Allegations of cartelisation continue to swirl around the cement industry. The country’s trade practices regulator, MRTP, on Tuesday ordered an investigation into the business practices of 14 leading cement manufacturers, which have allegedly formed a cartel to jack up prices across the country. The price hikes are allegedly disproportionate to the rise in raw material costs, according to a preliminary report by MRTP’s investigative wing.
The commission issued notices of inquiry against these companies after its investigative wing-the Director General of Investigation and Registration (DGIR)-submitted a preliminary report on the matter. DGIR did not buy the argument of companies that costlier raw materials and a tight demand-supply situation have led to the price hikes. The commission has given companies time till October 25 to reply to the charges.
The companies include Birla Corporation, OCL, Dalmia Cement (Bharat), Zuari Cement, Binani Industries, ACC, NCL Industries, Gujarat Ambuja Cement, Grasim Industries, Sanghi Industries, Saurashtra Cement, JK Cement, India Cement and Ultratech Cement. ACC, Grasim and India Cement declined to comment when contacted. "The inquiry panel’s charges are all baseless. How can you have cartels, when there is a shortage of cement in the country," the CEO of a company indicted by the panel told ET on condition of anonymity.
DGIR analysed prices, demand, capacity utilisation and expansion in the industry in the last two years to find out if the price increases were justified. Cement production rose to 141.81 million tonnes in 2005-06 from 127.57 million tonnes a year ago, a growth of about 11%, which exceeded the government target of 136 million tonnes. DGIR concluded that price increases should be attributed to reasons other than cost of production, which worked out to be about Rs 7 for a 50-kg bag.
The investigation report also said the Cement Manufacturers’ Association (CMA) represents different cement manufacturers. The body has various zonal marketing committees in which top company executives are present. This gives them enough opportunity to meet and decide pricing and marketing strategies. The CMC managing committee held three meetings during 2005-06, a period when "exorbitant price increase" was noticed, DGIR said.
CMA’s EN Murthy denied these charges. "Cement manufacturers don’t discuss prices at CMA meetings. CMA’s policy is to discuss industry-related issues other than prices," he told ET. Construction companies said rising cement prices was one reason for increasing construction costs. According to Ansal API president (marketing) Kunal Banerji, the cost of construction has gone up to about Rs 1,300 now, partly because of rising prices of cement and the demand for high-quality construction.