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Global economy

Overview

The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices decreased about 6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds and crypto assets reported an aggregated value drawdown of USD26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.

Gross FDI inflows – equity, reinvested earnings and other capital – declined 8.4% to USD 55.3 billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15% to USD 36.75 billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI TR(Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

Performance of major economies

United States:	China:	United Kingdom:	Japan:	Germany:
Reported GDP growth of 2.1% compared to 5.9% in 2021	GDP growth was 3% in 2022 compared to 8.1% in 2021	GDP grew by 4.1% in 2022 compared to 7.6% in 2021	GDP grew 1.7% in 2022 compared to 1.6% in 2021	GDP grew 1.8% compared to 2.6% in 2021

(Source: PWC report, EY report, IMF data, OECD data)

Outlook

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview

Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is estimated at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

Regional growth (%)	FY 20	FY 21	FY 22	FY23
Real GDP growth (%)	3.7	-6.6%	8.7	7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

Regional growth (%)	Q1FY23	Q2FY23	Q3FY23	Q4FY23
Real GDP growth (%)	13.1	6.3	4.4	6.1

(Source: Budget FY2023-24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 8% higher rainfall over the long-period average. Due to un seasonal rains, Indias wheat harvest was expected to fall to around 102 million metric tons (MMT) in FY 2022-23 from 107 MMT in the preceding year. Rice production at 132 million metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 million hectares from 28 million hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 Lakh hectares in FY 2021-22 to 109.84 Lakh hectares in FY 2022-23.

Indias auto industry grew 21% in FY 2022-23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 million units in FY 2022-23, crossing 3.2 million units in FY 2018-19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84%.

Till the end of Q3 FY 2022-23, total gross non-performing assets (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY 2022-23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY 2023-24.

As Indias domestic demand remained steady amidst a global slowdown, import growth in FY 2022-23 was estimated at 16.5% to USD 714 billion as against USD 613 billion in FY 2021-22. Indias merchandise exports were up 6% to USD 447 billion in FY 2022-23. Indias total exports (merchandise and services) in FY 2022-23 grew 14% to a record of USD 775 billion in FY 2022-23 and is expected to touch USD 900 billion in FY 2023-24. Till Q3 FY 2022-23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to USD 18.2 billion, or 2.2% of GDP. Indias fiscal deficit was estimated in nominal terms at ~ H17.55 Lakh Crore and 6.4% of GDP for the year ending 31st March, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from USD 74.01 billion in 2021 to a record USD 84.8 billion in 2021-22, a 14% Y-o-Y increase, till Q3 FY 2022-23. India recorded a robust USD 36.75 billion of FDI. In 2022-23, the government was estimated to have addressed 77% of its disinvestment target ( H 50,000 Crore against a target of H65,000 Crore).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately USD70 billion in 2022, primarily influenced by rising inflation and interest rates. Starting from USD606.47 billion on 1st April, 2022, reserves decreased to USD578.44 billion by 31st March, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from H75.91 to a US dollar to H82.34 by 31st March, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital.

The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months.

Indias total industrial output for FY 2022-23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4% in 2021-22. India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8%.

In FY 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1% Y-o-Y in RE 2022-23. The total gross collection for FY 2022-23 was H18.10 Lakh Crore, an average of H1.51 Lakh a month and up 22% from FY 2021-22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to H1.6 Lakh Crore. For FY 2022–23, the government collected H16.61 Lakh Crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6% more than what was collected in the previous fiscal.

Per capita income almost doubled in nine years to H172,000 during the year under review, a rise of 15.8% over the previous year. Indias GDP per capita was 2,320 USD (March 2023), close to the magic figure of USD 2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3% in FY 2022-23.

Outlook

There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5% in April 2023. India is expected to grow around 6-6.5% (as per various sources) in FY 2023-24, catalyzed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down. Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure investment. This unprecedented investment is expected to translate into a robust building block that, going ahead, moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in FY 2022-23 was 10,993 Km; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 Km in the last financial year (Source: IMF).

The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years.

Indias production-linked incentive appears to catalyze the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers. Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity.

According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget FY 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to Rs 10 Lakh Crore, equivalent to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of Rs 5.94 Lakh Crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly H20,000 Crore was made for the PM Gati Shakti National Master Plan to catalyze the infrastructure sector. An outlay of Rs 1.97 Lakh Crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 Km. The overall road construction project pipeline remains robust at 55,000 Km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services.

Global steel industry overview

In 2023, it was previously predicted that steel demand would increase by 1% due to the expected slowdown in inflation, the end of credit tightening by central banks and the recovery of consumption and employment. However, due to the Chinese real estate market slowdown and strict COVID policies, demand for steel is expected to grow slower than anticipated. The real estate and infrastructure sector, which is the largest consumer of steel, is experiencing high debt and bankruptcy rates leading to a contraction in real estate investment and price declines. The Chinese government introduced measures to support the real estate sector, but it is unclear whether these measures will be effective. Strict COVID policies are also expected to continue to weigh down on steel demand.

Global steel prices are expected to stabilize steel demand and could see further growth at a CAGR of 2.2% during the forecast period 2023-2024 to reach a capacity of 1881.4 Mt. On the price front, global steel prices are set to stabilize in FY 2022-23 year-on-year, after falling over 40% to USD 570-590 per tonne in December 2022 from the early-April peaks of USD 1,000 per tonne on tepid steel demand. While China continued to be the largest global crude steel producer, there was moderate growth in steel production in countries such as India, Japan, USA, Germany and Brazil, amongst others, signifying a normalcy returning to operations.

Total production of crude steel, 2022

China	10,17,959	South Korea	65,846
India	1,25,377	Germany	36,849
Japan	89,227	Turkey	35,134
United States	80,535	Brazil	34,089
Russia	71,469	Iran	30,593

(source: worldsteel.org)

Indian steel industry overview

In 2023, steel demand is expected to grow by 8% and the recent removal of export duties bodes well for the domestic steel industry to compete aggressively in the global market. However, the year 2022 was a mixed one for the domestic steel industry due to the impact of the Russia-Ukraine war on the global steel industry. While global steel prices fell, domestic prices also came down. On the other hand, the cost of input materials, especially coking coal, saw a steep price rise. Steel companies are planning to increase their capacities to meet the growing demand. While CPSEs are planning to add around 18 MT, private companies are likely to add around 95 MT and SSI (Secondary Steel Industry) around 33 MT capacity by 2030.

Despite the challenges of inflation, recession and energy crisis in Europe, the Indian steel industry has performed well in 2022. India currently ranks as the worlds second-largest producer of crude steel, with an output of 10.14 million tonnes (MT). The World Steel Association (WSA) has also predicted growth in the Indian steel sector, with a projected increase of 6.1% in 2022 and 6.7% in 2023.

Between January and November 2022, India produced 113.43 million tonnes of crude steel, representing a 10% increase compared to the same period last year. The Indian government aims to double the countrys current annual crude steel production capacity from 150 MT to 300 MT.

To this end, the government introduced the Production Linked Incentive (PLI) scheme last year to increase the production of high-end alloy specialty steel. Special grade steel is used in a range of sectors, including power, shipping, railways and automobiles and its demand is currently met through imports. The governments focus will be on ensuring raw material security for steel production, as the country depends heavily on the import of raw materials such as coking coal. In FY22, India imported 57 MT of coking coal to produce 120 MT of crude steel.

In 2022, the government took various measures to support the steel industry, including removing export duties on steel items and extending export benefits under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to products of iron and steel for a specified period. In April-October 2022, finished steel imports stood at 3.151 MT, up 14.5% over the same period last year. The year-on-year increase in October was around 78%.

(Source: ibef.org, outlookindia.com)

Government initiatives

The Indian governments initiatives to boost the domestic steel industry comprize the following: • The government allowed 100% Foreign Direct Investment (FDI) in the steel sector under the automatic route.

• The steel sector in India has shown positive production performance in the first eight months of the current fiscal year (April-November 2022). The domestic production of finished steel during this period was 78.090 million tonnes, an increase of 6.9% compared to the corresponding period last year.

• Domestic consumption during this period was at 75.340 million tonnes, which is 11.9% higher than the corresponding period last year.

• The domestic crude steel production was 81.96 million tonnes, showing an increase of 5.6% compared to the same period last year.

• The Indian Cabinet has approved a Production Linked Incentive (PLI) scheme for domestic production of specialty steel with an outlay of H6,322 Crore.

• The scheme is expected to start in FY 2023-24 and the incentives will be released in FY 2024-25. As many as 67 applications from 30 companies have been selected under this scheme, which is expected to bring in a committed investment of H42,500 Crore. This will lead to a downstream capacity addition of 26 million tonnes with the potential to generate employment for 70,000 people. • To address the high prices of crucial raw materials and intermediates, including iron and steel, the government made modifications in tariffs. The changes included reducing the import duty to zero for Anthracite/Pulverized Coal Injection (PCI) coal, Coke and Semi-coke and Ferro-Nickel.

• However, the export duty for iron ores/ concentrates and iron ore pellets was raised to 50% and 45% respectively. Additionally, pig iron and several steel products were imposed with 15% export duty. These measures resulted in a decline of steel prices by approximately 15-25% across the board and stabilization of the market. However, the government rescinded the notification on 18.11.2022 and restored the status prior to 21.05.2022, taking into consideration the concerns of all stakeholders concerned.

• Indias steel industry contributes 12% of the countrys CO2 emissions, with an emission intensity of 2.55 tonnes of CO2 per tonne of crude steel (TCS), which is higher than the global average emission intensity of 1.85 TCS. India has committed to achieving net zero emissions by 2070 as part of its Glasgow commitments.

• The new Vehicle Scrap page Policy will help in decreasing steel prices since the policy facilitates recycling the materials used in old vehicles.

(Source: ibef.org, economic times. india times. com, construction week online. in, news on air.com, pib.gov.in)

Sectorial growth drivers

Per capita consumption: During the financial year 2022, the consumption of finished steel in India was 106 million tons (MT). The average per capita steel consumption in the world is about 233 Kg, whereas in India, it is approximately 77.2 Kg, which has increased by 50% in the last 8 years. This is one-third of the average per capita steel consumption in the world. (Source: pib.gov.in)

Growing population: Indias population has surpassed Chinas and is estimated to be 1.41 billion as of 2022 end. Further, it is expected to reach 1.5 billion by 2030. (Source: livemint.com)

Urbanisation: By 2030, over 400 million people are expected to live in Indian cities, which occupy only 3% of land but contribute 60% to the countrys GDP. (Source: Indian.un.org)

Government support: In order to smoothen and expedite the numerous initiatives, all projects, whether green field or brown field with costs greater than RS. 100 Crore per project, were identified, in the Harmonised Master List of Infrastructure and brought under the National Infrastructure Pipeline (NIP), with the focus to enhance project preparation and attract investments into infrastructure. With an initial authorized amount of H102 Lakh Crore (USD 1.4 trillion), NIP is anticipated for a period of five years till 2025.

Demand for affordable housing: The Indian affordable housing market is expected to grow 1.5x from ~ 25 million households in 2010 to 38 million in 2030.

Infrastructure growth: Growing steel applications especially in roofing, gates, parking space, false ceiling, etc. could catalyze steel-use in urban areas in the medium term. As a whole, the real estate sector will observe steel demand through a substantial rise in the intensity of steel in construction. Moreover, a steady pickup in the investment cycle and healthy growth in end-use could support aid from the industrial and commercial segments.

Opportunities and threats

Major opportunities in the steel sector

The Atmanirbhar Bharat program by the Indian government aims to enhance domestic manufacturing and this presents a promising chance for steel production and consumption in the country. The production-linked incentive scheme is designed to encourage more steel production, which is expected to increase demand for special steel in sectors such as automobiles, consumer durables, solar equipment and telecommunications.

There are also opportunities in various sectors, including automotive, capital goods, infrastructure, airports, railways, power and more.

Automotive	The manufacturing industry in India makes up around 7.1% of the countrys Gross Domestic Product (GDP) and nearly 49% of its manufacturing GDP. The automotive sector has a value of USD 222 billion, whereas the EV market in India is predicted to be worth only USD 2 billion by 2023 and USD 7.09 billion by 2025. The industry accounts for around 10% of the demand for steel in India. With increasing capacity addition in the automotive industry, demand for steel from the sector is expected to be robust.
Capital goods	Around 11% of the overall steel consumption can be attributed to the capital goods industry, which is projected to witness a surge of 14-15% by the end of the fiscal year 2025-26. This sector has the potential to expand both in terms of tonnage and market share. It is anticipated that the capital expenditures of Indian companies will grow, which would create higher demand for steel.
Infrastructure	The infrastructure industry accounts for 9% of steel consumption, but it is predicted to rise to 11% by 2025-26. The increasing investment in infrastructure projects could lead to a surge in demand for steel products in the future. Approximately 70% of the countrys infrastructure, valued at around H6 Lakh Crore (USD 89.50 billion), is yet to be constructed, indicating a significant potential for growth in the steel sector. The Ministry of Finance has introduced a NIP 2021 plan with an outlay of 111 Lakh Crore in the next 5 years, which includes various infrastructure sectors such as real estate and power.
Railways	Expansion of the Dedicated Rail Freight Corridor (DRFC) network is currently underway and it is expected to be further expanded in the near future to facilitate freight movement across the country. This expansion, along with the introduction of high-speed bullet trains, metro trains, gauge conversion, the establishment of new lines and electrification, will contribute to the growing demand for steel.
Power	The Indian government has set a target to achieve a capacity of 500 GW by the year 2030. Additionally, the recent launch of E20 fuel and a renewed focus on biofuels has created new investment opportunities in the energy sector. Furthermore, the development of waterways in India is being prioritized to promote greener cargo handling and encourage the use of water-based transport. This will lead to enhancement in both transmission and distribution capabilities, thereby raising steel demand from the sector.
Telecom	The Indian telecom industry is expected to expand by USD 12.5 billion every three years. India will require approximately 22 million skilled workers in 5G-centric technologies like Internet of Things (IoT), Artificial Intelligence (AI), robotics and cloud computing by 2025. The telecom connectivity across the country which will enhance the consumption of the steel Products.

Government Policies

National Steel Policy, 2017: The National Steel Policy aims to increase Indias per capita steel consumption from 77.2 Kg to 160 Kg within the next decade. To achieve this, the countrys domestic crude steel capacity could also be doubled, reaching a target of 300 MTPA. This could create opportunities for significant growth among major Indian players in the steel industry, as both demand and regulations will drive domestic steel production.

Scrap Recycling Policy, 2019: This Policy plans to establish eco-friendly management systems that promote the processing and recycling of ferrous scrap through well-organized and scientifically advanced metal scrapping centers throughout India. This will reduce Indias reliance on imported scrap and promote self-sufficiency in the availability of scrap. This development is beneficial for steel manufacturers who prioritize producing steel using the electric arc furnace (EAF) method.

Production linked Incentive (PLI) Scheme: On 17th March, 2023, the Ministry of Steel signed 57 Memorandums of Understanding (MoUs) with 27 companies under the governments production-linked incentive scheme, specifically for specialty steel. These MoUs are expected to generate Rs 30,000 Crore in new investments in the Indian specialty steel industry, resulting in approximately 50,000 to 55,000 new jobs and adding value to the steel sector. The PLI scheme for specialty steel was approved by the Union Cabinet on 22nd July, 2021, with a five-year budget of Rs 6,322 Crore to promote manufacturing, attract capital investment, generate employment and promote technology upgrading in the steel sector. This initiative is in line with the ‘Make in India policy to boost domestic manufacturing and reduce import bills. By sourcing specialty steel domestically and creating products for export, India aims to address the demand gap in the market. The PLI scheme is expected to draw investments worth approximately H400 billion (USD 5.37 billion) and increase the capacity of specialty steel by 25 million tonnes, from 18 MT in 2020-21 to 42 MT in 2026-27, while generating employment opportunities for over half a million people.

Key obstacles faced by the Indian steel industry

Finance: The steel industry in India requires significant capital investment, with a cost of around Rs 7,000 Crore needed to establish 1 tonne of steelmaking capacity through the greenfield route. Given the high cost of finance in India compared to countries like China, Japan and Korea, the cost of borrowing for new steel capacity or expansion is also high. This can add up to USD 30-35 to the final cost of steel. Furthermore, the cyclical nature of steel demand means that investments in the sector can be eroded during a downturn. To achieve the ambitious goals set out in the National Steel Policy of doubling the steel capacity, financing capacity addition of 100-150 million tonnes will be the biggest challenge for the Indian steel industry. The policy document recognizes that financing the required additional investment of Rs. 10 Lakh Crore will be the primary challenge.

Logistics: Transporting raw materials and finished steel in India is a challenging and costly task for most steel manufacturers due to the bulk nature of iron ore and coal. The transportation of these materials, which are necessary for steel production, to steel mills and demand centers is always arduous. For every 1 tonne of steel produced, roughly 3 tonnes of raw material needs to be transported. As India aims to double its steel production in the next decade, the logistics requirements of the domestic steel industry could become difficult to manage without improvements in physical infrastructure, particularly by the Indian Railways.

Raw materials: Indias iron ore and coal reserves are abundant, but it lacks coking coal reserves. The National Steel Policy aims to achieve a steel-making capacity of 300 million tonnes and 68% of it will be through the blast furnace route which requires coking coal. This means that around 200 million tonnes of steel will be produced using coking coal, requiring an annual consumption of about 180 million tonnes of coking coal. India largely relies on imports from Australia for its coking coal requirements. However, due to the unpredictability of the weather, there have been significant fluctuations in coking coal supply and prices. The Jharia coal fields in eastern India have enormous coal reserves estimated at 19.4 billion tonnes, which could potentially secure the coal requirement of the steel industry and encourage investment in the region. Therefore, if India is to consume 180 million tonnes of coking coal annually, around 60-65 million tonnes must come from domestic sources. The development of the Jharia fields is crucial to the growth aspirations of the Indian steel industry.

Environment and energy consumption: The Indian steel industry is facing challenges related to the environment and competitiveness. The industry is energy-intensive, leading to a higher carbon footprint and the second biggest consumer of energy globally. Using energy-efficient methods and the latest technologies can reduce production costs and improve competitiveness. However, the industry needs to continuously upgrade to energy-efficient technologies and invest in processes to reduce its carbon footprint. The Indian government has released draft environment guidelines that may become stricter in the future. In addition to these challenges, there are two potential threats that could hamper the growth aspirations of the Indian steel industry. The first is global steel trade, with China being the largest steel producer, accounting for 53% of global production. Protectionist barriers put up by various nations against steel imports can make India a potential destination for displaced exports from countries like China, Japan and Korea. The second threat is digital disruption, which can challenge traditional business models and affect customer expectations. The steel industry needs to develop strategies to prepare for unexpected challenges and become more competitive through digital disruption.

Risks and concerns

Risk is a crucial aspect of all businesses and must be managed to minimize its impact. The Company has identified, estimated and controlled risks across all its business verticals and activities, such as operations, finance and HR, leveraging its knowledge of the industry trends, competitors and policies. However, there are unpredictable challenges that may affect the industrys performance, such as inflation, liquidity crunch, slower industrial growth, depreciating rupee, political instability and volatile commodity prices. Despite the Companys risk mitigation measures, these challenges can still have an impact. During FY 2022-23, the Company focused on value chain excellence, operational excellence, pandemic and crisis management, product mix enrichment, customer centricity, sustainable initiatives, employee engagement, synergy and integration and leveraging IT and digital to sustain the most critical situation during the pandemic. The Companys priority is to implement long-term initiatives to manage liquidity robustly and optimize working capital while considering all risk parameters.

Evaluation of financial performance based on operational performance

SMEL is a prominent steel producer in India, operating an integrated value-chain and located in West Bengal and Odisha. The Company specializes in the production of long steel products, structural products, ferro alloys and aluminium foil and also has its own captive power plant and railway siding. The Company has a strong track record of generating operating profits since its establishment in fiscal 2005, having reported positive EBITDA figures every fiscal year. SMELs products are distributed both domestically and globally, with exports being made to over 20 countries. The Companys credit facilities has been affirmed with: AA/Stable credit rating for long-term banking facilities and A1+ for short-term banking facilities from Crisil. The outlook on the long-term rating remains stable.

• Total Income increased by 32.66% from Rs 4,753.58 Crore to Rs 6,306.20 Crore.

• Operating EBIDTA decreased by 58.10% from Rs1,145.67 Crore to Rs 479.99 Crore.

• Net Profit decreased by 170.97% from Rs +810.27 Crore to Rs 299.03 Crore.

Brief standalone financial performance for FY 2022-23

(Amount in Rs Crore)

Particulars	Year ended 31st March, 2023	Year ended 31st March, 2022
Total income	6,306.20	4,753.58
Operating EBITDA	479.99	1,145.67
Interest and financial charges	37.79	8.96
Profit before tax	297.37	1,112.27
Tax expenses	-1.66	302
Net profit	299.03	810.27
Total Income	6,306.20	4,753.58

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof

Particulars	Year ended 31st March, 2023	Year ended 31st March, 2022	% Change
Debtors turnover (in times)	37.52	23.09	63%
Return on Equity (%)	8	27	-70
Interest coverage ratio (in times)	368.28	246.92	49%
Current Ratio (in times)	1.52	2.35	-35%
Debt-equity ratio (in times)	0.10	0.05	102%
Operating profit margin (%)	8	25	-68%
Net profit margin (%)	5	17	-72%

Internal control system and their adequacy

The Companys Board of Directors operates an extensive system of internal control. It includes the organisations plans and policies to ensure orderly and efficient business conduct. The Board has also set-up appropriate processes to monitor the relevant external and internal risks. The Company follows a well-defined model of internal control system to deal efficiently and effectively with all the five components of Internal Control System, namely:

• Risk assessment.

• Control environment.

• Control activities.

• Information and communication.

• Monitoring the activities of the different levels of the organisation.

The Companys internal audit is carried out effectively, leading to an independent and systematic assessment of its data, records, performances and so on with a pre-determined objective. It has the potential to be one of the most influential and value-added services available to the Board. It emphasizes on:

• Operational effectiveness and efficiency.

• Resource protection.

• Reliability of internal and external reporting.

• Compliance with applicable laws, regulations and internal policies.

Internal audit works as a catalyst for improving an organisations effectiveness, thus providing insight and recommendations based on analysis and assessments of data and business processes. With its commitment to integrity and accountability, internal audit provides value to governing bodies and senior management as an objective source of independent advice.

The organisation promotes independent examination of its plans and the policies, subject to the overall control environment supervision by the Board Level Audit Committee. This leads to accountability and transparency of operations and promotes independent examination. During the year, the Company focused on encouraging independent decision making, documentation of shortcomings of the various processes and departments and correction of the work processes. It is supplemented by well-documented policies, guidelines, procedures and regular reviews, which are carried out by the Independent Chartered Accountant Firm to conduct internal audit. The reports containing significant audit findings if any are submitted to the Companys management and its Audit Committee.

Human resource

The Company values its human resources as its most important asset and focuses on their training, development and well-being in the workplace. The Management believes that business cannot expand without utilizing the potential of its workforce. As of 31st March, 2023, the Company had 14,635 employees and it maintains a positive relationship with its staff. The safety of employees is of great importance to the Company and it ensures that safe work practices are followed. The Board of Directors and the Management acknowledge the contributions of all employees towards the growth of the Company.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward–looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.