A REPORT

ON
A STUDY OF INDIAN ECONOMY
AND
STEEL INDUSTRY OF INDIA

CONTENT:-

1. Overview of Indian economy

2. Key economic indicators
3. Indian steel industry
4. Porter’s model
5. SWOT analysis
6. References

SUBMITTED TO- SUBMITTED BY-

PROF. MAYANK PATEL KAVAN SHAH

FACULTY OF SECURITY ANALYSIS MEGHA SHAH

NIDHI SHAH

SHASHIKANT SAINI
Global Economic Prospect for Year 2010

Global economy is seems to be expanding after a recent shock. Indian Economy, however just felt the
blow of the global economic recession and the real economic growth have seen a sharp fall followed by
the lower exports, capital outflow and corporate restructuring. It is expected that the global economies
continue to stay strong in the short-term as the effect of stimulus is still strong and the tax cuts are
working. Due to strong position of liquidity in the market, large corporations now have access to capital
in corporate credit markets.

Contribution of countries to global steel

industry (Sales)
EUROPE
12% 17% USA
8% BRAZIL
JAPAN
35% 3% CIS
9% INDIA
CHINA
8%
8.2% OTHERS

Indian Economy Overview

The Indian economy has registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-year (y-
o-y) growth in its fourth quarter. The growth is driven by robust performance of the manufacturing sector
on the back of government and consumer spending. GDP growth rate of 7.4 per cent in 2009-10 has
exceeded the government forecast of 7.2 per cent for the full year. According to government data, the
manufacturing sector witnessed a growth of 16.3 per cent in January-March 2010, from a year earlier.

Industries driving the economic growth:

Following are key industries with their significant growth rates in 2009-10 over the corresponding period
last year: Mining and quarrying (10.6 per cent), manufacturing (10.8 per cent), electricity, gas and water
supply (6.5 per cent), construction (6.5 per cent), trade, hotels, transport and communications (9.3 per
cent), financing, insurance, real estate and business services (9.7 per cent), community, social and
personal services (5.6 per cent).

Impact of global recovery on Indian economy

The global economic recovery also had its impact on the Indian economy, as visible in its balance of
payments (BoP) during October-December 2009. India not only registered robust exports and imports
figures, it also showed remarkable growth in its merchandise exports during the period. Further, during
the period, trade deficit also witnessed a downfall and stood at US$ 89.5 billion, in comparison to US$
98.4 billion during October-December 2008.
Key economic indicators:
2007 2008 2009 2010
GDP Growth 9.40% 7.30% 7.60% 8.30%
CPI 6.40% 9.30% 5.50% 4.90%

Inflation rates trend:

Year Jan Feb March April May June

2010 16.22 14.86 14.86 13.33 13.91 13.73

Interest Rate: 4.5%

Growth rate: 8.3%
Inflation Rate: 13.73%
Bank rate: 6%
Unemployment rate: 7.32%
Repurchase (repo) rate: 5.75%
Reverse repurchase rate: 4.5%
Cash reserve ratio: 6%
Statutory liquidity ratio: 25%

Indian Steel Industry

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according to the Annual Report
2009-10 by the Ministry of Steel, India has emerged as the fifth largest producer of steel in the world and
is likely to become the second largest producer of crude steel by 2015-16.Recently, Steel Minister, Mr.
Virbhadra Singh said that India will become the world's second-largest steel producer by 2012, more than
doubling its capacity to 124 million tones (MT) as part of the push being given to assist overall
infrastructure development.

Production

Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the Ministry of Steel.

The National Steel Policy 2005 had projected an annual steel consumption growth of 7 per cent based on
GDP growth rate of 7-7.5 per cent and production of 110 MT of crude steel by 2019-2020. Nonetheless,
with the current rate of ongoing Greenfield and Brownfield projects, the Ministry of Steel has projected
that these growth trends are likely to be exceeded and it is envisaged that in the next five years demand
will grow at higher annual average growth rate of over 10 per cent as compared to around 7 per cent
growth achieved between 1991-92 and 2005-06.

Moreover, according to the ministry, the crude steel production capacity in the country by 2011-12 will be
nearly 124 MT. According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have
been signed with various states for planned capacity of around 276 MT. Major investment plans are in
Orissa, Jharkhand, Chhattisgarh, West Bengal, Karnataka, Gujarat and Maharashtra.
According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel production grew
at a compounded annual growth rate of 8.6 per cent during 2004-05 and 2008-09.

Consumption

India's steel consumption rose 8 per cent in the year ended March 2010, over the same period a year ago
on account of improved demand from sectors like automobile, infrastructure and housing. The country’s
steel consumption increased to 56.3 MT in the 12 months to March 2010 from 52.3 MT in the previous
year, as per the Ministry of steel.

Investments

A host of steel companies have lined up major investment proposals. Furthermore, with an expanding
consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments.The
domestic steel sector has attracted a staggering investment of about US$ 238 billion, according to the
Minister of State for Steel, Mr A. Sai Prathap.

This consists of nearly 222 MoUs signed between the investors and various state governments mostly in
the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.

SAIL is planning to set up a 12-million tonnes plant in Jharkhand.

In December, India’s largest engineering conglomerate Larsen & Toubro (L&T) and state-owned
Nuclear Power Corporation of India Limited (NPCIL) formed a US$ 373.2 million joint venture
for specialized steel and forging products.
Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.8 million
stainless steel-cum-alloy steel plant at Rohat, Jodhpur.
Tata Steel has entered into a joint venture with Japan’s Nippon Steel for production and sales of
automotive cold-rolled flat products at Jamshedpur. The JV is expected to invest US$ 400 million
to set up an automobile venture in India.
Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11 and plans to
increase capacity of its Bellary plant in Karnataka from 7 MT to 10 MT by end of 2010-11.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of fiscal and
administrative steps to contain steel prices. Central value added tax (CENVAT) on steel items was
reduced from 14 per cent to 10 per cent with effect from February 2009.Moreover, in the Union Budget
2010-11, the government has allocated US$ 37.4 billion to the infrastructure sector and has increased the
allocation for road transport by 13 per cent to US$ 4.3 billion which will further promote the steel
industry.

Exchange rate used:

1 USD = 46.36 INR (as on February 2010)

1 USD = 44.42 (as on April 2010)

 Michael porter’s five force model

For Steel Industry

Bargaining power of
Supply
Buyer

Bargaining power of Threats of new entry

Competitive rivalry
Suppliers

Threat of substitutes

Steel Industry
Supply With trade barriers having been lowered over the years, imports play an
important role in the domestic markets.

Demand The demand is derived from sectors that include infrastructure, consumer
durables and automobiles.

Barriers to entry High capital cost, technology.

Bargaining power of The government can increase railway freight cost and grid power cost. This in
suppliers turn will determine the final price of metal.

Bargaining power of High presence of large numbers of suppliers and access to global market.
customers

Competition High presence of large number of players in the unrecognized sector.

SWOT Analysis –

•availabilty of iron ore & coal •unscientific mining

•low labour wage rates •low productivity
•abundance of manpower •cooking coal import
dependence
•mature production base
•low R&D investment
• high cost of debt
strength weakness •inadequate infrastructure

opportunity threat
•unexplored rural market •china becoming superior as
•growing domestic net exporter
demand •protectionism in west
•exports •dumping by competitors

References:-

websites

www.economist.com

www.indiainfoline.com

www.mckinsey.com

www.worldsteel.com