New Delhi: Pakistan’s largest cement maker and exporter Lucky Cement Ltd has evinced interest in setting up a manufacturing plant in India in the first such overture since New Delhi allowed foreign direct investment (FDI) from its western neighbour three months ago in an attempt to strengthen business and economic ties between the estranged neighbours.
Lucky Cement, which also has manufacturing units in Iraq and Congo, has been exporting the building material to India, said a spokesperson for the company based out of Karachi.
“Currently, Lucky Cement is contemplating having a direct presence in India once it has achieved key understanding of the Indian market and the opportunities it may offer,” the spokesperson said by email. “At present, Lucky Cement is seeking guidance both from the Pakistan and Indian government authorities on the existing FDI policy.”
Lucky Cement has annual production capacity of 7.75 million tonnes, according to the company’s website, and possesses international quality certifications, including that from the Bureau of Indian Standards. The company is listed on the Karachi, Lahore, Islamabad and London stock exchanges,
The investment, if it materializes, would be a small yet significant step in building investment ties between India and Pakistan, which have fought four wars since the subcontinent gained independence from British rule in 1947. In August, India overturned a ban on FDI from Pakistan as part of an effort to boost economic ties, whatever be their political differences.
Since April last year, with the visit of then commerce secretary Rahul Khullar to Islamabad, both countries have made significant progress in bilateral trade.
Pakistan has promised to designate India as a so-called most favoured nation by the year-end, treating it on par with other trade partners. Both countries have substantially expanded the lists of products that can be traded between the two nations. They have also agreed in principle to allow the opening of bank branches to guarantee smooth trade.
In September this year, the neighbours announced a long-term plan to reduce the list of “sensitive” items for trading to 100 by 2017. Pakistan is also in the process of expanding the list of items that could be traded through the land route from 137 at present.
Lucky Cement has approached the Indian commerce ministry for some clarifications on India’s FDI policy and the ministry has referred it to Invest India, the official agency for investment promotion and facilitation, a ministry official said on condition of anonymity.
An Invest India official, also speaking on condition of anonymity, said the cement company had approached the agency for more details on the FDI policy. It’s exploring establishing a manufacturing unit in Amritsar, the official said.
Agha Alijan, manager for brand and corporate communications at Lucky Cement, said India was a lucrative market for the cement company because of its huge market and large middle class.
“We at Lucky Cement feel proud that our brands are selling successfully in the Indian market and view the opportunity to explore the Indian market as very beneficial for Lucky Cement,” he said. “Above all, in view of the reformed FDI policy, we believe that directly investing in India will further strengthen the trade ties between India and Pakistan and also provide a great learning ground for us to further polish up our business vision,” Alijan added.
It’s positive that companies from Pakistan have started showing interest in investing in India so soon after the change in policy, said Nisha Taneja, a professor at the Indian Council for Research on International Economic Relations.
Any policy shortcomings would come to light only when companies start applying for approvals to invest money, enabling the government to take corrective action, she said.
India has moved to normalize relations with Pakistan damaged by the 2008 Mumbai terrorist attacks it blamed on a Pakistan-based group. The sole surviving perpetrator of the attacks, Mohammad Ajmal Kasab, was hanged on Wednesday, raising concerns about its potential impact on bilateral ties.
Taneja cautioned that investment projects could face some operational problems. She said the bilateral trade relationship of the two neighbours is now on a ladder. “There will be potential issues such as terrorism. However, at one level, the delinking of trade with other issues is on a strong footing,” she added.
India’s exports to Pakistan contracted 24.4% in 2011-12 to $1.5 billion (around Rs.8,280 crore today), while its imports from Pakistan grew 20.6% during the same year.
Ajay Dua, a former industry secretary, said allowing investments from Pakistan was largely a symbolic move. At the same time, India should welcome investments from Pakistani cement companies.
“There was a time when there was great shortage of cement in India and prices were rising very fast. We were contemplating to import large quantities of cement from Pakistan. We have the raw material and the market here. We should welcome them,” he said.
In June, the Competition Commission of India severely censured cartelization in the cement industry by imposing a hefty penalty of at least Rs.6,300 crore on the top 11 makers of the material. Among these, the worst-hit were ACC Ltd, Ambuja Cements Ltd, UltraTech Cement Ltd and Jaiprakash Associates Ltd, which have been fined in excess of Rs.1,000 crore each. The competition regulator observed that in 2009-10 and 2010-11, cement companies had under-utilized available production capacity “to reduce supplies and raise prices in times of higher demand”.