In the Aftermath of the Kandhamal violence, It is a bit diverting to discuss impact on investment status in various states, particularly in the most affected state, Odisha.. It is a known fact, that, the progress of mega-investments in Odisha does leave a lot to be desired...
If we try looking at the present context, there has been a huge beating on Mineral based stocks..New reports claim, that Mr. L.N. Mittal has lost close to 16 Billion Pounds...Now, the same person is responsible for one of the biggest projects in the state of Odisha(claims vary in the range of 50,000-60,000 crores INR)..
Also, it might be noticeable to observe that, in the BSE ,Commodity stock index has taken a sever beating...This has resulted in a steep fall in prices of the all important commodity i.e. Fuel(current trading in the late $80's to early $90's)..
Another less noticeable fact, is that, POSCO (the largest investment in India), has also, slowed down it's endeavours to move forward with he project, in Jagatsinghpur..As opposed to the frenetic initiatives it took in last December...Perhaps, the biggest reason would be due to predictions, that, demand for commodities is expected to slow down..
People seem to forget the lesson of the Gopalpur fiasco with the TATA's..The Highly respected industry group wanted a renewal of their mining leases...But, preconditions were set, to ensure, that a TATA steel plant would be set up in the state.. But, the late 90's(by the time land was acquired after some violence), the steel Industry went into a downturn fuelled by the South-East Asian crisis..The reasons for discontinuance of the project were ridiculously simple..Lack of Infrastructure..I'm sure, when projects of the magnitude of a steel plant is considered..Infrastructure would not have been an issue...The fact, is that steel would have been manufactured there, and exported to South-East Asia..Ore transport should have been the issue..It should have been a simple matter to connect the Berhampur Railway station to Gopalpur(A distance of less than 20 kms).
But, the lesson to be learnt, is that, recessionary or unfavourable market trends(you can take your pick), can lead to flight of investment.. Already Capital markets are suffering this Phenomena..Lowering of demand might make the same story get repeated again, what, happened in the 90's...
Now, what does this imply for the Govt. of the states especially Odisha? It might be important for them , to reinforce, public expressions of confidence with Industry stalwarts..Diplomatic and Business engagements need to be continuous..
The Other implication for the GOO, is that, they have achieved a GDP growth, which, is remarkable considering the fiscal profligacy of the last 22 years...The lowering of demand of commodities, might lead to a decrease in their revenue receipts, which, anyhow, will never lead to a commensurate decrease in their revenue expenditure...
The Road ahead is hard, and, difficult...I hope, the GOO has some good economic advisers, who will provide him with the right ideas..The first things is to be aware about the above scenarios..
After the bad news let me provide some good news..Some things which are self-evident...The basic outdated policy of the State Govt. to provide mines at abysmally low royalties might become their saviour in difficult economic times..The fact, is the, creating a steel plant makes a lot of business sense for the companies, since, there isn't a single ore-vendor which will provide iron-ore at such ridiculously low rates...
The key point, is that, are companies in conditions of economic recession, willing to install fresh even though, this will definitely provide huge returns..This in turn leads to the question of liquidity and availability of finance from the Global markets. That is the problem facing the Most of the world economies and financial institutions today...
Let us keep our fingers crossed....
Lastly, about singur, It has never been a problem..TATA's are not going outside India..I hear reports today, that, they will set up the Mother plant in Sanand.. So, This episode has only illustrated , that, if you sow the crop you reap it's dividends..Communists have led agitations across the country on most Industrial projects(i.e. Outside bengal)..Today, they have found their bete noire in Mamta Bannerjee..
If we try looking at the present context, there has been a huge beating on Mineral based stocks..New reports claim, that Mr. L.N. Mittal has lost close to 16 Billion Pounds...Now, the same person is responsible for one of the biggest projects in the state of Odisha(claims vary in the range of 50,000-60,000 crores INR)..
Also, it might be noticeable to observe that, in the BSE ,Commodity stock index has taken a sever beating...This has resulted in a steep fall in prices of the all important commodity i.e. Fuel(current trading in the late $80's to early $90's)..
Another less noticeable fact, is that, POSCO (the largest investment in India), has also, slowed down it's endeavours to move forward with he project, in Jagatsinghpur..As opposed to the frenetic initiatives it took in last December...Perhaps, the biggest reason would be due to predictions, that, demand for commodities is expected to slow down..
People seem to forget the lesson of the Gopalpur fiasco with the TATA's..The Highly respected industry group wanted a renewal of their mining leases...But, preconditions were set, to ensure, that a TATA steel plant would be set up in the state.. But, the late 90's(by the time land was acquired after some violence), the steel Industry went into a downturn fuelled by the South-East Asian crisis..The reasons for discontinuance of the project were ridiculously simple..Lack of Infrastructure..I'm sure, when projects of the magnitude of a steel plant is considered..Infrastructure would not have been an issue...The fact, is that steel would have been manufactured there, and exported to South-East Asia..Ore transport should have been the issue..It should have been a simple matter to connect the Berhampur Railway station to Gopalpur(A distance of less than 20 kms).
But, the lesson to be learnt, is that, recessionary or unfavourable market trends(you can take your pick), can lead to flight of investment.. Already Capital markets are suffering this Phenomena..Lowering of demand might make the same story get repeated again, what, happened in the 90's...
Now, what does this imply for the Govt. of the states especially Odisha? It might be important for them , to reinforce, public expressions of confidence with Industry stalwarts..Diplomatic and Business engagements need to be continuous..
The Other implication for the GOO, is that, they have achieved a GDP growth, which, is remarkable considering the fiscal profligacy of the last 22 years...The lowering of demand of commodities, might lead to a decrease in their revenue receipts, which, anyhow, will never lead to a commensurate decrease in their revenue expenditure...
The Road ahead is hard, and, difficult...I hope, the GOO has some good economic advisers, who will provide him with the right ideas..The first things is to be aware about the above scenarios..
After the bad news let me provide some good news..Some things which are self-evident...The basic outdated policy of the State Govt. to provide mines at abysmally low royalties might become their saviour in difficult economic times..The fact, is the, creating a steel plant makes a lot of business sense for the companies, since, there isn't a single ore-vendor which will provide iron-ore at such ridiculously low rates...
The key point, is that, are companies in conditions of economic recession, willing to install fresh even though, this will definitely provide huge returns..This in turn leads to the question of liquidity and availability of finance from the Global markets. That is the problem facing the Most of the world economies and financial institutions today...
Let us keep our fingers crossed....
Lastly, about singur, It has never been a problem..TATA's are not going outside India..I hear reports today, that, they will set up the Mother plant in Sanand.. So, This episode has only illustrated , that, if you sow the crop you reap it's dividends..Communists have led agitations across the country on most Industrial projects(i.e. Outside bengal)..Today, they have found their bete noire in Mamta Bannerjee..
Comments
Recession will lead to 2 things.
a) Decrease in demand.
b) Lower supply of Money in the Market..
a)--will contribute to reduction in need for Mineral giants to have more steel production.
b) This might not provide the finance for investing in such huge projects..I expect POSCO to raise it's money for investment in Orissa from financial institutions..They might use their own resources as collateral..