The domestic steel sector is likely to miss the 12th Five-Year Plan capacity addition target by a huge margin as the ongoing economic slowdown is forcing firms to defer expansions and procedural hurdles are delaying new projects.
The 12th Plan (2012-2017) envisages steel sector, which is considered the backbone of the industrial sector, touching 142.3 million tonne (mt) capacity by 2017 from 90 mt now.
“It has become evident now that India won’t be able to reach targeted capacity of 142 mt by 2017.
Majority of the domestic steel producers have deferred their expansion and as per my estimates the country won’t be able to cross 100-105 mt,” Giriraj Daga, an analyst with Nirmal Bang Securities, told dna.
The 12th Plan sector target document says that with a GDP growth of around 9%, the steel consumption is expected to grow 10.3%, translating into a need for an installed capacity addition of 142.3 mt by 2017.
This target is certainly high as it is based on a sustained GDP growth rate of 8%, experts said.
According to Shubhada Rao, chief economist at Yes Bank, India’s GDP may grow at an average 6% over the next three years.
While the country’s GDP grew at a decade low of 5% in fiscal 2013, it is seen growing at 5% in the current fiscal and 5.5-6% in fiscal 2015. Rao said India should be able to improve growth post elections, provided infrastructure projects get thrust.
India’s steel capacity addition has slowed down due to various reasons such as procedural delays in greenfield and brownfield projects, environmental clearances, land allocation, securing raw material linkages etc.
To make the matters worse, global giants such as ArcelorMittal and Posco recently withdrew plans to set up 6 mt and 12 mt plants in Odisha and Karnataka, respectively, following procedural delays and local protests.
Domestic steel makers such as Tata Steel, JSW Steel and Steel Authority of India are also facing delays and deferment of their greenfield and brownfield projects, an analyst with a local brokerage said. According to a report by consultancy firm Accenture, India steel companies have announced 71 mtpa of steel capacity addition between fiscals 2012 and 2017.
“However, there is considerable uncertainty on the actual addition as many projects are yet to achieve financial closure due to delays or lack of regulatory clearances,” the report said.
R K Goyal, managing director of Kalyani Steels, which has been facing delays in getting land water and raw material linkages for its 3 mt capacity addition at Karnataka, said India may achieve only 50% of its capacity addition target.
“Government should form a package of land, water and iron ore mines, which provides all clearances at once, and then auction this package. It needs to set up six monthly milestones for such auctions only then steel industry will be able to increase its capacities,” he said.