Monday, May 10, 2010


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.

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