This will severely inflate CAD
In this issue:
» Infrastructure, banking need Rs.10.4 trillion bond funding
» Government to further milk profit making PSUs
» India gets tough on loan defaulters
» Asset managers need to be more transparent
» ...and more!
00:00 | ![]() | |
Currently oil contributes highest to the import bill. But apart from this, there could be a bigger time bomb waiting to explode. The period between 2005 and 2008 witnessed a series of steel capacity addition announcements, over 50 million tonnes (MT). However, several large Greenfield projects have not taken off and several others have been severely delayed. Most are left to hunt around for adequate raw material supplies. Others face delays in their expansion plans, troubles with land acquisition, lack of adequate infrastructure and bureaucratic delays continue to obstruct new projects.
India's current steel capacity stands at 96 MT. The country would have to triple its capacity by the middle of the next decade to meet the expected demand. It takes around 8-10 years to fully commission a steel plant. If the current challenges persist, India is likely to fall 60-70 MTPA short of the capacity required to meet its domestic demand. Thus we would have no option but to import steel. This could inflate our import bill by nearly US $20 bn. It would make steel the second highest imported item after oil. India has already become a net importer of steel from May this year.
So what can the government do to avoid this situation? For starters - The raw material situation needs to be sorted out. The government needs to increase iron ore supply for domestic steel industry, which is currently running at very low capacity due to the mining ban. Such a move would bring down steel imports worth a whopping US $6 bn. It would also promote steel exports and curb the current account deficit. Iron ore exports of 100 MT would earn India US $10 bn, while the country would earn $8-9 bn through exports of just 10 MT steel.
Far more than the impact captured through twin (fiscal and current) deficit numbers, it is the impact on the business confidence that further affects investments. Therefore, bringing down the twin deficits should be the top priority of the government. In view of the massive steel requirement for infrastructure development, there is a need to significantly increase steel production capacity in India. Without this India's CAD situation could get a lot worse compared to what it is currently.
Will steel become the second highest import item after oil? Let us know your comments or post them on our Facebook page / Google+ page
01:12 | Chart of the day | |
![]() |
---- Now Compare Indian Companies With Their Global Peers! ----
Introducing a unique tool built by Equitymaster which enables you to compare Indian companies with their global peers... both in developed and emerging markets!
For instance, you can now compare Infosys with IBM.
Or for that matter Tata Steel with Arcelor Mittal.
You will be able to compare numbers for the most recent year. And also view the trends for the last 5 years!
As you are already aware, our proprietary database has factsheets of more than 600 Indian companies. With this new tool, you can now see how each of these companies have fared with their respective global peers...
Isn't that fantastic! Go ahead, make the most of it!
---------------------------------------------------------------------------
02:00 | ![]() | |
02:40 | ![]() | |
03:20 | ![]() | |
04:00 | ![]() | |
04:35 | ![]() | |
04:55 | Today's investing mantra |
Today's Premium Edition.
Are NTPC's tax free bonds attractive?
Are NTPC's tax free bonds an attractive investment opportunity for long term investors?
Read On...
| Get Access
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
- A stock with strong moat is currently trading near 5-year lows.
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
Equitymaster requests your view! Post a comment on "This will severely inflate CAD". Click here!
3 Responses to "This will severely inflate CAD"
Borkar M.R.
Nov 29, 2013I fail to understand why u do not like reach PSUs giving a FAT Special Divdend to shareholders, major being Govt. Ur fear that it will be wasted on unproductive govt. schemes, like doling out money to Govt.employees is not misplaced. However,the Div.Resolution can be with a rider, especially for banks, that the Div. amount be given back to them as a eqty and in return they can give this amount to Industry - not to deafaulting borrowers like Vijay Mallya. This in turn can give momentum for capex of the industries, generate employment and spending and consequent all round demand. Of course, there can be one more provision in that resolution that "10% of the Div. amount Finance Ministry can get" to spend whatever way they want. Of course the Fin. Minister must get his dues for his idea of putting hand in PSUs pockets. This will encourage them to churn out some more novel ideas for robbing the public of peaceful living. - Borkar
Raghuveer Singh Rathore
Nov 29, 2013Your views are worth appreciable and India can feel a sigh of relief prvided the Central Govt. of India waves Ban on Ore Mining in the country. This would bring the import of steel graph drastically down & we would then be able to save steel import at least to 6-bn US dollars and it would then definitely promote steel exports and curb the current account deficit.
Janak Thakkar
Nov 29, 2013Dear Readers,
My coment on the topic related to import of steel is that find out the pro rata basis of cost that may arise from the import of steel and from that point try to collect those unused and wasted steel of every houses of india as a scrap and then find the cost of such retreiving of steel from every houses of India so such 'll benefit the country and that will also give boost on the market of steel and employees engaged in such..