The impact of the Union Budget 2021-22 proposals on the Indian steel sector is positive in ICRA’s view. While GoI’s continued thrust on infrastructure with almost 35 percent higher capital outlay would boost steel consumption, duty reduction on steel scrap and doubling of shipbreaking capacity by FY2024 would result in better availability and lower input costs for secondary steel producers.
Given the sharp rally in domestic steel prices and the resultant increase in costs of end-user industries, the Government has announced a 2.5 percent to 5 percent reduction in customs duty on steel products, which would make imports more competitive. This in turn is likely to pressurise domestic steel prices.
To address the funding challenges associated with infrastructure projects, the budget has focused on asset monetization schemes like REIT and InvITs for redeploying capital in completed projects, in turn strengthening the funding pipeline for new projects.
Government is also looking at an additional vehicle to fund infrastructure projects by setting up a new Development Financial Institution with a seed capital of Rs. 20,000 crore, which is targeted to have a lending portfolio of Rs. 5 lakh crore in the next three years.
In the medium-to-long term, domestic steel pipe manufacturers are likely to benefit from the Government’s Rs. 2.87 lakh crore allocation to Jal Jeevan Mission (Urban) scheme, of which the allocation in FY2022 stands at over Rs. 50,000 crore represents an over three-fold YoY growth. Further, the addition of 100 more districts to the city gas distribution network augers well for these pipe players.
Another focus area of the Government is the continued strengthening of metro rail infrastructure in multiple cities as reflected by a 175 percent YoY increase in allocation in FY2022, and launch of a new scheme to bolster public bus transport services at a cost of Rs. 18,000 crore.
GoI has continued its focus on improving the quality of road infrastructure in the country, and the same is reflected from around 12 percent YoY increase in capital allocation to NHAI and MORTH in FY2022, which in turn would spur the demand of long products.
In summary, ICRA believes that the impact of import duty cuts would be largely negated by GoI’s focus on infrastructure spending.
—Mr Jayanta Roy is Senior Vice President and Group Head at Corporate Sector Ratings. Views are personal.
First Published: Feb 2, 2021 4:05 PM IST
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