The world’s oldest living city is getting a makeover. The holy city of Varanasi is one of 100 places earmarked to receive trillions of rupees to transform the overstretched infrastructure.
The government plans to triple steel-making capacity, making India the world’s second-biggest producer, trumping Japan, and reviving an industry that a year ago was on its knees.
Continuously inhabited since the 11th century B.C., the city of 1.2 million people is PM Modi’s political base.
About 6 million tourists visit the city every year, but it lacks basic urban facilities like a proper sewage system.
India used about 63 kilograms of steel per person last year, compared with 493 kilograms in China, according to the World Steel Association.
That low consumption base, and the promise of a government-backed boom in construction, has prompted a flurry of expansion plans as steel prices recover from a slump in 2015.
India’s biggest producer, JSW Steel Ltd., plans to build two new plants of 10 million tons each in the resource-rich states of Odisha and Jharkhand, and spend billions more expanding its existing mills in an effort to double its size by 2030.
Rival Tata Steel Ltd. has sought environmental clearances to expand its two plants in India by 4 million tons a year.
India’s ambitious plans could force the country increasingly to turn to global markets to get enough coking coal and iron ore, Thomas said.
The local government has a 25 billion rupee ($390 million) plan to build affordable houses, bury the millions of wires and cables that clutter the streets, install solar panels and upgrade the ghats by 2020-21.
There are also plans for a metro system, part of a new urban rail policy approved this month that would bring new subways to 15 Indian cities and expand networks at 12 others.
All of it will require millions of tons of additional steel.
India’s steel consumption could almost triple to as much as 240 million tons by 2030, with the majority being used in construction.
This is according to Sanak Mishra, secretary general of the Indian Steel Association. He predicts India will overtake the U.S. as the world’s second-biggest consumer next year.
“The Indian steel story is a growth story,” said Mishra, who previously ran the Indian projects of ArcelorMittal, the world’s biggest producer. “India is one of the few major economies where steel use has not matured.”
Even so, like many of PM Modi’s ambitious plans, the National Steel Policy has a challenging target. To meet it, capacity would need to grow at a 6.4 percent annual rate, requiring around $140 billion of investment, according to ICRA Ltd.
Given the weak financial health of many domestic players, and the central bank’s efforts to clean up bad loans, banks may be reluctant to lend the money, the local unit of Moody’s Investors Service said on Aug. 24.
‘India Growth’ and other Formidable Projects
The government has earmarked a total of 1.9 trillion rupees ($30 billion) for 90 cities so far, with some money coming from the federal government and an equal amount contributed by state or local governments, the Ministry of Urban Development said in June.
For most local municipalities, that means borrowing. In the western city of Pune, home to the grand Aga Khan Palace, the Pune Municipal Corp. priced a 2-billion-rupee bond in June, the country’s first municipal bond since the regulator cleared the way for such sales in 2015.
More cities will follow. The program could push the volume of municipal debt issued to as much as 400 billion rupees in the next five years, India Ratings said in June.
That’s highlighted concerns about the nation’s borrowings, just at a time when the U.S. Federal Reserve is making money more expensive overall.
India’s general government debt level is “significantly” higher compared with similarly rated countries, Moody’s Investor Service has said.
There’s also the risk of a blowout in India’s current account deficit, which the International Monetary Fund projects to be at its widest since 2013, when the Fed first signaled tightening after years of unprecedented stimulus.
Global steel demand will grow more than previously forecast in 2017. This is due to a recovery in developed economies and accelerating growth in emerging and developing markets.
That’s encouraging for steelmakers, both in India and abroad, who are coming out of the worst price meltdown in decades. A glut in global supply, record imports of cheap steel and weak demand saw the profitability of India’s mills slump.
Indebted steelmakers including Essar Steel India Ltd., Bhushan Steel Ltd. and Monnet Ispat & Energy Ltd. joined a list of companies under insolvency proceedings as part of the central bank’s move to clean up bad loans.
The government responded with a slew of protectionist measures against steel imports, leading local producers to increase output to record levels.
Accelerating demand from infrastructure, construction and auto-making will see India’s steel output record average annual growth of about 9 percent between 2017 to 2021, according to BMI Research.