India has now emerged as the second largest steel producer in the world after China as it edged past Japan. As per a report, India produced 96.92 MT of steel in the first 11 months of 2018, nearly 4.5 MT more than that of Japan. Of course, China with steel capacity of 857 million tonnes remains the leader by a huge margin. India has aggressive expansion plans to push capacity three-fold by the year 2030. Most Indian steel companies are betting heavily on the sharp increase in demand for steel in the next 10 years and some are even leveraging the NCLT route to get capacities at reasonable costs.
Fiscal indiscipline remains a big risk for the Indian economy. Economist, Gita Gopinath, flags off India’s fiscal slippage risk while speaking at the World Economic Forum in Davos. The chief economist of the IMF, Gita Gopinath, highlighted that the fiscal slippage was likely due to weak GST and divestment revenues on the one hand and higher welfare spending on the other. Gopinath also added that the situation was worse if state deficits and contingent deficits were factored in. In fact, contingent deficit had gone up sharply from 0.4% to 2.3% in the last four years.
The center may look to apply the Telangana model at an all-India level. The Indian government is likely to compensate farmers through direct cash transfer rather than through subsidies. This normally ensures that the slippages in last mile delivery are reduced to the extent possible. These cash transfers could cost the government nearly Rs.70,000 crore per year, as per a report put out by Bloomberg Quint. Net of the current subsidy bill, the burden may not be too steep on the Indian economy. This strategy was first adopted by Telangana and is now being followed by Jharkhand and Odisha too.
World leaders at Davos rule out the possibility of a global recession for now. In fact, most Indian CEOs at the Davos forum are looking at India emerging as a counterbalance to China considering that China’s growth has slowed down to 6.4% officially. At the Davos Summit, IMF lowered the world growth rate to 3.5% and 3.6% for the calendar years 2019 and 2020. Despite the gloomy outlook, leaders ruled out a global recession. Even the IMF is quite confident that India will remain the fastest growing large economy in the world, although China will continue to remain the engine of world growth.
Brent crude closed at $62.68/bbl, almost close to the 2 month high of Friday. Brent crude remained strong even after rallying 20% from its recent lows. The Chinese announcement that it would buy over $1 trillion of goods from the US, is likely to ease out the trade tensions. Also, the China stimulus is likely to give a boost to oil demand and oil prices. OPEC has also been quite enthusiastic about cutting output to keep prices at higher levels. US shale production, which was the biggest risk to global oil prices, has also shown signs of supply and inventory petering out. According to oil traders, positive futures build up in the oil space has been at a recent high indicating the underlying bullishness for crude oil. A lot will predicate on how the China stimulus and the trade negotiations actually pan out.
The first of the major PSU banks to announce results, Union Bank, disappointed the street as it missed its estimates for the third quarter. For the third quarter ended December 2018, Union Bank reported profits of Rs.153 crore compared to a loss of Rs. (-1250) crore in the corresponding quarter last year. However, this was just about 50% of what the analysts had estimated, despite making lower than anticipated provisions. Reuters reported that the gross NPAs were lower but still worrisome at 15.66%. Most of these PSU banks have an uphill task before they can pose a serious challenge to private banks.
