowdown. Let the economists debate whether or not it can be technically termed as ‘recession’ but the declining GDP figures for more than two quarters, rising unemployment and especially for steel sector, the disastrous performance by auto sector, all this do not paint, by any standard, a positive picture of the economy. Yes, first of all, let us accept that Indian economy is slowing down, after that will come the solution part.

As far as steel industry is concerned, auto consumes not more that 12 % of steel produced in the country. Thus declining auto sales do not pose a great threat to steel consumption. The bigger problem for steel is slowing down of infra sector, which consumes more that 55 % of steel production and is more or less controlled by central and the state governments. Unless the governments increase their spending for this sector, give a forward push to infra projects, how can steel demand grow?

I do agree that conventionally, auto sector performance was considered as the barometer of the economy of any developing country. Is this assumption still valid? I doubt ! The lifestyle and mindset changes in the last few years have completely changed our approach towards the life. The 21st century, rather than believing in physical infrastructure, believes more in digital one. Steel was the basis of the human progress in 20th century but in this century, human aspirations seem to have taken a new direction. With the progress in solar energy sector, the importance of fossil fuels is certainly going to diminish. With the advent of electric cars, the auto component industry is going to drastically shrink (if not vanish). Can anybody predict what will be the state of steel industry after 10 years?

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