Even as the government has taken a host of initiatives including reducing excise duty on cement and relaxing norms for cement imports, cement manufacturers have termed these measures as ‘temporary’ to stem the spiralling prices of the commodity.
They said prices are bound to go up in the future, as the demand supply gap can’t be met through cement imports alone.
"If the government is serious about tackling the pricing issue, they must ask the cement manufacturers to expedite the completion of their projects in the next six to eight months rather than waiting for their scheduled completion after three years. Once the supplies match the demand, prices are bound to be under control. This would be the long term solution," said a cement manufacturer asking not to be identified.
The main problem in expediting the projects is the delay in getting environmental clearances and coal linkages from the government. "If these two issues can be addressed, new capacities can be added at the earliest," he added.
Cement manufacturers said that the demand supply gap would continue even with cement imports. As on March 31, 2007 the cement industry had an installed capacity of 156 million tonnes and most manufacturers operated nearly at 100 per cent of their capacity.
"Since demand is going up by 11 per cent there would be a short fall of 17 to 20 million tonnes this year. Despite cement imports, there will be a shortfall of more than 10 million tonnes. In a demand driven market prices should go up after the monsoon," he said.
All cement companies have announced to add over 100 million tonnes of capacity in the next three to four years and this was in line with the rising demand of cement.
But the sudden boom in the construction and housing industry created more demand for cement than projected. Taking advantage of the situation, cement companies increased the prices and thus they invited the ire of the government bogged by rising inflation.
Last week, the government reduced the excise burden on cement and further liberalised the import norms. Now cement imports are allowed freely and even traders can import to cater to the demand.
Earlier only end users with continuous imports were allowed this facility. However, only Bureau of Indian Standards (BIS) certificated units can export cement to India. The BIS has already certified manufacturing facilities of 11 companies in Bangladesh, Bhutan and UAE. But several construction companies are lobbying hard to do away with this condition.
Recently, the government announced five-year tax holiday for cement units announced on or after April 1 with a condition that they have to commence production within three years. But its success is still not known.