Saturday, May 3, 2008

Cement Sector News - Announcement in Cement Industry

IN his maiden budget speech, the Finance Minister has acknowledged the growth contributed by the industry in the current fiscal and talked of consolidating it further. However the budget fails to do the same.

The direction and thrust in terms of growth and reforms are missing. Unsavoury proposals of the Kelkar Committee have been withheld for post-election period.

Some proposals which are likely to help the construction industry and cement consumption are the continuation of interest deductible on housing loans and exemption of income from housing projects for the construction of residential units till March 31, 2005.

The emphasis laid on the development of physical infrastructure be it roads, airports, seaports and railroads, is definitely the need of the hour.

For the first time, the Government has acknowledged the need for giving a thrust to concrete roads and has accepted the cement industry's long-standing demand for use of long lasting cement over bitumen in road construction.

The announcement of the construction of 48 new roads measuring 10,000 km along with the Golden Quadrilateral, North-South-East-West corridor besides construction and modernisation of four airports and two sea ports will boost the demand for cement.

The announcement that 25 per cent of the new roads would be concrete roads will spur demand for cement.

If the same ratio is applied to the other major road works, an additional 6,250 km of the total 25,000 km would be constructed using cement.

At roughly 3,000 tonne per km, cement consumption would be in the range of 18 million tonne over the next four years.

This is, in addition to the increasing cement demand that the industry has been witnessing on account of a boom in the housing sector.

These measures bode well for the cement industry.

The decision to scrap dividend tax in the hands of recipient and abolition of Long Term Capital Gain Tax (LTCG) for shares bought after March 1, 2003 are good moves.

However, if the LTCG abolition were made applicable with retrospective effect it would have boosted the stock markets.

While acknowledging that rationalisation of excise rate structure and reduction of the multiplicity of rates was integral to the total tax reform process, the Finance Minister has proposed a three-tier excise duty structure of eight per cent, 16 per cent and 24 per cent.

But by increasing excise duty on cement and clinker by Rs 50 per tonne, the Government has made it the highest taxed commodity.

The specific tax at Rs 400 per tonne on cement works out to 30 per cent ex-works, which is not only the highest rate of duty but also a highly retrograde step.

On one hand, the Government is trying to promote infrastructure and housing and on the other, such an increase would make inputs costlier.

Last year, cement consumption in the country was at 110 million tonnes, thus an Rs 50 per tonne increase in excise of would net the exchequer Rs 550 crore.

This amount it seems would be used to balance the cut announced in excise duty on tyres, aerated soft drinks, polyester filament yarn, air-conditioners and motor cars.



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