Mumbai: India’s finance minister left the steel sector untouched in the budget for 2009/10, disappointing corporates, but higher allocation for infrastructure could push steel demand, officials and analysts said.
Shares in steel firms, which had surged since the Manmohan Singh-led government was re-elected in May, fell about 10% on Monday as the budget disappointed investors.
“Nothing has come for the steel sector. The market was expecting a lot and stock had already rallied on expectations of incentives,” Pawan Burde, an analyst with Angel Broking, said. Indian steel firms had demanded curbs on import of cheap steel to support local prices and imposition of a 15% export tax on iron ore to ensure supplies to local companies.
There is already a 5% import duty on most steel items while iron ore lumps attract a tax of 5 percent.
Finance minister Pranab Mukherjee, however, left all corporate tax rates unchanged.
“Now dumping of steel is possible from CIS countries and China. That is one worry,” Manoj Agarwal, managing director of Adhunik Metaliks, said.
“It did not talk about any public-private model for infra. There is not much for infra and it’s not clear how to reduce the fiscal deficit,” he added.
The budget would enable easier financing for infrastructure firms and allocated more funds to the country’s highways, urban and irrigation projects but the market viewed that as insufficient.
“Except the national highway project, no infrastructure benefits have been announced,” B.K. Goenka, chairman of Welspun Group, which owns Welspun Gujarat and Welspun India, said.
“No action has been taken even though the government wants to achieve infrastructure spends of 9% of GDP by 2014,” he added.
Industry officials were concerned over the fiscal deficit, which could affect India’s credit rating, making fund raising tougher, but a senior official at Jindal Stainless read it as a “long-term” budget, calling it tax neutral.
Fiscal deficit in FY10 is seen at 6.8% of GDP against a target of 5.5%, while total spending during the year was seen at Rs10.2 trillion, up 36% from 2008/09.
“It proposes to give more money to consumers. There will be more clarity on the proposals of disinvestment and the rationalisation of tax structure,” Arvind Parekh, director, strategy, Jindal Stainless, said.
“It’s the first year of the 5-year period. For steel, it is going to be a demand-driven growth. Steel growth will come from the growth in the economy.”