Global economic review Overview: The global economic growth was
estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of
2020 on account of the pandemic effect). The relatively slow global growth of 2022 was
marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced
slowdown in China, higher interest rates, global liquidity squeeze and quantitative
tightening by the US Federal Reserve.
The challenges of 2022 translated into moderated spending, disrupted
trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in
decades. US consumer prices increased about 6.5% in 2022, the highest in four decades. The
Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result
is that the world ended in 2022 concerned that the following year would be slower.
Gross FDI inflows - equity, reinvested earnings and other capital -
declined 8.4% to USD 55.3 Billion in April-December 2022.
The decline was even sharper in the case of FDI inflows as equity:
these fell 15% to USD 36.75 Billion between April and December 2022. Global trade expanded
by 2.7% in 2022 (expected to slow to 1.7% in 2023).
The S&P GSCI TR(Global benchmark for commodity performance) fell
from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in
crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent
crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per
barrel at the end of the calendar year following the enhanced availability of low-cost
Russian oil.
| Regional growth (%) |
2022 |
2021 |
| World output |
3.2 |
6.1 |
| Advanced economies |
2.5 |
5 |
| Emerging and developing economies |
3.8 |
6.3 |
Performance of major economies
United States: Reported GDP growth of 2.1% compared to 5.9% in 2021
China: GDP growth was 3% in 2022 compared to 8.1% in 2021.
United Kingdom: GDP grew by 4.1% in 2022 compared to 7.6% in 2021
Japan: GDP grew 1.7% in 2022 compared to 1.6% in 2021
Germany: GDP grew 1.8% compared to 2.6% in 2021
[Source: PWC report, EY report, IMF data, OECD data]
Outlook: The global economy is expected to grow 2.8% in 2023,
influenced by the ongoing Russia- Ukraine conflict. Concurrently, global inflation is
projected to fall marginally to 7%. Despite these challenges, there are positive elements
within the global economic landscape. The largest economies like China, the US, the
European Union, India, Japan, the UK and South Korea are not in a recession. Approximately
70% of the global economy demonstrates resilience, with no major financial distress
observed in large emerging economies. The energy shock in Europe did not result in a
recession and significant developments, including Chinas progressive departure from its
strict zero- covid policy and the resolution of the European energy crisis, fostered
optimism for an improved global trade performance. Despite high inflation, the US economy
demonstrated robust consumer demand in 2022. Driven by these positive factors, global
inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as
the global economy is projected to grow less than 3% for the next five years, India and
China are projected to account for half the global growth (Source: IMF).
Indian economic review Overview: Even as the global conflict
remained geographically distant from India, ripples comprised increased oil import bills,
inflation, cautious government and a sluggish equity market.
Indias economic growth was 7.2% in FY 2022-23. India emerged as the
second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-
largest global economy. India surpassed China to become the worlds most populous nation
(Source: IMF, World Bank)
Growth of the Indian economy
| 1 |
FY 2019-20 |
FY 2020-21 |
FY 2021-22 |
FY 2022-23 |
| Real GDP growth(%) |
3.7 |
-6.6% |
9.1 |
7.2 |
Growth of the Indian economy quarter by quarter, FY 2022-23
|
Q1FY23 |
Q2FY23 |
Q3FY23 |
Q4FY23 |
| Real GDP growth (%) |
|
13.1 |
6.2 |
4.5 |
| 6.1 |
|
|
|
|
According to the India Meteorological Department, the financial year
2023 delivered 8% higher rainfall over the long-period average. Due to unseasonal rains,
Indias wheat harvest was expected to fall to around 102 Million metric Tonnes (MMT) in
FY2022-23 from 107 MMT in the preceding year.
Rice production at 132 Million metric Tonnes (MMT) was almost at par
with the previous year. Pulses acreage grew to 31 Million hectares from 28 Million
hectares. Due to a renewed focus, oilseed area increased by 7.31% from 102.36 Lakh
hectares in FY2021-22 to 109.84 Lakh hectares in FY2022-23.
Indias auto industry grew 21% in FY23; passenger vehicle (UVs, cars
and vans) retail sales touched a record 3.9 Million units, crossing the previous high of
3.2 Million units in FY19. The commercial vehicles segment grew by 33%. Two-wheeler sales
fell to a seven- year low; the three-wheeler category grew 84%.
Till the end of Q3FY23, the banking systems total gross non performing
assets (NPAs) fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be
4.2% and a further drop is predicted to be 3.8% in FY2023-24.
As Indias domestic demand remained steady amidst a global slowdown,
import growth in FY23 was estimated at 16.5% to USD 714 Billion as against USD 613 Billion
in FY22. Indias merchandise exports were up 6% to USD 447 Billion. Indias total exports
(merchandise and services) grew 14% to a record of USD 775 Billion and is expected to
touch USD 900 Billion in FY2023-24. Till Q3 FY23, Indias current account deficit, a
crucial sindicator of the countrys balance of payments position, decreased to USD 18.2
Billion or 2.2% of GDP. Indias fiscal deficit was in nominal terms at ~ H17.55 Lakh
Crore, which is 6.4% of the countrys GDP for the year ending March 31, 2023.
Indias headline foreign direct investment (FDI) numbers rose to a
record USD 84.8 Billion in FY2021- 22, However, during the fiscal year 2022-23, the
country experienced a 16% decrease in foreign direct investment (FDI) inflows, amounting
to USD 71 Billion on a gross basis. This decline can be attributed to the unfavourable
global economic conditions and stands as the first contraction in FDI in the past ten
years.
Indias foreign exchange reserves, which had witnessed three
consecutive years of growth, experienced a decline of approximately USD 70 Billion in
FY2022-23, primarily influenced by rising inflation and interest rates. Starting from USD
606.47 Billion on April 1, 2022, reserves decreased to USD 578.44 Billion by March 31,
2023. The Indian currency also weakened during this period, with the exchange rate
weakening from H75.91 to a US dollar to H82.34 by March 31, 2023, driven by a stronger
dollar and an increasing current account deficit. Despite these factors, India continued
to attract investable capital.
The countrys retail inflation, measured by the consumer price index
(CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI
(calculates the overall price of goods before retail) eased to 1.3% during the period. In
2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May
2022. By the close of the year under review, inflation had begun trending down and in
April 2023 declined below 5%, its lowest in months.
Indias total industrial output for FY23, as measured by the Index of
Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4% in
FY2021-22.
India moved up in the Ease of Doing Business (EoDB) rankings from 100th
in 2017 to 63rd in FY23. As of March 2023, Indias unemployment rate was 7.8%.
In FY2022-23, total receipts (other than borrowings) were estimated at
6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by
11.1% Y-o-Y in RE 2022-23. The government is also estimated to have addressed 77% of its
disinvestment target in FY23 (H50,000 Crore against a target of H65,000 Crore).
The total gross collection for FY23 was H18.10 Lakh Crore, an average
of H1.51 Lakh a month and up 22% from FY22, Indias monthly goods and services tax (GST)
collections hit the second highest ever in March 2023 to H1.6 Lakh Crore.
For FY2022-23, the government collected H16.61 Lakh Crore in direct
taxes, according to data from the Finance Ministry. This amount was 17.6% more than what
was collected in the previous fiscal.
Per capita income almost doubled in nine years to H172,000 during the
year under review, a rise of 15.8% over the previous year. Indias GDP per capita was
2,320 USD (March 2023), close to the magic figure of USD 2500 when consumption spikes
across countries. Despite headline inflation, private consumption in India witnessed
continued momentum and was estimated to have grown 7.3% in 2022-23..
Outlook: There are green shoots of economic revival, marked by an
increase in rural growth during the last quarter and an appreciable decline in consumer
price index inflation to less than 5% in April 2023. India is expected to grow around
6-6.5% (as per various sources) in FY2024, catalyzed in no small measure by the
governments 35% capital expenditure. The growth could also be driven by broad-based
credit expansion, better capacity utilisation and improving trade deficit. Headline and
core inflation could trend down. Private sector investments could revive. What provides
optimism is that even as the global structural shifts are creating a wider berth for
Indias exports, the country is making its largest infrastructure investment. This
unprecedented investment is
expected to translate into a robust building block that, going ahead,
moderates logistics costs, facilitates a quicker transfer of products and empowers the
country to become increasingly competitive. This can benefit Indias exports in general,
benefiting several sectors. The construction of national highways in 2022-23 was 10,993
Kms; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 Km in
the last financial year
The global landscape favours India: Europe is moving towards a probable
recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than
Indias GDP growth of 7.2% and America and Europe is experiencing its highest inflation in
40 years.
Indias production-linked incentive appears to catalyse the downstream
sectors. Inflation is steady. India is at the cusp of making significant investments in
various sectors and emerge as a suitable industrial supplement to China. India is poised
to outpace Germany and Japan and emerge as the third- largest economy by the end of the
decade. The outlook for private business investment remains positive despite an increase
in interest rates. India is less exposed to Chinese economic weakness, with much less
direct trade with China than many Asian peers.
Broad-based credit growth, improving capacity utilisation, governments
thrust on capital spending and infrastructure should bolster investment activity.
According to our surveys, manufacturing, services and infrastructure sector firms are
optimistic about the business outlook. The downside risks are protracted geopolitical
tensions, tightening global financial conditions and slowing external demand.
(Source: IMF data, RBI data, Union budget 2023-24 data, CRISIL report,
Ministry of Trade & Commerce, NSO data)
Union Budget FY 2023-24 provisions
The Budget 2023-24 sought to lay the foundation for the future of the
Indian economy by raising capital investment outlay by 33% to H10 Lakh crores, equivalent
to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM
Gati- shakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise
Opportunities, Energy Transition and Climate Action, as well as Financing of Investments.
An outlay of H5.94 Lakh Crore was made to the Ministry of Defence (13.18% of the total
Budget outlay). An announcement of nearly H20,000 crores was made for the PM Gati- Shakti
National Master Plan to catalyse the infrastructure sector. An outlay of H1.97 Lakh Crore
was announced for Production Linked Incentive schemes across 13 sectors. The Indian
government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 Km.
The overall road construction project pipeline remains robust at 55,000 Km across various
execution stages. These realities indicate that a structural shift is underway that could
strengthen Indias positioning as a long-term provider of manufactured products and its
emergence as a credible global supplier of goods and services
Indian steel industry review During FY 2022-23, India produced
125.32 Million Tonnes of steel, representing a 4.2% increase over the previous year. The
growth in the Indian steel sector can be attributed to factors such as rising consumer
demand, access to domestic sources of raw materials such as iron ore and cost-effective
labour. Steel consumption in India reached 119.17 Million Tonnes during the same period.
India also exported 13.5million Tonnes of finished steel worth H1 Lakh Crore and imported
steel of around H46,000 Crore in FY 2022-23.
The construction sector, encompassing both infrastructure and real
estate, is the largest consumer of steel in India, accounting for approximately 61% of
domestic steel demand. It is followed by the capital goods sector, which constitutes
around 10% of steel consumption and then the automotive sector, which constitutes around
9% of domestic steel demand. As of 2022, the crude steel capacity in India stood at
approximately 154 Million Tonnes per annum. The Indian steel sector contributes roughly 2%
to Indias GDP.
India set several goals for the steel sector, including becoming a net
exporter of steel by 2025-26, increasing crude steel capacity to 300 Million Tonnes,
raising per capita steel consumption to 160 Kg by 2030-31, fulfilling the domestic demand
for high- grade automotive steel, special steels and alloys and electrical steel for
strategic applications by 2030-31 and reducing the import dependence on coking coal to 50%
by 2030-31. To achieve these objectives, the government must incentivize private sector
investment in the steel industry, facilitate the acquisition of technology and know-how
for advanced steel production, focus on increasing the demand for steel through
infrastructure development and urbanization, and develop quality standards for domestic
steel products. Moreover, the government should support the industry in becoming a global
leader in energy and raw material- efficient steel production by 203031.
Growth drivers
Capital goods industry: The capital goods industry currently
consumes 11% of the total steel production, and it is anticipated to grow by 14-15% by the
financial year 2025-26. This sector has the potential to increase its tonnage and market
share in the coming years.
Automotive industry: In India, the automotive sector represents
approximately 10% of the steel demand. It is projected to expand to a size of USD 260-300
Billion by 2026 and the demand for steel from this sector is expected to remain strong.
Infrastructure sector: The infrastructure industry currently
consumes 9% of the total steel production and is anticipated to grow by 11% by the
financial year 2025-26. With the increasing investments in infrastructure projects, the
demand for long steel products is expected to rise in the coming years.
Railways: The budget outlay of H2.40 Lakh Crore for the railways in
the Union Budget 2023-24 is the largest in history and is around nine times the amount
given in 2013- 14.The demand for steel will also be driven by the construction of foot
over bridges, railway stations, and the laying of tracks and the manufacturing of rail
coaches.
Airport: The number of operational airports stood at 140 in FY
202223. Under union budget 2023, Government proposed revival of fifty additional airports,
heliports, waterdromes and advance landing grounds for improving regional air
connectivity.
Oil and gas: Indias primary energy consumption from oil and gas is
expected to increase to 10 Million barrels per day (mbpd) and 14 Billion cubic feet per
day (bcfd) by 2040.
As part of the 2023 budget, the government has planned to expand the
National Gas Grid from 17,500 Km to 34,500 Km. This expansion is expected to lead to a
surge in demand, which presents a lucrative opportunity for the steel industry.
PM Awas Yojana: The Union Budget 2023-24 has increased the budget
allocation for PMAY by 66%, indicating the governments commitment to achieve the goal of
housing for all by 2022. The credit-linked subsidy scheme, which provides interest
subsidies to homebuyers, will be extended until 2027. This will create a higher demand for
building materials, such as cement and steel.
Monsoon health: Indias monsoon, which accounts for 70% of the
countrys annual rainfall and irrigates 60% of its net sown area, may be below-normal in
2023 due to an increasing likelihood of El- Nino, which could impact monsoon rainfall in
the second half of the season. However, favourable factors such as Indian Ocean Dipole sea
temperature changes are expected to drive good rainfall, which will increase rural income,
benefiting the steel industry.
MSP of crops: The Government of India has raised the Minimum
Support Price (MSP) for Rabi Crops in the Marketing Season 2023-24 to ensure that growers
receive remunerative prices for their produce. The highest increase in MSP has been
approved for lentil (Masur) at H500/- per quintal, followed by rapeseed and mustard at
H400/- per quintal. Safflower sees an increase of H209/- per quintal, while wheat, gram
and barley have been approved for an increase of H110/-, H100/-, and H100/- per quintal
respectively. These changes are expected to have a positive impact on the rural income
which will benefit the steel industry.
(Source: psuwatch.com, economictimes.com, zawya.com)
Government initiatives
• The Union cabinet has approved the production-linked incentive
(PLI) scheme for specialty steel, which is expected to attract investments worth H400
Billion and increase steel capacity by 25 Million Tonnes by the financial year 202627.
• The Indian government has signed a Memorandum of Understanding
(MoU) with Russia to collaborate on research and development in the steel sector.
The partnership will also involve the production of coking coal, a key
ingredient in steel making.
• The Indian government has recently entered into a Memorandum of
Cooperation (MoC) with the Ministry of Economy, Trade and Industry of the Government of
Japan, aimed at strengthening the steel sector through collaborative initiatives under the
India-Japan steel dialogue framework.
• The government allocated H70.15 Crore to the Ministry of Steel
under the Union Budget 2023-24.
• The Indian Government has approved the National Steel Policy
(NSP) 2017, which aims to establish a globally competitive steel industry in India.
• The Ministry of Steel in India has established the Steel
Research and Technology Mission of India (SRTMI) in collaboration with public and private
sector steel companies. The mission is industry-driven and aimed at leading research and
development activities in the steel sector.
• The governments goal is to increase the current annual crude
steel-making capacity of 150MT to 300MT, effectively doubling it.
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