CMA President viewpoint, India

CMA President viewpoint, India
03 November 2009

Ms Vinita Singhania, Managing Director, JK Lakshmi Cement, became the first woman to take charge as the President of the Cement Manufacturers Association (CMA). She spoke to Business Line on the road ahead.

Excerpts from the interview:

What are your priorities as President of CMA?

My top priority would be to take up issues that are critical to the healthy growth of this sector with the decision-makers concerned in the Government. These mainly relate to the high tax incidence which, if resolved, can make cement more affordable to the common masses.

The total tax burden works out to about 60 per cent of the ex-factory realisation, which is the highest in any country in the Asia-Pacific region. The next highest is in Sri Lanka with 20 per cent.

We have already highlighted the need for lower excise duty, rationalisation of VAT (value-added tax) on a par with other core industries such as steel and royalty on limestone. The other issue relates to priority allocation of coal, which is a major cost for the industry. We are keen on demand generation as per capita consumption of cement in India is one of the lowest in the world at 156kg against the world average of 356kg.

One of the areas where CMA has already initiated efforts is facilitating concretisation of roads. There are other issues relating to availability of fly ash and railway wagons as well as associated issues on restoration of import duty on cement.

How do you see the demand-supply scenario panning out in the next six months?

Considerable capacities have been planned to match the needs of this commodity as envisaged by the Planning Commission’s working group on the cement industry for the Eleventh Plan (2007-2012), which has estimated a demand of 269 million tonnes by the end of the current Plan.

The capacity as on April 1, 2007, was 167Mt and the industry had set itself an ambitious target to create over 300Mt by 2012.

There would be some overhang of supplies for the next two years but by that time the new capacities would get assimilated in the system. In the current year till September, we have already achieved a growth rate of over 12 per cent.

With demand for cement slowing down, will sale of power become a new revenue stream for companies?

Cement companies have been increasing captive power capacity largely to reduce dependence on outsourced power, especially from the State electricity boards. This is a continuous process industry, which can ill afford to have inconsistent and poor quality of power. Many cement companies have already resorted to selling power as and when their captive consumption goes down. It is but obvious that with greater captive capacity, selling power by the cement sector is inevitable.

What do have to say about the Centre’s accusation of cartelisation in the cement sector?

I do not think the Government has, at any time, accused the industry of cartelisation. It has only has requested the association, as and when the prices of cement (in their view) have gone up, to persuade companies to reduce the prices.

As is the case with any other commodity, cement prices are determined by market dynamics of demand and supply. There are periods when there is an overhang of supply over demand and vice-versa. Prices, therefore, tend to fluctuate depending on the cyclicality. Every manufacturer decides his policy, including the one relating to pricing, and these are individual business decisions of each firm. There is no question of any cartelisation.

Do you think a breather in excise duty is possible this time around?

Excise duty is charged on manufactured products based only on the (manufacturing) cost. In some cases, the Centre levies excise duty on the retail price but abatement is given on the post-manufacturing expenses incurred up to the stage of retail sale. White cement, a similar product, too gets abatement.

It is unfortunate that in cement, though excise duty is charged on the retail price (since May 2007), no abatement is given. We are confident we can convince the Government on the genuineness of our demand.

Do you think the Centre will consider abolishing import duty on coal given the recent fall in prices?

The Government had discontinued import duty on cement in 2007 probably assuming that domestic output was not matching demand. Even the countervailing duty and special additional duty on import duty were abolished. Fortunately, however, the CVD and SAD have since been re-imposed but the import duty continues to be zero.

Due to short supply of quality local coal, the cement industry has to depend on imported coal and petcoke. It is ironical that while the import duty on the finished product — cement — is zero, inputs such as coal and petcoke are imposed a 5 per cent levy.

The industry’s demand, therefore, has more to do with the basic principle that the import duty on inputs should not be higher than the finished product, rather than link the issue of import duty on the price of coal. I am confident that the rationality of our demand would not be missed.
Published under Cement News