Backing down from their tough stand, cement companies have agreed to roll back 25% of the hike in cement prices that they announced the day after the finance minister presented the Union Budget in Parliament. This is an about-turn from the cement industry’s stand till 5 March when it was belligerent about reducing cement prices.
The offer from the cement manufacturers side is learnt to have been made in a closed door meeting representatives of the industry had with finance minister P. Chidambaram on 6 March.
The cement industry fears a backlash from the government, which controls the fortunes of the industry by regulating rights to mine key raw materials such as limestone and coal. Cement companies who upped prices to pass on the burden of increased excise duties imposed in the Budget are, however, reluctant to reverse the rest of the price hike as they will take an adverse hit on their profits.
At the same time, a token reduction of prices will be a face-saving gesture for the government, said officials close to the development who requested anonymity.
In 2006, cement companies offered the government a 5% discount on supplies for government purchases following displeasure expressed by the government over rising cement prices.
On 5 March, a delegation from the Cement Manufacturers Association had met the secretary of department of industrial policy and promotion, Ajay Dua, to present their case. On 6 March, the lobby group met Chidambaram and Union commerce minister Kamal Nath to justify the price hike and also hammer out a compromise formula, say senior officials.
Aditya Birla Group-owned Ultratech closed at Rs821, up 1% while ACC was last quoted at Rs854—up 5%—as several fund managers bought these shares in anticipation of the impasse being resolved.
“Normally taxes are passed on to customers,” a senior official of a leading cement producer said.
Nath said the government would study the impact of excise duty on cement and was open to price control if evidence of undue profit was found.
Cement companies have also pledged to raise capacity which would increase supply and help the government moderate the rise in prices.
Firms have vowed to add 100 million tonnes to capacity at a cost of Rs40,000-45,000 crore over the next five years, Dua said.
Demand for cement is growing at 10% annually as India improves its infrastructure to sustain high economic growth. Dua said a demand-supply mismatch could be met by expanding production capacity. Rising prices have become a headache for the government backed by Left parties.
The Congress party, which heads the United Progressive Alliance, the ruling coalition, has lost two key state elections with voters angry over high prices of food and other commodities.
Inflation hit a two-year high in early February but has fallen to just above an annual 6%.
(Reuters and Bloomberg contributed to this story)