Mumbai: The government’s effort to fight inflation by removing import duty on cement has had the desired result: a clutch of foreign firms have applied for Bureau of Indian Standards (BIS) certification as a precursor to shipping cement to India.
“We have received about 11 to 12 applications from foreign cement manufacturers. Most of the applications are from manufacturers in Pakistan. We have also received applications from manufacturers in Bangladesh and Hong Kong,” said P.K. Batra, head (central marks department-1), BIS, the body that issues the ISI certificate. An ISI certificate is mandatory for companies that want to export cement to India, as it means the cement is suitable for use in India. “It will take two to three months for us to process the applications and award certificates,” he added.
Lucky Cement, Pakistan’s largest cement manufacturing company, is one of the companies waiting for certification. “We are waiting to hear from BIS officials. Our cement can reach India by road as well as by sea. We have received enquiries from builders in Gujarat, Chennai, Mumbai and Karnataka,” said Mohammad Abid Ganatra, director of finance at Lucky Cement. BIS inspects products for quality and the manufacturing facilities. Lucky has a total capacity of 6.5 million tonnes per annum (mtpa).
Inflation rose to a two-year high in January because of short supply of several commodities. In an effort to curb inflation, the government introduced several measures to bring down rising cement prices. The central government removed the basic import duty and the countervailing duty on cement, making imported cement cheaper than domestic cement. Besides removing these duties on imported cement, the Directorate General of Foreign Trade, the government arm that oversees trade also relaxed a rule that said companies importing cement would have to use it themselves and not trade in it.
“Though there has been talk of increase in cement imports, not much has happened so far. Given that, we do not expect prices to decline over the next six months. Even if they do, it will be difficult to say that this is due to imports as we usually see a dip in prices during the monsoon because of a slowdown in construction activity,” said Vineet Nigam, vice-president, ICRA Ltd.
Currently, 11 foreign cement manufacturers, mostly from Bangladesh, have permission to export cement to India, but imports from these countries is almost insignificant. By the end of June, Pakistan expects have a total capacity of 35mtpa of cement with an exportable surplus of 12-13mtpa, said analysts. A Citigroup report on the Indian cement sector says there is about 50-60mtpa of capacity that will come up over the next three years in West Asia, mainly in Saudi Arabia, Iran and the UAE. “There is a view that a large part of the new capacity in Iran and Saudi Arabia in particular is being earmarked for exports, given the low fuel and power costs,” the report says.
However, not everybody expects Indian cement companies to be hurt by zero duty imports. An analyst with a leading domestic brokerage firm said that import of cement in significant quantities is not viable, as Indian ports do not have the required infrastructure to handle high volumes of cement. “Cement is a commodity that has a short shelf life so it is unlikely that large quantities will be imported. Hence, we expect cement prices in the domestic market to remain stable,” he added, citing company policy that prevents him from being named.
According to a report by Care Research, a division of credit rating firm Credit Analysis and Research Ltd, growth in production of cement marginally lagged behind the domestic consumption in fiscal 2006-07: production grew by 9.5% compared with 9.9% growth in domestic consumption. Indian cement manufacturers produced about 700mtpa of cement in 2006-07.