Cement makers say current product prices justified, India

Cement makers say current product prices justified, India
Published: 27 February 2007

In its endeavour to curb inflation, the government is proposing to raise the excise duty on cement by introducing a differential duty structure on the commodity.

The excise duty on cement, currently at Rs 408 per tonne irrespective of the retail price, is now likely to be changed to Rs 600/t if the retail price exceeds Rs 190 per bag. Cement manufacturers as well as industry observers have lashed out on any such proposed move. "Taxes should be simplified. This will be a move away from specific to ad valorem. The compliance cost of administering such a complicated framework will defeat the purpose," said Ajit Ranade, chief economist, AV Birla group. Fixing the excise duty on the selling price will make it very difficult to monitor and will raise too many litigation issues, believe industry players. The cement industry is up in arms over a possible duty hike. Despite marginal difference between regions, cement prices are perched around Rs 200 per bag.

Naturally, the industry will be badly hit by the proposed duty burden. Firm prices have led to a splendid performance by most cement companies, riding on high demand outstripping supply. Cement makers have been very vocal against the government’s repeated move to indirectly monitor and control cement prices. Prices have shot over 50% in the past one year, but cement makers argue that the current price is not really high as it has risen only 5% on a compounded basis in the last 13 years. "This is roughly the same as the average rate of inflation," says an analyst. The weighted average of the input cost has also gone up by 4.5% in the past eight years. The weighted price index (WPI) of cement shows that cement prices have increased from Rs 100 per bag in 1993-94 to Rs 198 last week. Industry players also argue that the cement industry is poised for growth and will need additional capacity of around 120 million tonne over the next 10 years, if it has to support the current GDP growth. "This will require a huge amount of funds. And this will only come from those cement players who will plough back their profits. Even FDI will come in only if the MNCs sense profitability," said Ranade.