The government removed the contentious 16 per cent countervailing duty, and four per cent special additional duty on import of Portland cement on Tuesday, amidst indications that it may also review the dual excise duty structure on cement announced in the budget. The decision comes after the government failed to persuade the cement makers not to pass on the burden of additional excise duty to the consumers.
The move is being seen as an attempt to moderate cement prices by increasing availability of imported cement.
In the last budget, Finance Minister P Chidambaram had proposed reducing excise duty by Rs 50 - from Rs 400 to Rs 350 per tonne - on cement whose retail price was not more than Rs 190 per 50kg bag. On the other hand, on cement with higher retail prices, the excise duty would be raised by Rs 200, to Rs 600 per tonne. "Immediately after the announcement cement manufacturers hiked the price of cement. The move added to the woes of the government as it battled severe inflationary pressures with inflation crossing well above 6 per cent in the past several weeks”, said a Central Board of Excise and Customs (CBEC) spokesman..
Cement prices have been rising steadily in the last year. The average price of cement has gone up from Rs.165 for a 50 Kg. bag in January 2006 to Rs.209 for the same in February 2007, to Rs 220 in March.
The basic customs duty on Portland cement was removed in January this year itself in the wake of rising inflation.
“However, cement prices continue to be high. The industry was requested to moderate prices in the interests of the consumer. But the industry claimed high prices were due to a demand-supply mismatch. It is hoped that the move will improve the supply situation in the country”, said the CBEC spokesman.
Earlier Finance Minister P.Chidambaram had asked cement manufacturers to reduce prices and come up with proposals to moderate the price line.“Government expects cement manufacturers, in the larger interests of consumers and for checking inflation, to take appropriate measures for moderating cement prices”, a finance ministry statement had said.
Cement manufacturers refused to officially comment on the latest move. However, a letter from the cement manufacturers association (CMA) to commerce and industry minister Kamal Nath had maintained that “any effort by the producers to reduce prices would only curtail the profitability of the industry, while the trade would have runaway profits”.
Sources close to the cement manufacturers said they had drawn the government’s attention to the higher price of coal. “They ( cement manufacturers) said that the sustainable means of controlling prices would be to increase supply faster than demand which is growing at 10 per cent annually. They also said that the industry has taken steps to expand installed capacity by almost 100 million tonnes in the next three years by spending over Rs.40,000 crore”, sources said.
The Indian cement industry grew by 10.1 per cent year on year (YoY) in the first nine months of the current financial year with the Southern region growing much faster at 11.8 per cent.