India:Gadkari should follow through on threat of cement imports

Byszheng

Updated Wed, 02 Dec 2015 10:05:27 GMT

Union Minister for Road Transport, Highways and Shipping Nitin Gadkari has reiterated his threat of allowing imports from China if cement producers do not bring down their prices. He may have a point given gravity-defying cement prices.

The Bloomberg commodity index has fallen nearly 60% from its 2008 peak and is approaching its 25 year low, but no such fall has been witnessed in cement prices. In fact, they are now sold at a higher price as compared to 2008.

It is not Gadkari alone who is frustrated by cement industries’ stranglehold on prices. Earlier in October, members of real estate industry body Confederation of Real Estate Developers’ Associations of India (Credai)’s Delhi unit had moved the Competition Commission of India against some cement manufacturers accusing them of cartelisation. Credai, which represents the housing sector that accounts for nearly half of cement consumption in the country, pointed out that while input costs have come down, cement producers have not passed on the decline.

Continuing with the mantra of Make in India, Gadkari had announced that highways will be built from cement which is domestically produced as compared to bitumen which is either imported or produced from imported crude oil.

In order to bring down cost of cement for infrastructure projects, especially roads, government had launched a portal to buy cement at lower than market rates. The initiative had drawn response from 36 manufacturers having units at 103 different locations. Cement was supposed to be sold at Rs 180 a bag on the portal as compared to Rs 300 a bag in the market. Prices since then have shot up to Rs 380 a bag in the open market but have corrected to around Rs 340 per bag. But after the initial response, nothing much has been reported on the success of the portal.

Even state governments are complaining of high prices of cement. Andhra Pradesh Chief Minister Chandrababu Naidu has asked cement companies to ramp up their supplies as he is expecting a construction boom of unprecedented scale in his state. But he warned against hiking prices in the open market, else government will intervene.

In fact, the CCI had found cement companies indulging in cartelisation and had imposed a fine of Rs 6,000 crore on them. The Commission’s order dated June 20, 2012 directed the cement manufacturers to ‘cease and desist’ from indulging in any activity relating to agreement, understanding or arrangement in prices, production and supply of cement in the market. Cement manufacturers had challenged the order before the Competition Appellate Tribunal to grant a stay on the penalty. But as Credai points out, the Appellate Tribunal did not find anything wrong in the order of ‘cease and desist’ which continues to operate till date.

Credai, centre and state governments have a point against cement companies. In an open market, prices are a function of supply and demand. If prices go up on account of higher demand, supply generally increases to bring back the price back to the normal level. Yet in cement this is not the case. Cement companies are operating at around 70% capacity utilisation and continue to do so despite prices rising.

Importing from China, as Gadkari has threatened, could be the wake-up call that is needed for the cement industry. A number of infrastructure projects like roads, railways, ports, ‘Housing for All’, and irrigation among others will need large quantities of cement. High cement cost will result in higher cost of building these. Ultimately it will be the tax payer and consumer who will end up funding the cement company’s insistence of keeping prices higher. It is time the surface transport minister Nitin Gadkari and Credai members started importing cement to break the unofficial cartel.