Durable cement

Written by AL KAPUR | Updated: Jul 29 2010, 02:50am hrs
The cement industry has been one of the earliest

experiments of ushering in economic liberalisation, by the somewhat reticent government then, in the early 1980s. Confronted with rampant shortages of cement and compelled to import, the government was forced to review its four-decade long policy of regulatory control (barring two years of decontrol in between). Not only did this regimented policy lead to the continued scarcity of this vital construction material but it also encouraged hoarding, profiteering and black-marketing to the detriment of the consumer.

The regulatory mechanism provided barely any incentive to the entrepreneur to invest in this industry because of a highly fallacious pricing policy that resulted in poor returns on investment. There were periods of continued investment famine in this sector, leading to poor availability of cement in the market because of both price and distribution control. However, it goes to the credit of the cement industry that once the government had taken the bold decision of partially regulating the industry, it responded with great alacrity and gusto.

Due to the perennial investment famine prior to 1979 and, therefore, a very low base, the industry in the five years from 1979 to 1984 increased its capacity from a low base of 24 mt to 40 mt, registering a CAGR of 11%. This was never heard of before and against the Hindu growth rate of a mere 3.7%. In between, there was a steady increase in the capacity ranging between 6-8% with adequate capital inflows.

However, after the announcement of liberalisation policies in the early 1990s and more so towards the middle of the first decade of the 21st centurywhen our GDP grew at 8-9% consecutively for four yearsthe economy witnessed game-changing developments and placed the industry in a high growth trajectory.

No wonder, the period from 2004-10 repeated the same progress as 1979-1984 with total capacity growth of CAGR of 10.3%not forgetting that this build up of capacity was on a high base of 154 mt. A remarkable growth story about which the whole industry should be proud. This is, however, just a beginning of the second revolution, which is to take off from now. I have no doubts that this massive growth phase will continue.

Today, the cement industry can claim to be a first-class industry in the echelons of international playersbe it the sheer size of each plant, state-of-the-art- technology, fuel and power consumption, sustainable and eco-friendly processes, sustainable quality standards, multiple quality products, focused after-sales services to customers and a continued climate of peaceful industrial relations by ensuring an open process of bilateral negotiations with all the federations of national unions.

While the cement industry has proved its merit, there is still a dire need for the government to play a more proactive role to nurture the industry by providing an adequate enabling environment. It needs to focus on harmonised mineral policies across India that are clear and transparent.

The adequate supply of the most vital fuelcoalwhere linkages have been drastically reduced, has put the industry in difficulty. The current linkages provide 45% and the balance fuel has to be arranged either through import or e-auctions, at very high prices. The policy of allotment of coal blocks is also inadequate. It is a pity that despite the cement industrys paltry needs of only 5-7% of the total coal produced, the industry is not favoured with full linkage that is in the interest of both the national economy and cement industry.

The cement industry had undertaken significant proactive steps to manage power supply by setting up more than 80% of back-up captive power plants to ensure good quality and consistent availability of power. Currently, the industry has more than 3,000 mw of captive power plants and 65-70% of cement is being produced using captive power. However, these efforts were not supported by the government, leaving the industry to fend for itself.

The emerging railway back-up support to carry increased volumes of clinker to grinding units and cement to markets is inadequate. This situation is likely to be crippled further in view of no major initiatives to augment existing line capacities to meet increased volumes of dispatches by rail.Further, the inadequacy of large-sized trucks and sudden reduced haulage capacity due to the SCs judgement, restricting the load capacity to axle basis, compounds the position further and seriously impacts the supply-chain-management. As a result of the SC judgement, state governments have done little to improve the situation. Notwithstanding such serious obstacles, the entrepreneurial spirit of the private sector has to be lauded, which has continued to push the cement industrys growthoften finding ingenious ways to meet the tough challengesalthough at high costs.It is gratifying to note that the Planning Commission has constituted a special cell to monitor the progress of infrastructure projects in power, roads, ports, civil aviation and railways.

The fortunes of the industry are closely interlinked with the speedy execution of the countrys major infrastructure projects. The cement industry has an enviable track record and if it gets full support from the government, it can continue to support the governments initiative to push these infrastructure projects for the overall development of economy.

The author is MD, Ambuja Cements Ltd