Cement prices seem to have controversy built into them. When inflation was a big issue, the government was agitated about cartels in the cement industry. But even with depressed demand becoming the big issue, there?s again talk of a cement cartel.
This time builders are doing the accusing. Catching on perhaps with the most politically correct argument of the day, builders are arguing that the rise in cement prices will lead to a rise in the prices of affordable housing by about Rs 25 per square feet or more, and that the price rise indicates not all is right with cement economics. Builders are now arguing that the countervailing duty (CVD) on cement should be scrapped to make cement imports cheaper and also that cement exports should be banned.
All this sounds like a rehash of what the government used to say in the high inflation days and the argument seems equally suspect now as it was then. Without holding any brief for the cement industry, it must be observed that proving a cartel is the job of the Competition Commission and that proving the existence of a cartel is a tough job. The argument?frequently heard in the context of cement prices?that if the price of cement is raised to Rs 300 per 50 kg bag, then a cartel can be said to exist won?t wash in a proper regulatory inquiry.
Also, it again has to be pointed out that dropping the CVD on cement imports will not just make the government lose revenue, it will also be a needless gift to cement manufacturers in Pakistan who are exporting to India without any problem despite the CVD. As for restrictions on cement exports, exports constitute hardly 2-3% of total cement manufacture in India.
On balance, it seems the better explanation for cement price rise is indeed what analysts are saying, a jump in demand from infrastructure projects and rural housing. Maybe what builders need to do is to seriously change focus. If they participate big time in low-cost housing?estimates are that, if built, more than 45 million units will find takers by 2012?where effective demand is very high, they will feel better about higher cement prices.
smita.joshi@expressindia.com