Retail prices of cement have risen Rs12 per bag with effect from Thursday nullifying the finance minister’s move to curb prices by linking excise duty to a higher rate. Prices of cement hovered around Rs 250-255 per bag (Mumbai) at the retail level compared with Rs 240-245 on Wednesday, confirmed city-based cement stockists.
Excise duty on cement, which was Rs 408/tonne irrespective of the retail price of the commodity, has now been linked to the retail price. Duty has been hiked 50% to Rs 612/tonne if the retail price exceeds Rs 190/bag and lowered to Rs 350/tonne if the MRP is Rs 190 or lower, as per the differential duty structure proposed in the Budget.
Though the new duty structure was ushered in to rein in the prices of cement by acting as an incentive to cement manufacturers to control prices, it has had the opposite effect. However, industry insiders feel that the government may have foreseen the price hike and the real intent of the duty hike is to burst the real estate bubble that built up in the country over the last two years.
“It is very difficult to believe that the finance minister did not expect a price hike. It is more likely that he was hoping the increased cement prices and the consequent increase in housing and other real estate projects will act a deterrent to those investing in that sector,” said a senior official at a cement company.
An upward revision in cement prices will hit the construction sector the hardest as cement constitutes 13-20% of the input cost in various construction projects. Cost of infrastructure, road and housing projects will go up with an increase in cement prices, “We will have to pass on the impact of increased cement prices to the consumer. Housing and real estate will cost more while toll on bridges and roads will also go up,” said a spokesperson for the National Builders’ Association.
The government has been keeping a careful eye on rising cement prices and has raised concerns over cartelisation in the industry. Cement industry players, however, feel current prices are justified as demand has far outstripped supply with large scale infrastructure, road and housing projects that have been undertaken in the past years.
Says Anil Singhvi, managing director, Gujarat Ambuja Cement, “The prevailing prices last year was Rs 190 per bag and since then the inflation in the economy is up 7%, so current cement prices are in line with overall inflation.”