Union Minister for Commerce and Industry Kamal Nath might have squeezed a five per cent discount from Indian cement manufacturers for government consumption, but who is really getting hit by the hike in cement prices? Most of the government spending on cement is actually on the infrastructure projects being thrown open to private players, so the impact of the cement price increase for the government is far from over.
The cement price increase will clearly have an impact on the bottomline of the infrastructure companies. They now say that they will factor in the cement price increase in their future bid, this in turn means that infra development cost for the government will increase.
"Long term infra project cost will increase due to cement price increase. We will put to use the escalation clause in the current projects to make sure our margin are not affected, but for future projects we will factor in the cement price increase," said Rupen Patel, MD, Patel Engineering.
Companies like L&T are also contemplating cement imports, which will be costly but the government is bringing in huge projects on the block. "The country’s GDP is eight per cent and to sustain such growth, government has to spend more on infra project, particularly on power, roads, ports," said GBS Rao,VC, GMR Infrastructure.
The government will be spending close to Rs 850,000 crore on infrastructure over the next five years, though that is about 3.5 per cent of GDP. China spends more on infrastructure, so expect cement rates to stay hard whatever the commerce minister says.