New Delhi, March 9: In a move redolent of the days of price control, cement manufacturers today gave in to government pressure and promised to keep prices stable for a year even if the costs of inputs go up.
They have, however, ruled out rolling back the recent increase.
“The cement producers have agreed to hold the price line and not increase the prices any further in the next one year even if the costs of inputs increase,” commerce and industry minister Kamal Nath said.
Cement prices were first partially decontrolled in 1982 and fully deregulated in 1989. But today’s move seems a throwback to the days when the government used to fix the price of this vital construction material.
The announcement rattled shaky stock markets and sent cement shares sharply lower.
Analysts said the move would undermine cement companies because of rising energy and transportation costs. They had earlier estimated cement prices to go up 35 per cent in 2007, after rising 30 per cent in October-December from a year earlier.
“It’s going to hit all companies irrespective of region,” Hitesh Agrawal, analyst with Angel Broking, said. “They can’t increase prices for one year and the year after will not let them do it as we expect additional capacities to come in.”
Producers had raised cement prices by Rs 10-12 per bag of 50 kg from March 1 in some regions after the government raised duty on high-priced cement in its budget a day earlier.
The peace formula emerged after a two-hour meeting between the minister, officials of the department of industrial policy and promotion and cement manufacturers.
“If the government reduces levies they will be completely passed on to the consumers,” Manoj Gaur, executive chairman of Jaiprakash Associates, who led the delegation of manufacturers, said.
He said the manufacturers were open to further talks with the finance minister if they were called.
A statement issued after the meeting said Nath strongly urged producers to reduce the prices that have risen significantly, particularly after February 28 when an additional excise duty of Rs 200 per tonne was levied on cement costing more than Rs 190 per bag.
The Cement Manufacturers Association expressed its inability to absorb the hike in levies as they were already under pressure due to increase in costs of energy, transportation and inputs like fly ash.
The manufacturers said a sustainable way to check the prices was to increase the supply faster than the demand that was growing at 10 per cent per annum.
“Additional capacity to the tune of 100 million tonnes will come on-stream in the next three years at an investment of Rs 40,000 crore, thereby taking the total capacity to 250 million tonnes,” managing director of Shree Cement H.M. Bangur said.
He said no real increase in prices of cement has taken place in the last one year and the recent hike was due to higher taxes.