Cement Industry
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No change has been made in the customs and excise structure currently prevailing in the domestic markets.
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The budget has taken measures that will spur construction activity that will result in an increased demand for cement. Among there are:
The sector will benefit as a result of the amendments made to the income tax act which permit residents to invest proceeds from sale of property, stocks and jewelry into another house property. Earlier they were not permitted to claim exemption from such a transaction if they already owned a house property.
The extension of benefits pertaining to claiming a maximum deduction of Rs 75,000 on account of interest paid on loans taken for a purchase of property constructed upto April 2000 has been extended. Now interest on loan taken to purchase property that has been constructed upto April 2003 will be now permitted as tax deduction (upto a maximum of Rs 75,000).
Also the principal amount repaid that were tax deductible upto Rs 10,000 has now been increased to Rs 20,000.
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Duty free import of coal:
The Indian cement sector continues to suffer from the use of domestically mined coal, which has a high ash content. Thus additional costs are incurred on coal washeries that help in reducing the ash content in the coal. As against this, imported coal has benefits like low ash content and high calorific value. The cement sector has recommended that the government permit the import of coal against the exports of a company.
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Protection from imports:
The cement sector is demanding a rise in the customs duty levied on the import of cement. The recommendation is aimed at curbing imports.
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Further benefits to the housing sector:
In the last one year the cement sector has benefited tremendously from the sops provided to the housing sector. The recommendation pertains to the continuation and the introduction of more benefits to boost activity in the housing and infrastructure sectors.
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The cement sector has witnessed a sharp rise in volume sales on the back of a surge in domestic demand. A pick up in housing demand (as a result of the measures initiated in the Union Budget) has mainly contributed to this. With a pick up in industrial investment activity and a rise in infrastructure spending, demand for cement will further perk up.
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It is estimated that cement capacity will stagnate at existing levels of 113 MT (growing to 124 MT in FY01) even as demand continues to grow at 12-14% over the next two years. This will narrow the demand supply gap, improving price realisations.
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The domestic cement market is protected from the threat of imports. This is mainly due to the inadequacy of import infrastructure.
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The price realisations have come under pressure mainly due to the skewed spending on infrastructure and construction activity, and intense competition (mainly in the eastern market). The increased competition is also the result of a highly fragmented sector.
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The rise in transportation costs (due to the diesel price hike) has eaten into the margins of cement companies, as they are able to pass them only partially onto customers. Added to this is the inefficiency of the Indian Railways on which companies depend for a large part of their transportation needs (coal, cement).
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Indian cement companies lack an export infrastructure (port facilities). They are thus unable to tap opportunities in export markets.
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