Steel: take the slowdown seriously

The bad news continues to surround steel. While many believe that the current state of affairs in the industry is the result of an overreaction to the sudden disappearance of liquidity, there are reasons to believe that unfortunately it is not so simple. There is clear evidence of demand destruction around the world as also in India. The government needs to do more and that too differently, to see that the economy at large and the steel industry in particular remains in shape.

The government has two issues to confront. At one level, it has to see that consumption of steel increases and the government wants to achieve that at one level by supporting the steel consuming sectors such as construction and automobiles. At another, it seeks to pull the steel industry out of trouble by creating conditions so that steel prices can be raised in the home market. The government understands that the industry faces competition mainly from imports and if the same can be restricted directly or indirectly and the costs of imports can be raised through raising tariff barriers, the industry will get some relief.

Different countries have faced the problem differently in varying degrees. Invariably, each has witnessed a drop in industrial output and a slowdown in construction. All major industrial nations have announced stimulus packages to boost their sagging economies up. The government of India has also done its bit.

However, more thoughts should have gone into devising measures to pull the industry out of trouble rather than trying measures, which in certain cases will be opposed by the user industries and in other will leave the economy with no impact. The actions taken so far indicate that the government has not really appreciated the depth of the problem in the real economy and looks complacent. The steel industry can actually see a catastrophe if not handled carefully now.

Not a measure for the steel industry, but the government should go for a massive income tax cut to boost the sagging sentiments of the working population and especially those who can go for the big spends. Impact of an excise duty cut is not noticed. It does not bring confidence back. Income tax cuts will have a clear impact. It should be so high that people come out on to the street to celebrate it.