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It’s a mixed bag for cement industry

Mumbai, Feb. 28: Cement makers put champagne bottles on ice when they realised that gains from the finance minister’s infrastructure drive had fallen short of the money they would have to cough up in extra excise.

Excise duty on cement and clinker has been raised by Rs 50 per tonne, dampening the euphoria generated by increased emphasis on infrastructure. Jaswant Singh announced construction of 48 new roads, totalling 10,000 kilometres, along with Golden Quadrilteral, North-South-East-West corridor besides construction and modernisation of four airports and two sea ports.

Cement circles also reacted positively to Singh’s announcement that 25 per cent of the new roads would be concrete roads. While this is expected also to spur demand, Singh thus satisfied a long standing demand of the sector. Says, Anil Singhvi, whole-time director, Gujarat Ambuja Cements Ltd, “if the same ratio is applied to the other major road works additional 6,250 kms of the total 25,000 kmw would be constructed using cement. At 3000 tonne per kilometre, the cement consumption would be in the range of 18 million tonnes over the next four years''.

However, Singhvi came hard on the finance minister for increasing the excise duty on cement. Jaswant Singh had in his Budget address pointed out that considering that specific rates on cement and clinker have remained unchanged

for a considerably long period of time, these rates are proposed to be raised by Rs 50 per tonne. He added that this will mean a modest increase of Rs 2.50 per 50 kg bag of cement.

“By increasing the 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'', Singhvi added.

It is estimated that given last year's cement consumption in the country at 110 million tonnes, an Rs 50 per tonne increase in excise would net the exchequer Rs 550 crore.

“The hike in excise duties was clearly unexpected, and it spoiled the party to an extent'', an analyst with a local brokerage pointed out.

This trend was even evident in the stock markets with most of the cement scrips finishing off their highs. ACC closed 1 per cent higher at Rs 154.05, down from its intra-day high of Rs 157.75, while Gujarat Ambuja Cements, fell by 1.3 per cent to Rs 161.15.

Notwithstanding the disappointment over excise duties, analysts pointed out that the emphasis laid out by finance minister on housing should lead to a growth in demand.

Singh had said that to maintain the present momentum of growth in the housing sector, it is proposed that interest deductible under income tax up to Rs.1,50,000, for construction or purchase of a self-occupied house property, be continued.

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