RESEARCH IT  >>  INDIAN ECONOMY  >>  BUDGET 2003

Cement Industry

Budget Measures
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    Customs duty on cement and cement clinker reduced to 20% from 25%.

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    Diesel prices reduced by 0.50 rupees per litre.

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    More funds allocated to the rural roads projects. An increase to Rs 50 bn rupees from the previous years allocation of Rs 25 bn.

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    Golden Quadrilateral and North-south and East-West corridor projects on schedule with finances in place.

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    Housing projects announced for defense personnel.

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    Railway freight rates for cement reduced by 0.96%. Railway freight rates for coal increased by 0.83%.

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    The cement manufacturing companies can avail of a higher rate of depreciation of up to 40% on capital goods if they increase their capacity by 25%.

    Budget Impact
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    Reduction in the customs duty will not show any impact on the industry in the short term. However the scenario may change if the international cement prices get depressed further.

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    The drop in the diesel prices will reduce the costs involved in transportation of cement and raw materials. This will reduce the operating expenses of the cement manufacturers.

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    The spending on the highway infrastructure projects is secured to a large extent and this will ensure stable cement demand from this sector in the next 3-4 years.

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    The rural roads projects will also contribute to the demand. However the demand in this segment is dependent on the extent of concretisation proposed for these projects.

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    The freight rate revision will only show a net gain of 0.5% in the operating profits as the two freight rate revisions offset each other.

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    The demand from housing projects announced for defense personnel will be difficult to determine, as the details of this scheme are sketchy.

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    The incentive of increased depreciation may drive cement manufacturers to increase capacity, but this may further depress prices, as there will be a glut of cement supply.

    Industry wish list
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    Renewed thrust on housing – Restrictions on land availability should be removed. On the tax front, stamp duties should be rationalized to a uniform level and complete tax write off on one house per family should be provided. Industry status should be given to urban infrastructure.

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    Specific rate of excise duty on cement clinker and cement should continue.

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    Customs duty on non-coking coal should be reduced from 25% to 15%.

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    Hike in basic customs duty to 35% from 25%.

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    Concession on railway inland freight by at least 50%.


      Key Positives
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    The housing sector is one of the major consumers of cement in the country. The shortage of housing coupled with the sops given to this sector by the government in the past two budgets augur well for the cement industry.

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    The government has placed a renewed thrust on Infrastructure spending in recent years in an effort to connect all the regions of the country. The increased spending on the national highways projects has brought to light the commitment of the government to this cause. This increased spending will increase the demand for cement in the coming years.

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    Over the last one year there has been a considerable pick up in consolidation in the sector. This will bode well for the sector, which has been witnessing pressure on realizations even in the wake of higher demand. This is largely due to intense competition prevailing in the sector.

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    		•  The recent fall in the interest rates is likely to encourage higher off take of industrial credit, this will in turn increase spending on industrial infrastructure, increasing demand for cement.
    		 
      Key Negatives
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    The thrust on the road sector has had the desired impact. The key issue now is the fiscal health of the government and whether the current pace of construction activity will be sustained. Moreover, spending in other infrastructure sectors remains lacklustre.

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    Although the sector has seen some consolidation activity nationally, the degree of fragmentation continues to be high regionally. This has continued to cast a shadow over the sector, as the cartels formed regionally are fragile and companies looking at gaining market share dash hopes of better realizations.

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    Large cement capacities have been added in the recent past, largely to take advantage of the sales tax exemption granted till Dec 31, 2001. This may lead to pressure on the cement prices in the short term.

     
  		• How was this sector impacted by: Budget 2002 | Budget 2001
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