There are two aspects to the news- knowing the headline and understanding the intricacies of it. We at The Connectere focus on both. While The First Forum edition gives a brief about the headlines, The Weekly Analysis Edition is meant to educate the reader on what do various news mean and what are their intricacies. This initiative is meant to educate the reader on how to understand the important news. In the Fifty Third Edition we are covering the following news:
- Chinese steel industry dilemma
- Why the Rupee is among biggest losers over the past few days?
- Auto sector’s role in India’s growth
- Tackling the second COVID wave
Top executives from industrial materials firms are discussing why prices are rising and how to respond. China’s vast steel sector is conflicted between economic growth and a green agenda as the President tries to clean up the world’s top carbon emitter. The government is pushing for steel output to drop from a record of more than 1 billion tons, in a campaign triggered by Xi’s pledge to deliver a carbon neutral economy by 2060 but it has fired up prices and created a headache for policymakers fretting about surging inflation.
China produces well over half the world’s steel and the sector has long been targeted by the authorities for persistent pollution. The industry is also responsible for about 15% of the carbon that China spews into the atmosphere every year.
Steel mills have enjoyed a surge in profitability and the biggest has seen its Shanghai-listed shares advance almost 40% this year while the benchmark index has edged lower. Trying to keep production in check alongside stimulus-fueled demand has inevitably meant much higher prices. Steel coil in China, used in everything is the priciest it’s been since 2008. Aluminium has reached decade-highs. Strong demand is playing a big part along with supply cuts, as China’s economic rebound from the pandemic is heavily dependent on commodity-intensive sectors.
Allowing inflation to persist is a risk to the economy because it ends up sapping demand for products, or provoking the authorities to put restrictions on the monetary and fiscal measures that promote growth. It’s a global concern that obviously stretches far beyond steel as nations chart their course out of the pandemic. Steelmaking is vital to China’s economy, employing huge numbers, and the effect on prices of reining in supply shows how governments will have to tread a careful path as they restructure important industries.
China has ordered cuts in the key steelmaking hub of the country and vowed nationwide checks to make sure regions aren’t flouting capacity curbs. The government is considering an adjustment to taxes to bring in more overseas steel and plug any domestic shortfall but that’s complicated by a very strong rebound in the global steel market.
The Indian Rupee hit a nine-month low of 75.4 against the US Dollar this week and has lost nearly 4.2 per cent over the last three weeks — one of the biggest losers among the emerging market currencies. The Rupee came under severe pressure over the last three weeks in line with the sharp rise in Covid-19 cases and RBI’s announcement, last week, to maintain fairly accommodative monetary policy and that it will inject liquidity through the Government Securities Acquisition Programme (G-SAP) programme — starting with Rs 1 lakh crore in the current quarter. As concerns are growing over the delay in recovery of the economy and normalisation, the Rupee has taken a hit.
From trading at a level of 72.38 to USD in March, the Rupee slipped to levels of 75.42 on Tuesday (afternoon trading hours) thereby witnessing a decline of 4.2 per cent in a matter of three weeks. This week, it lost 43 paisa to a dollar, hitting a nine-month low. Data shows the Rupee has been one of the biggest losers over the last three weeks as concerns are growing over rising Covid cases and its impact on economic activity across the country.
Market participants say the Rupee may hit levels of 77-78 over the next couple of months and that can be a cause of concern for importers, or other individuals who have planned expenditure in foreign currency.
With Covid numbers rising as of now, it continues to pose a threat to the pace of recovery and that is raising concerns over INR. A concern over economic activity and growth of the economy in turn is slowing down the pace of FPI inflows which provides a strong support to Rupee.
In the past two decades or so the Indian auto sector has been witness to some considerable changes and transformations, things which were beyond imagination. While the IT sector might still be the star, the auto sector is not far behind. There have been three major advancements that can be given the credit for this transformation.
First, the advancement of the supplier ecosystem in India. Today, our suppliers — both homegrown as well as the MNC offshoots — can rub shoulders with the best in the world. Second, the build-quality of our products. Quality defects have reduced by a staggering 90 per cent and now compare favourably with most advanced markets. Third, and perhaps the most important, is our ability to design, engineer and develop world-class products completely in India. Scorpio, Indica, XUV500, Nano and Pulsar brought respect to India’s engineering capabilities. Today, every major carmaker has an engineering centre in India, and many have complete product development capability here. The frugality in product development also gives India a competitive edge.
The auto industry does a lot of good for the MSME sector which is a big employment generator for India and an important cog in the Indian economy. The MSME share of value-addition to a car is 35 per cent. Further, the automotive aftermarket provides economic opportunities to thousands of MSMEs. While no official count is available, one estimate puts the total number of MSMEs engaged in the auto value chain in the range of 25,000-30,000.
The Indian auto industry truly embodies the spirit of Atmanirbhar Bharat, and perhaps many other industries can take some lessons from it. The industry contributes 6.4 per cent to GDP, around 35 per cent to manufacturing GDP, supports over 8 million jobs directly (OEMs, suppliers and dealers) and as many as 30 million more in the value chain. It accounts for cumulative investments of $35 billion over last 10 years, and generates export revenue of $27 billion that is nearly 8 per cent of the total merchandise exports from India.
There was never any doubt that India will face a second wave of the COVID-19 pandemic. What was not known was when, and how big it would be. Now we know that the second wave is here. It is “faster and higher” — all that we hoped it would not be.
The newer variants of the virus have the potential to change the infectiousness both ways, and there is some early indication that the infectiousness has increased in the second wave. But this is unlikely to be an important reason for the large second wave. However, this is an area where constant vigilance is required. As many people have already been infected in the first wave, the pool of susceptibles should be smaller. Serosurveys also support this as they found that about 25 per cent of people had already been infected nationally. However, this is an average and hides significant variations by state, age and place of residence. Populations with lower seroprevalence become the potential pool for the second wave. With the removal of most restrictions, the probability of contact between individuals has risen sharply. We can all see crowded marketplaces, malls and restaurants; public transport is functional.
While the government may justify them on social, economic, religious and political grounds, it makes little sense to the public when crowding in public places is allowed, but curbs are imposed on individual freedom with curfews or weekend lockdowns. On top of this, there is a renewed emphasis on penalising individuals for their behavior, including not wearing a mask in their own car. The message to the public is that the onus of controlling this pandemic is now on individuals and not the government. This is not prudent. Even if the opening of society was to be done for various reasons, the public should have been prepared for such a change. It is inappropriate to blame individual community members, when there is no effective communication which explains the rationale behind the decisions taken.