Mumbai/New Delhi: The Indian government has an open mind on reviewing a levy imposed on cement in the Union Budget, but no decision has been taken, a finance ministry official said on 4 April 2007. The ministry has been discussing ways of moderating cement prices in a bid to contain inflation, which has remained at near 6.5% in recent weeks.
India raised excise or manufacturing duty on cement priced above Rs190 per 50 kg bag to Rs600 rupees per tonne, from Rs400, in the Budget on 28 February. This prompted cement makers to raise prices, to the chagrin of the government.
“We have not yet received any concrete proposal from the industry. We have an open mind,” the official said.
But a representative for the industry said cement makers were ready to cut prices if the government lowered the excise duty. “That assurance has already been given. You reduce the duty, we’ll reduce the prices,” the official, who did not want to be identified, said.
On 3 April, the government abolished some duties to help cement imports and urged producers to lower prices.
The news sent shares sharply lower on 4 April, although many analysts said the decision would not boost imports because of high transportation costs and poor infrastructure at the ports to handle bulk cement.
“I would view it as more of a sentimental issue,” said Ajit Motwani, an analyst with Emkay Share. “There is no big threat to earnings, but this is a signal to producers to come up with moderated prices.”
The government has been urging cement makers to roll back prices to douse inflation, but producers have not fallen in line though they have agreed to hold prices for one year. In January, the government had removed a 12.5% import duty on cement.
“We believe the repeated actions by the government are attempts to take away the last leg of pricing upside before the next large batch of cement capacities comes in,” Citigroup analysts Pradeep Mahtani and Raashi Chopra said in a note after the duty cut was announced on 3 April.
They said the landed cost of imported cement would fall to Rs213 per 50kg bag, from Rs242 earlier, but domestic prices were not expected to drop in the near term due to a shortage in supply.
The government said cement prices had risen more than 33% to Rs220 per bag in the last 14 months.