The Narendra Modi government has plans to rely on local steel for use in infrastructure projects worth billions of dollars and thereby cut steel imports, reports Reuters. While this move is protectionist in nature, Indian officials reportedly say it falls within the rules of the World Trade Organization (WTO).
India has plans to spend a record $59 billion in steel-intensive infrastructure projects such as roads, railways, power and ports in 2017-18, says the report. The rise in demand as a result of this proposal is set to cause a rise in production for local steel producers, who are currently saddled with debt. Steelmakers like JSW Steel and Tata Steel are expected to benefit and global steelmakers are likely to feel compelled to invest in the Indian market.
As the fastest-growing steel market, India’s likely decision to buy local is bound to hit foreign companies’ sales. However, much more important is the creation of jobs, an aim of Prime Minister Narendra Modi’s, which will be helped along if this proposal comes through. The Prime Minister also wants the share of manufacturing in the country’s economic output to rise from the current 17 per cent to 25 per cent. Procuring domestic steel will also help achieve this target.
India has been thus far relying on Chinese steel to meet its requirement. "For a strategic product like steel which has uses in defence and infrastructure sector, this is a worrying proposition,” says a steel ministry document as seen by Reuters.
The steel industry also makes up 29 per cent of overall banking debt of around $135 billion. Domestic procurement, therefore, is an excellent way to help the sector clear its massive volume of bad debt. This cannot help but improve India's financial situation, as bad debt is one of the most pressing problems confronting Indian economy today, but also propel the steel industry and manufacturing sector forward.
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