Steel demand in India rose more than 8 percent in 2009, buoyed by the
government's focus on infrastructure and revival in the automobile and
consumer goods sectors of Asia's thirdlargest economy.
With strong growth predicted for the auto and housing sectors in 2010,
steel demand is set to grow in double digits. Global steel production, however, fell 8 percent last year as demand from key industries shrank amid the economic downturn.
Following are some key facts about India's steel industry, which is
witnessing growth rates second only to China.
• India's iron and steel industry contributes about 2 percent of gross domestic product, or about $20 billion to the country's $1 trillion economy.
• India is now the fifth largest producer of steel in the world, behind
China, Japan, Russia and the United States.
• It produced 55.1 million tonnes of the alloy in 2009, but is still only a
tenth the size of China, the No.1 steel producing country.
• State run Steel Authority of India is the largest producer, with
capacity of 13.8 million tonnes. Tata Steel, the world's No. 8
steelmaker, has capacity in India of 7 million tonnes, while JSW
Steel is third with annual capacity of about 6.9 million tonnes.
• About half of India's steel industry comprises a large number of makers of higherend
Rerolled steel with less than one million tonnes of capacity
• India's steel producing capacity is likely to touch 120.62 million
tonnes by 2011/12, according to the federal steel ministry. Based on
plan ned projects, capacity could go up to 293 million tonnes by 2020.
• Regional governments have signed 222 memorandums of understanding for
planned capacity of 276 million tonnes.
• India has immense scope for increasing consumption of steel. Current per
capita consumption is around 40 kg, compared with 100 kg in Brazil, 250 kg
in China and a global average of 198 kg. Steel demand is expected to rise 56
percent annually until 201920.
• India's growing status as a global smallcar hub is drawing global steel makers, especially Japanese firms, to the country. World No. 2 steelmaker Nippon Steel is in talks with Tata Steel for an automotive steel joint venture, JFE Steel has
Tiedup with India's JSW Steel, while Sumitomo Metal Industries Ltd
is considering a JV with Bhushan Steel.
• Indian steel companies have been among the best performing stocks
in 2009, widely outperforming the benchmark stock index.
• Shares of Tata Steel, SAIL and JSW Steel rose between 24
Times during the year, compared with the 81 percent rise in the main BSE
A higher inflation target for central banks would be a bad
EVEN in economics, the guardians of orthodoxy are not given to capricious
changes of mind. So when economists at the IMF question received
wisdom and the fund's established views twice in a week, it is no small
The initial firecracker came on February 12th, with an analysis of the
lessons of the financial crisis for macroeconomic policy, led by Olivier
Blanchard, the IMF's chief economist. The report called for several bold
innovations. The most radical of these is that central banks should raise
their inflation targets—perhaps to 4% from the standard 2% or so.
The logic is seductive. Because inflation and interest rates were low when
the crisis hit, central banks had little room to cut rates to cushion the
economic blow. Once their policy rates were down to almost zero, the
world's big central banks had to turn to untested tools, such as
quantitative easing. Politicians had to boost enfeebled monetary policy by
loosening their budgets generously. Had inflation and interest rates been
higher, policymakers would have had more room to cut rates. That gain
might outweigh the small distortions from modestly higher inflation,
especially if countries reformed their tax systems to make them inflationneutral.
Were central banks starting from scratch, such a costbenefit
Analysis would indeed be the right way to set an inflation target. He may be
understating the costs of higher inflation. Many studies suggest that
inflation of 4% would do little, if any, harm to economic growth, but others
reckon that the threshold at which distortions kick in is lower. And since
higher inflation tends to mean more volatile prices, the risks increase as
the target rate rises.
Nor is it obvious that starting with interest rates so low was either a
crippling constraint on central banks' actions or the main reason for the
weakness of monetary policy. Central banks showed plenty of ingenuity
with quantitative easing. Other tools, such as negative interest rates, could
also be developed if need be. And with the financial system in crisis and
debtridden consumers unwilling to borrow, monetary loosening might
have been a feeble source of stimulus even if inflation had started higher.
Yet the biggest problem is that central banks are not starting from scratch.
They have spent two decades convincing the public that they are
committed to price stability and, rightly or wrongly, have equated this with
inflation of around 2%. The stabilisation of expectations has been
remarkably successful—and it allowed policymakers to cut rates as fiercely
as they did. But it cannot be taken for granted, especially when some rich
countries' budget deficits are so vast. It would disappear fast if central
bankers suddenly said that inflation of 4% was just fine after all. How
could they convince investors that the change was intended to make policy
more flexible, rather than to inflate away the state's debts? With their
credibility undermined, the next crisis would be much harder to fight. As
an intellectual exercise, Mr Blanchard's idea is intriguing. As a policy
proposal, it is reckless.
That is not true of the IMF's second piece of revisionism. With richworld
interest rates at rock bottom, emerging economies are likely to face
continuing surges of foreign capital. Until now, the IMF has sniffed in
disapproval when countries have introduced controls. It would be more
useful if it helped countries decide when such controls might work and
designed them to do the most good and least harm. The new paper makes
it easier for the fund's economists to get on with this. It may be less
exciting intellectually than rewriting central banks' rulebooks.
But it is probably more useful and certainly less dangerous.