The Hindu Business Line : Taxes and levies: Cement is the beast of burden

The boom in construction across the country has driven the growth in cement consumption and increased prices. Workers at a building under construction in Kolkata. - A. Roy Chowdhury

The cement industry is investing about Rs 36,000 crore over the next three-four years to create additional capacity of 90 million tonnes anticipating a growing demand. In this situation, the industry wants a growth-oriented Budget, one that would spur cement consumption, particularly in the infrastructure and housing sectors, says Mr N. Srinivasan, Vice-Chairman and Managing Director, The India Cements Ltd.

MR N. SRINIVASAN, VICE-CHAIRMAN & MANAGING DIRECTOR, THE INDIA CEMENTS LTD.

Mr Srinivasan, a past President of the Cement Manufacturers' Association, says that cement is a highly taxed commodity and argues for a reduction in levies. Excerpts from the interview:

What does the cement industry want from the Budget?

The cement industry is a capital intensive sector. Demand for cement has been growing at between 8 per cent and 10 per cent for the last 20-25 years. The industry would look for a growth-oriented Budget, which would continue to support demand creation for cement, particularly in infrastructure and housing sectors. On the basis that such climate would be created the industry has embarked on substantial expansion.

Whatever profits have been generated are being ploughed back into asset creation. The industry estimates that by 2011-12, cement demand could be 268 million tonnes, which means at 90 per cent capacity utilisation we need close to 300 million tonnes of capacity. Steps have been taken for about 90 million tonnes to be added over the next three to four years. At Rs 400 crore per million tonnes, this represents Rs 36,000 crore, a substantial re-investment.

The industry expects the Government to provide a Budget that will enable continuous growth over the next four to five years.

The industry has represented that the impact of direct and indirect taxes on this core infrastructure product is high, at close to Rs 1,000 a tonne or Rs 50 a bag. In no other country, does cement face this kind of a levy. There is a need for reduction.

The fact that in the past several years cement was sold at an un-remunerative price and recent increases due to market dynamics resulting in a more reasonable price for cement should not give rise to the feeling that cement prices are not fair.

The Government has reduced import duty to zero probably because of a mistaken impression that cement prices are high. In fact, truth is to the contrary. Current prices for cement are competitive compared to international prices.

You talked of cement attracting a lot of taxes and levies. Specifically, would you like to see a reduction in these levies...

The levies we have - excise duties, sales tax, royalties on limestone and coal, cess - the sum total is quite high. The industry has always pleaded for a reduction. We are the second largest contributor of excise duty. In 1980, we contributed Rs 170 crore to the exchequer. Now if you take State and Central levies, it will be more than Rs 12,000 crore. Cement is the beast of burden. We carry the largest burden for an infrastructure building material.

The other important aspect is that with the industry expanding rapidly there is a need to ensure that infrastructure support in the form of adequate wagons to move the finished product be available.

Likewise, coal, an important raw material fuel, should be available in good quantity. There is a move to do away with the present system of linkage by taking cement out of the core sector. This will result in inadequate availability of coal for this important sector apart from making the coal expensive. Cement should be retained in core sector for purpose of coal linkage.

The Government could say that reduction in levies or excise duty does not result in lower prices. So, why would it want to let go of revenues?

Price of cement is directly related to the demand-supply dynamics. There have been times in the last several years when cement prices were so low that almost all companies made losses for long periods of time. The price is not related to the level of tax. It is only related to market dynamics.

Then how would the Government be justified in agreeing to the industry's demand for a reduction?

The Government must understand that for years they have collected a substantial levy from the industry when the industry was in the doldrums. So why should they deny the industry its due share of profit when the market is better.

Even today Indian cement price is competitive. Anybody who is not satisfied (can) import. The Government has made import duty nil, which means they have opened me to the world.

They have linked me to international prices. So what is the question then of talking will you reduce the price or not. If you have given me any protection, then it is a different matter.

The industry is also banking on the fact that port infrastructure is poor...

Industry is not banking on that. The fact is that today you are producing 155 million tonnes, demand this year will be 155-160 million tonnes. In four years time, you will go to 230-240 million tonnes capacity.

What is the amount of import you are going to do. It is not possible. Also where is it going to come from? I am not worried about this import. It only shows that the Government wants to do something to see if they can reduce cement profitability, which is not fair considering the fact that we have suffered for so many years. It is tragic that the Government should think so. But the industry is efficient, sound and technically good, we can face up to it. We welcome the opportunity to show the Government and the people that my price is competitive. I still have room to increase price and still be competitive. There is enough headroom for me.

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