Macro-Trends in Steel Industry in India: Implications for Risk

Abstract

This paper presents a macro level analysis of steel industry. We have estimated the growth trend for production, consumption, exports and imports at the economy level by using a semi-log equation model. Firstly, we found that all variables are significantly related to a catch-all variable called ‘time’. Secondly, we calculated the predicted value of all variables and compared them with the actual value by the graphic presentations. They closely follow each other in most cases. The regression analysis shows that production grew at 8% and consumption at 7.75 during the time period 1992-2015. Exports grew at 9.78% per annum and declined drastically after the year 2005. On the other hand, the imports grew at 10.53% and increased also drastically after 2005. It shows that after the year 2005, there could have been a change in the industrial policy. On the whole we concluded that production and consumption increased over the time. Exports and imports show an increasing trend but export trend is weaker than the import trend. This shows that systematic risk arises due to transaction exposure of volatility in foreign exchange because we earned less Foreign Exchange (FE) and spent more on steel import in the form of Foreign Exchange. Since the time when FE rate regime has been liberalised the FE rates have been very volatile and Rupee has been depreciating constantly. If a larger sum is spent on imports it implies that the foreign exchange risk is higher. But since this is systematic risk it cannot be diversified.