India is likely to add a little over 60 million tonne crude steel making capacity by the end of 12th Plan period (2012-17) which requires around Rs 2.5 lakh crore investment, a Steel Ministry panel has said.
According to estimates of the panel, which comprises the ministry's financial adviser and representatives of almost all leading steel makers, crude steel manufacturing capacity might go up to around 142.3 million tonne by 2016-17 from 81.9 million tonne in 2011-12.
"The requirement of financial closures to support an additional capacity creation of around 60 million tonne will be approximately Rs 2.5 lakh crore during the 12th Plan," it said.
The committee hopes capacity will increase by over 11 million tonne to 93 million tonne by 2012-13; to 104.4 million tonne by 2013-14, to 116.2 million tonne by 2014-15, to 129.8 million tonne by 2015-16 and to 142.3 million tonne by 2016-17.
However, it added that resource mobilisation will remain a key challenge given the stiff rise of the domestic lending rates and shrinking bottom line of steel makers in the wake of costlier raw materials.
"Availability of such large quantum of investible funds at reasonable rates will be a challenging task as domestic lending rates have been rising upwards offlate due to policy shift to encourage savings. Profit margins of steel companies have also been under pressure due to rise in prices of major inputs," the panel said.
To get rid of the situation, it suggests, the government needs to review steel-related sectoral caps of the banking sector.
"The government may also consider easing norms connected with External Commercial Borrowings. Special purpose long-term financing facility may be created to fund huge investment in new steel plants," it said.
The Reserve Bank has raised its key policy rates by 350 basis points since March, 2010 to tame high inflation. The cost of raw materials such as coking coal and iron ore also gone up substantially on international supply shortage.
The panel also sees the country's steel demand to go up by over 70% to 113 million tonne by the end of the next Five-Year Plan, considering the projected $1 trillion investment in the infrastructure sector.
Last fiscal, the steel demand was 65.61 million tonne.
As per its projections, the demand for steel will amount to 77.3 million tonne by 2012-13, 85.05 million tonne by 2013-14, 93.6 million tonne by 2014-15, 103.05 million tonne by 2015-16 and 113.3 million tonne by 2016-17.
