In a move that is likely to spell trouble for cement companies, competition watchdog CCI has decided to launch a pan-India “fact-finding” market study on the cement sector. 

Such studies are often a prelude for a comprehensive enforcement action by competition agencies.

Cement is a critical input in crucial sectors of the economy such as housing and infrastructure. These sectors have well-known forward and backward linkages with a range of other industries, thereby having the potential to influence the overall growth trajectory of the economy. 

“Given the criticality of cement for many vital sectors, a well-functioning and competitive cement market is of utmost importance.  In view of the same and given the structural features of the cement market that make it susceptible to collusion, the market study will be a fact-finding exercise to develop a comprehensive understanding of the functioning of the cement market across regions in India, and the state of competition therein” said a CCI release. 

This market study is independent of any case proceedings before the Commission pertaining to the cement sector, release added. 

Market Studies

Market studies conducted by competition authorities are comprehensive examinations of the dynamics within specific industries or sectors, aimed at assessing the nature and extent of competition among market participants. These studies are crucial for understanding how markets function and are distinct from competition law enforcement actions, which typically focus on the behavior of individual firms. If serious anti-competitive practices are uncovered, it can lead to enforcement actions against specific entities.

Cement Cartel

In 2019, the Competition Commission of India (CCI) had initiated a suo motu probe against cement companies on the basis of complaints which alleged cartelization. 

The CCI had directed its investigation arm i.e. the Director General to investigate the allegations and submit a report. The investigation report has since been submitted and a final hearing is likely to be scheduled soon. The final ruling is expected early next year.

Earlier also, in 2016, on a complaint filed by the Builders Association of India before the CCI against cement firms and the Cement Manufacturers Association (CMA) alleging cartelization, the CCI found ten cement companies and their trade association (CMA) in contravention of the provisions of Competition Act, 2002 that prohibit anti-competitive agreements including cartels.

It was noted by CCI in its order that the cement companies used the platform provided by CMA and shared details relating to prices, capacity utilisation, production, and dispatch, thereby restricting production and supply in the market, contravening the provisions of competition law.  

Further, CCI also found the cement companies to be acting in concert in fixing the prices of cement. Accordingly, CCI imposed a cumulative penalty of ₹6,300 crore upon top ten cement companies and their trade association (CMA). 

If found guilty of cartelisation by CCI, cement companies may potentially face stiff penalties which may extend up to three times of their profit for each year of the continuance of cartel or ten percent of their turnover for each year of the continuance of the cartel, whichever is higher.

“It is unusual for a competition agency to launch a market study in a sector when a pan-India market probe into cartelization in the sector is already at an advanced stage. Despite CCI’s disclaimers of market study being independent of any proceedings, the fact remains that regulators do not commission studies for academic purposes and may ultimately use the findings for enforcement actions”,  said a competition law expert tracking the cement sector.