India: cement players against excise restoration

India: cement players against excise restoration
Published: 18 June 2009

Domestic cement makers have expressed strong reservations to any move to increase excise duty on cement. They said it would be unfair for the government to target an industry which has managed to do so well in these troubling times.

The industry’s reaction has come on the back of the Union finance ministry’s plan to increase central excise duty for selective sectors which have benefited from the fiscal stimulus measures last year. The government had cut excise duty across the board by four per cent, and cement industry was a beneficiary.
Hari Mohan Bangur, president of the Cement Manufacturers’ Association (CMA), told Business Standard, “In case the government increases excise duty, it will not be an industry-friendly measure. The question is what the government is going to do to push up consumption. It will be difficult for us and the prices will obviously go up.” Bangur is also the chairman and managing director of northern cement major Shree Cement.

When the government cut excise duty in December, it had expected to check inflation. In response, several cement makers had passed on the benefits to consumers. However, from January cement prices rose by an average of INR12-15 per 50kg of cement which irked the government. And again during this quarter cement prices rose another two per cent (INR4-5 per bag). The average price for cement nationally is INR245-248 /bag.

Amrit Lal Kapur, managing director, Ambuja Cements, said, “The government needs to realise that many infrastructure projects are yet to pick up despite the announced stimulus packages. The surge in demand for cement emanated mainly from the rural and semi-urban regions in the country. The government should not tinker with excise duty.” He further added that the government need not reduce excise, nor should it raise it further.

The 224Mt cement industry pays an excise duty of around INR10,000 crore to the exchequer. “This is only going to increase as new capacities are continuously coming onstream,” said Kapur.
“Concessions should continue. The government should take a broader view and not only a quarter’s performance. A restoration of excise duty on cement will be an unfair step. When the industry was suffering what measures did the government take?” asked Vinod Juneja, managing director of Binani Cement.

This way, Kapur added, the pick up in demand we witnessed may fall. “An industry (cement) which is doing good stands alongside other poor performing sectors with such a measure,” said Kapur.

The industry has added over 7Mt of fresh capacity so far in FY10 and is expected to add close to 40Mt by March, 2010. Since November last year, it has shown a consistent growth of over eight per cent which even touched 13 per cent in April.