Weak development spending

Slow demand for construction material leaves industrialists worried

Published On: March 12, 2019 08:21 AM NPT By: Ritesh Tripathi

BIRGUNJ, March 12: Minister for Finance Yuba Raj Khatiwada last week said 42 percent growth in import of industrial materials indicates healthy economic growth. But same imports have become a matter of worry for industrialists in Birgunj.

Steel and cement producers in Birgunj and surrounding areas increased their output, expecting robust demand for construction materials with the formation of the government with two-thirds majority. But slow demand for construction materials due to weak capital spending, among other factors, have dampened their confidence. Abrupt hike in interest rates on bank loans and high cost of production have further worsened the situation for them.

Gopal Kedia, chairman of Birgunj Chamber of Commerce and Industry, said there is no demand at all in the market at the moment. “We had not expected this situation,” he added.

Similarly, Rajesh Keyal, promoter of Narayani Rolling Mills, said many industrialists like him were facing a big trouble. “The government’s promise of economic prosperity encouraged us to increase productions, but we are not finding buyers due to slow pace of development works,” he added.

As there is not much demand for steel, GI pipes, cement, corrugated sheets, water tank and paints, among others, in the market, many industries have these products in full stock in their warehouses. Many industries say that they are selling products on credit of up to six months. Earlier, they used to sell products on credit of only up to one month.

Ramesh Agrawal, the promoter of Jagadamba Enterprises, which produces construction materials ranging from cement to steel, says many industries are staring at a huge loss as development works have not picked up as expected.

Economists say that the government’s spending in development works as the driver of the economy.  Spending of a rupee by the government creates economic activity of Rs 3, according to conservative estimates.

There are 24 steel manufacturers in the country. Five more are preparing to start operation. Steel manufactures estimate their annual demand to increase by some 800,000 tons in the current fiscal year.

The frustrations of business community have come a week after Finance Minister Khatiwada denied accusation that business climate of the country has worsened. Unveiling mid-term review of the budget last week, he had said that the government can do nothing at the moment to control spiraling lending rates.

It’s not possible to control all the three components -- inflation, growth and interest rates -- of the economy at the same time, he had argued. 

Khatiwada had also claimed that tight liquidity situation and 24 percent growth of credit to productive sector over the first six months of the current fiscal year indicate that business and investment climate is good.

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