A 10pc increase in the Indian government's capital spending, including a focus on shipbuilding and decarbonisation, are among the positive outcomes for the steel sector outlined in the union budget, industry sources said.
The government has allocated 11.2 trillion rupees ($129bn) for capital expenditure (capex) in the April 2025-March 2026 fiscal year, compared to a revised estimate of Rs10.2 trillion in the current fiscal year.
The government's initial capex target for 2024-25 had been Rs11.1 trillion, which was revised lower during the budget presentation by finance minister Nirmala Sitharaman on 1 February.
Robust infrastructure spending will boost domestic steel demand, market participants said. The building, construction and infrastructure sector was estimated to account for 69pc of India's total steel consumption in 2023-24, according to a report by Deloitte.
Indian steelmakers have been banking on increased government spending to drive a recovery in domestic steel demand this year after last year's funding slowdown amid elections.
But some industry experts have cautioned that the capex increase may not be sufficient to drive double-digit steel demand growth in 2025-26.
The budget has not increased the allocation for roads and railways, which are major drivers of steel demand, the vice-president and sector head at Indian credit rating agency Icra, Ritabrata Ghosh, said.
In the financial years 2021-24, the compound annual growth rate (Cagr) for government spending was about 30pc, Ghosh said.
"In the past, [the] unprecedented pace of government spending was a shock absorber for the domestic steel industry, insulating it partially from external pressures such as imports. While 10pc growth in capex spend is still robust, it won't be as strong a stabilizer for the steel industry as it was in the last three years," he said.
Focus on nuclear energy, scrap
The government will invest Rs200bn to set up a nuclear energy initiative for the development of small modular reactors.
The nuclear energy push "will help in driving the green transformation of the country and steel industry", ArcelorMittal Nippon Steel India's chief executive Dilip Oommen said.
"The steel sector also stands to benefit from indigenous shipbuilding and marine development projects, and enhanced credit availability for MSMEs (micro, small and medium enterprises), which will have access to financing for businesses involved in the construction and manufacturing sectors," he said. Provisions to support MSMEs include an enhanced credit guarantee cover, customised credit cards with a Rs500,000 limit for micro enterprises and the launch of an export promotion initiative.
For the ship industry's long-term financing, the government will set up a maritime development fund worth Rs250bn, of which it will contribute 49pc. The budget also aims to increase the categories and capacity of ships by providing the necessary infrastructure, labour and technological support.
Additionally, ship scrapping will be incentivised through credit notes for shipbreaking in Indian yards. Under this scheme, a credit note of 40pc of the scrap value will be issued, "which can be reimbursed to buy new made in India ships", according to a government statement.
This measure is likely to boost availability of local scrap in India, aiding decarbonisation efforts, according to industry experts. India's secondary steelmakers use scrap as a feedstock in induction furnaces to produce steel, but often rely on imported material, given low domestic availability. Increased use of scrap in steelmaking is a key focus area in the government's green steel initiative as each ton of scrap reduces greenhouse gas emissions by 58pc, compared with iron-ore based production.
