‘Band-aid’ solutions to boost steel sector won’t work: Arun Jaitley

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“Adverse global cues are only transient trends. India has the strength to withstand global challenges posed by external factors. Our economy’s internal indicators are good,” the finance minister told the gathering.

He said the domestic steel industry has been adversely impacted by external factors and cited that the excess capacity in China and the competitiveness of its mills has triggered concerns within the domestic as neighbouring China has a “huge excess” steel capacity and its mills are also price competitive.

“The Band-Aid solutions to deal with these problems do not work. You (steel industry) will have to be cost competitive. In the initial phase hand holding may take you to a point, but beyond that one will have to stand up on his own feet,” Jaitley said. The finance minister said any adverse impact on the domestic steel industry has a spiraling effect on the health of the banks. However, he said, steel consumption will grow as the country grows. Jaitley emphasised that the country’s iron ore mining capacity should be expanded to curb rising raw material prices and that it is a key way to make the steel industry competitive.

The Reserve Bank of India in its Financial Stability Report in April says that five out of the top 10 private steel producing firms are under severe stress on account of delayed implementation of their projects due to land acquisition and environmental clearances among other factors.

Though the sector holds very good long term prospects, it is currently under stress, necessitating a close watch by lenders, the Central bank said. According to a Credit Suisse report, stressed steel companies with borrowings of $31 billion (over Rs 1,96,000 crore) are likely to be the key source of stress for banks in the next two financial years.

As much as 37 per cent of India Inc’s borrowings are held by companies, led by steel firms, which are not generating enough revenues to service their interest expenses — or stressed assets.