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Excise Duty abatement and VAT rationalisation
October, 29th 2009

The per capita cement consumption in our country is one of the lowest in the world, 156 kg against the world average of 356 kg. One of the areas where CMA has already initiated efforts is to facilitate concretisation of roads whose superiority over bitumen road is already well established. Vinita Singhania, Managing Director of JK Lakshmi Cement and President of the Cement Manufacturers Association (CMA) spoke to ETs Rituraj Tiwari on the challenges and the road ahead for the sector . Excerpts from the interview:

Q. What is the biggest challenge for the cement industry? What would be the growth rate of the industry?

I think the biggest challenge for the cement industry relate to taxation, availability of inputs and area of demand generation.

Despite being accorded the status of a core sector, the industry continues to remain highly taxed one. The total tax burden on cement works out to approximately 60% of the ex-factory realization, which is the highest in any country in Asia Pacific region and is much higher compared to average tax of 11.4% in the region. The highest levy of 20% being in Sri Lanka. In this connection we have already highlighted the need for abatement of Excise Duty and rationalisation of VAT on par with other core industries like Steel, royalty on limestone, etc.

Cement is the only product where no abatement is given on the post manufacturing expenses despite charging excise duty on the Maximum Retail Price.

As far as growth is concerned, Cement Industry has been one of the few industries which has been able to achieve a decent growth rate of over 8% on compounded basis in last one decade, even during the years when the economy was facing a slow down. In the first six months of the current year, the growth has been an enviable over 12%. We are confident that this industry would see a sustained growth rate of 9 to 10% in the coming years.

Q. There seems to be a surplus situation for cement. Will it lead to price correction in coming times?

Demand as well as capacity creations in the cement industry are cyclical in nature. We are entering a phase when there can be a possible overhang of supply over the demand. Cement prices which are clearly correlated to the market dynamics of demand and supply are likely to get affected in the short term. In fact, some corrections have already taken place. However, the healthy growth which the cement industry is experiencing, thanks to all-round construction activities, the surplus quantity would get assimilated in the system in not too distant future thereby correcting the prices again. Over a medium term, the cement prices should follow a stable regime with minor ups and downs.

Q. At a time when real estate is moving slow, what do you think would be growth driver for cement industry?

The real estate sector has been facing slow down for the last over 18 months. Even then the growth in the cement industry has been healthy. This, to my analysis, is arising out of the increased infrastructure development activities and also housing construction in the middle and smaller income segment as well as towns. We see no reason that this demand will go down. With the economic conditions showing signs of recovery, the real estate sector is likely to bounce back which can provide for additional demand.

Q. Do you think its time for M&A in cement industry? Should small players merge with bigger ones for survival in tough conditions?

Cement industry is largely a regional one in the sense that each plant has its economic radius within which it can supply its produce. A player may be seen as small on a pan India picture, but in the region in which it operates it can be a strong one, some of whom are operating with high operating efficiencies and high operating margins. I feel M&A is more related to the choice that the individual company makes rather than to the nature of the industry. We have seen that M&A has taken in equal number both amongst large players as well as smaller players.

Q. Will you promote carbon credit trading in cement industry for cleaner environment?

Environmental impacts due to carbon emission are definitely an important subject for all of us. There has to be continuous efforts by industry as well as the Government to see how to mitigate its effect. We, in Cement Industry, have been trying alternate fuels, which can reduce the carbon footprint. However, these initiatives need also to be supported adequately by government institutions. There is still a lot of scope for cement industry to make cleaner environment possible by adoption of measures like generating power from waste heat, using of bio-mass as heat source, increasing production of blended cement so on and these initiatives are part of carbon trading.

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