Imports freed to checkmate cement companys

But distribution won’t be easy for importers, said analysts.

With manufacturers loath to lower prices, the government on Tuesday tried to checkmate them by withdrawing the 16% countervailing duty (levied in lieu of excise duty that local companies pay) and 4% additional duty on cement imports.

With this, Portland cement (other than white cement) can now be imported absolutely duty-free because it was already exempt from basic customs duty.

Coming as it did close on the heels of Friday’s tough monetary measures by the Reserve Bank of India, the duty waiver signals the government’s "zero tolerance" of inflation.

Cement makers don’t seem much ruffled, though.

"It is basically scare-mongering. Of course, the gap in prices between imported and local cement will definitely narrow down, but it requires lot of imports to shake up the market," said the head of a cement major in Mumbai.

Analysts said the importers will also need significant distribution abilities, which they don’t have now. "Logistics, moisture control, warehousing is no joke," they said.

Avinash Gorakshakar, head of research at Emkay Share & Stockbrokers in Mumbai, said the move will definitely be a threat to ACC, Gujarat Ambuja and Ultratech, which cater to bulk customers, who now have a choice if local producers decide to hike prices. Gorakshakar says prima facie it is a negative for the sector.

"The government expects that the cement manufacturers, in the larger interests of consumers and for checking inflation, will take appropriate measures for moderating cement prices," an official statement said.

Average prices increased to Rs 220 per 50kg bag in March from Rs 165 in January 2006 and Rs 209 in February 2007.

This is the second time in three months that it has resorted to cutting import duties.

In January, it had exempted Portland cement from basic customs duty. The Centre could even think of banning cement exports next, officials said. India exports around 5Mt of cement.

The tough stand comes in the wake of manufacturers not paying heed to its coaxing, cajoling and enticements. The two-rounds of recent government-industry talks have resulted only in manufacturers agreeing to freeze prices at their current high levels for one year.

The Centre says cement makers have hiked prices in the last one year to an extent not justified by any increase in input or transport costs.

The government is particularly peeved at cement makers hiking prices by Rs 12 a bag in a quick response to its Budget proposal. This is seen as a major factor behind headline inflation staying firm at around 6.5% for three recent weeks.