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Steel Demand in India Depends Largely On Infra Spend - Mr TV Narendran of Tata Steel

Steel News - Published on Tue, 18 Jun 2019

Image Source: Livemint
Mr TV Narendran, CEO & MD of Tata Steel, in an interview with ETNOW while answering to “Domestic steel demand is expected to stay strong but this is mainly due to government’s infra spends because capex commitment from the private sector is certainly sluggish. Would that really worry you?” said that “The government infrastructure spend is important in multiple ways. 60% of steel is consumed by the construction industry and about 25% to 30% of the steel consumption in construction comes from infra spend. When the government spends on infrastructure, it stimulates construction activity. The spend on infrastructure also works well for the auto industry because a lot of automobiles are used, whether it is heavy vehicles, commercial vehicles, material handling equipment and so on. It also stimulates the auto industry which consumes stimulates the auto industry which consumes another 10-15% of the steel in the country.”

He said “The second part is it leads to greater efficiencies and lower costs, which hopefully helps the profitability of the private sector and for the private sector investments to come back, not only do we need demand, we also need profitable private sector companies because profitability gives you surplus funds to invest. In today’s scenario, when the cost of capital is quite high and liquidity is a bit tight, lenders are careful about who they lend to.”

He said “It is important for companies to have strong balance sheets and good profitability so that they have surplus cash flows and funds available to invest. In many ways, these are interdependent. I do not think one can act without the other. The starting point would be the government spending and private sector investments will surely follow.”

He added “India has traditionally been a consumption led economy and that is reflected in the fact that the steel consumption is traditionally grown below the GDP growth rate. In most developing countries, steel consumption is 1.2-13 times the GDP growth rate. Because India has largely been consumption led, over the last few years, we have started becoming more investment led both from the government side and hopefully that will lead to private investments coming into the system and that will help us. So that adjustment is being made. There will be a recalibration of the economy as we become more investment led growth which I think is good for a developing country as long as we keep the fiscal deficit under control.”

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Posted By : Ratan Singh on Tue, 18 Jun 2019
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