The swift economic rebound in India following the gradual lifting of the nationwide lockdown has been quite encouraging. The contraction of gross domestic product (GDP) in the second quarter was much smaller than analysts predicted. Besides agriculture, manufacturing surprised us with positive growth. Leading indicators point to further acceleration in activity with the technical recession marked by two successive negative GDP prints left well behind.
Steel consumption grew a healthy 12% in the third quarter of 2020-21 from a year earlier. Crude steel production also rose. As the steel industry is vital to infrastructure and heavily dependent on imported coking coal, it is looking forward to the removal of customs duty on coking coal in the budget. Customs duty on steel grade limestone, dolomite, refractory material and electrodes should also be slashed to zero. It is also important to create a level playing field by levying on imports sufficient duties to balance the taxes—such as mining levies and electricity duty—paid by Indian producers.
The government announcement of a national infrastructure pipeline of ₹102 trillion envisages the participation of the private sector in achieving this goal. The availability of long-term finance, however, is a major bottleneck. The budget should consider setting up a development finance institution (DFI) for credit enhancement and to help the private sector raise long-term funding. It should also extend tax incentives for investment in debt instruments, aimed at facilitating the intermediation of financial savings, to such a DFI for it to lend money for long-gestation core sector and infrastructure sector projects in the country.