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The India Budget Interim 2024 was announced on 1 February 2024, by the Union Finance Minister Nirmala Sitharaman. And there was sufficient focus on infrastructure development – physical, digital and social. With an estimated 11.1% increase in capital expenditure, amounting to ₹11.11 lakh crores, the Interim Budget impact on steel industry and other sectors has been cheered by many. From electric vehicles/automobile to aviation, electronics manufacturing to construction, the impact of infrastructure development project will be phenomenal for all. The corpus for infrastructure investment and the recent demand for steel in domestic and international markets, is a step towards making the country self-reliant and developed.
In the next sections, we will take a closer look towards some of the key highlights of the Interim Budget with focus on infrastructure development and investments, and how the steel industry in India can benefit from it. We also will understand how steel imports and exports will be affected, impact on steel pricing, and steel procurement opportunities for large businesses and MSMEs in India.
Highlights – Interim Budget impact on steel industry
Among the several investment areas the Union Budget Interim discussed, here are some of the salient components that will impact the steel sector in India:
- Capex of ₹11.11 lakh crores for infrastructure spending
- 3 unique, commodity specific railway corridors to ease congestion in high-traffic zones
- New airport construction and order of 1000 new aircrafts
- Solar rooftop installations leading to free electricity for 1 crore households
- Financing provisions for building/mending houses for deserving middle class sectors
- Emphasis on domestic manufacturing of IT hardware and semiconductors
- Growing the e-Vehicle transport system infrastructure and e-Buses for public usage
As can be imagined, these initiatives are forward thinking and makes room for robust rise in domestic steel demand, investments including FDIs, and creation of new jobs across rural and urban sectors. Moreover, the government’s focus on exports, also creates new opportunities for steel exports. In addition, tax reforms and initiatives introduced in the Interim Budget, is likely to impact GST and other indirect taxes, leading to changes in steel prices and GST on steel.
These initiatives are collectively directed at infrastructure development and is likely to impact large and small businesses. For MSMEs, this naturally creates an opportunity for growth, entrepreneurship, and innovation, supported by the various incentives and opportunities it brings (e.g., infrastructure development in the east, solar rooftop installation projects, housing construction, etc.).
In the next sections, we take a closer look at the details and the Interim Budget benefits for steel industry.
How the Interim Budget impacts the steel sector?
The initiatives outlined in the Interim Budget signifies the priority areas for the government and the roadmap for the future years. Not surprisingly, infrastructure development and growth are of the utmost importance. Sectors across construction, manufacturing, IT and telecommunications, housing development, among others are going to directly be impacted by the infrastructure budget allocation. On that note, let’s understand how the budget will impact the steel sector in India.
₹11.11 lakh crore corpus for infrastructure development
The capital expenditure for infrastructure development has been increased to a staggering ₹11.11 lakh crores. (Note – As per experts, spending in FY24 is expected/likely to be around ₹9.5 lakh crores).
Impact on steel sector procurement and MSMEs
If we analyse the information, the emphasis on infrastructure can include a wide number of projects, including construction of roads, bridges, airports and urban development. For the steel sector, this is likely to create a surge in steel demand, bringing in new business opportunities, growth and prosperity for steel suppliers and manufacturers, heralding a period of innovation, market expansion, and technology innovation.
The ripple effect of this rise in demand will not only impact large steel companies but also the smaller players including MSMEs across the steel supply chain. It will impact steel procurement and purchase, innovation, logistics and distribution.
For instance, taking cue from the allocation of funds for technology R&D in the private sector (i.e., corpus of ₹1 lakh crores), many small-scale steel manufacturers and suppliers will be keen to find innovative solutions for steel manufacturing and distribution. This can be achieved through research and development, adopting green manufacturing techniques for sustainability, acquiring additional certificates for quality standards (e.g., ZED certificate), etc.
Popular steel SKUs likely to witness surge in demand:
- TMT bars and rebars
- Plates and structural sections
- Weathering steel (corten steel)
- Stainless steel
- High-strength steel plates
- Galvanised coils and sheets
- Hot rolled coils
Railway corridors and aviation
As per the interim Budget proposals, three new railway corridors and development of new airports will be taken up.
Aviation initiatives under Interim Budget:
The number of airports has doubled to 149, connectivity to Tier-II and Tier-III cities under the UDAN scheme has increased, and carriers have placed orders for 1000 new aircrafts. Work on existing and new airports will continue.
Railways initiatives under Interim Budget:
Under the infrastructure transformation initiatives under rail transport, three new economic railways corridors will be implemented. The commodity specific corridors (i.e., for energy, minerals and cements; port connectivity; and high traffic density corridors) is expected to facilitate multi-modal connectivity and will be featured under the PM Gati Shakti programme. This will also enable to reduce logistics transport expenses and bring operational efficiency. Additionally, 40,000 normal rail bogies will be converted to match the standards of Vande Bharat to provide speed, convenience and comfort to passengers.
Impact on the steel industry
In the railway sector, steel is used in different applications to ensure safety, efficiency, and longevity of railway operations.
- High carbon steel for building rails and tracks
- Forged steel for wheels and axles
- Structural sections for bridges and tunnels
- Electrical steel for motors and transformers
The aviation sector demands steel that’s strong, durable and lightweight, to scale fuel efficiency and performance.
- Stainless steel for building aircraft bodies, landing gear and engine components
- Alloy steel (aerospace grade) for critical load-bearing components
- Tool steel to manufacture tools and dies that shape and cut aerospace components
The budget allocation for infrastructure development and transformation projects as such is not just a boon for the current times, but also sketches a promising outline for the future. It lays down the stage for rise in demand for different types of steel across categories and sectors, creation of new jobs and role, cluster and sector development, both directly within the steel industry and indirectly in sectors reliant on steel. It will also propel the logistics sector and supply chain for steel manufacturers.
Opportunities for MSMEs
Investment in steel in recent years has been extensive, with major steel players ramping up production capabilities. For small businesses and MSMEs, this is a lucrative opportunity.
- An MSME that manufactures high-quality alloy steel can become a supplier for companies building railway tracks. This will be a long-term project ensuring a continuous income inflow. MSMEs specialising in these steel types can apply for railway tenders by the government and enter into supply contracts.
- An MSME with capabilities in the maintenance of railway carriages or aircraft engines could get into new contracts and see an increase in business, as there’s an expansion in the railway/aviation network. Maintenance, repair, and overhaul (MRO) services can be for physical and digital infrastructure. MSMEs and start-ups are often technology-driven and specialise in niche new technologies that can be leveraged.
- An MSME specialising in civil engineering and construction can act as a sub-contractor for building a part of the airport terminal or laying down new railway tracks.
Solar rooftop initiatives across 1 crore households
The Interim Budget also makes provisions for the installation of solar rooftops for 1 crore households to receive 300 units of free electricity every month. Households are expected to save ₹15,000 to ₹18,000 annually.
Impact on MSME:
For MSMEs, this is a business growth opportunity.
- MSMEs or entrepreneurs can get into contracts for installation and supply
- MSMEs with technical skills in manufacturing, installation and maintenance can also find new business opportunities
Note – This will also create employment for youth with the necessary technical knowledge.
Demand for steel:
Based on their properties, different types of steel are used for solar rooftops. Popular types include:
- Structural steel or galvanised steel for the framing and mounting systems of solar panels
- Stainless steel fasteners for securing solar panels and mounting systems
- Tool steel for making specialised tools for maintenance of solar panel
- HSLA steel frames for large sonal panel installation
- Electrical steel for manufacturing inverters and transformers
Development of the East
Though details of this was not elaborated in the Interim Budget, it is clearly mentioned that attention will be provided to empower the eastern region and its people.
From the various investments and allocations the budget discusses, this can be related to:
- Construction of roads, bridges, highways and other civil projects
- Improving connectivity through construction of airports, railways and more
Housing for middle class
The Interim Budget also highlights the government’s plan to launch a scheme to enable middle class sections living in rented accommodations or slums and chawls to buy or build their own houses.
Though details on this were not elaborated, it can be expected that MSMEs can leverage contracts on housing development. Similarly, the steel sector can expect a rise in demand for steel in construction. Popular options would include:
- Steel plates in construction (e.g., galvanised steel plates for ducting and roofing, mild steel plates, checkered steel plates for flooring, etc.)
- Steel frames for construction of walls, and other structures
- TMT bars to reduce construction costs of residential houses
What’s more for the steel sector? Steel prices and procurement
It’s likely that spends on infrastructure will be on the rise in the coming years and terms. Considering the government’s interest towards nation building through robust infrastructure and economic development, steel and related sectors can expect transformation and growth.
Apart from the measures and initiatives mentioned above, the government is even taking steps to check rising imports. There’s also mention of CNG policies for domestic use, solar energy for electricity, achievement in Customs and more. In all, these measures are intended to enable ease of doing business and reduce costs.
Other initiatives the government has made provisions for include skill development, sustainability and green manufacturing, R&D in technology and more.
There’s however the challenge of rising prices of raw materials for steel and imports leading to price fluctuations of steel products. By taking messages for controlling imports (e.g., anti-dumping) and reduced import taxes, the steel sector can offer more competitively priced raw and finished goods to customers.
How infrastructure development impacts MSME steel procurement
A vital discussion point here is how does infrastructure development impact MSME steel procurement?
- Timely procurement of steel will be crucial for small and medium businesses. Considering the demand for different steel types, MSMEs will have to ensure that they have a steady seller-buyer relationship (supplier management) to ensure availability and timely delivery.
- Demand for steel is likely to affect steel prices as well. It’s advisable for MSMEs to collaborate with trusted partners to get the best rates on steel. It’s also advisable to work with partners who offer credit.