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Greedy
cement cartel hoodwinking the development
Cement cartel is
enhancing cost of construction. Each bag of cement is now costing
Rs.250/-. After 1989, cement industry is on dictating terms with
construction industry. Is the price justified?
By Sanjay
Chaturvedi
The cement
industry is India’s ultimate sunshine industry. But for only
those who are manufacturing it, not even dealers or people who
keep watch on it. Until 1980’s it was not growing. Now it is
leaps and bounds. After cement was decontrolled in 1989, the
industry took off – its growth rate far outstripping that of the
country’s gross GDP. In terms of production capacity, it has
grown almost two and a half times – from 61 million tones in
1989-90 to 157.5 in 2003-2004. According to Planning
Commission’s Working Group on Cement, by 2006-07, annul capacity
will exceed 200 million tones.
Big Players
Big companies
dominate cement manufacturing. Grasim Industries ltd., owned by
Aditya Birla Group, is the largest cement manufacturer in the
country and the eighth largest in the world. Associated Cement
Companies Ltd.(ACC) is second, it was controlled by the Tata's
before Ambuja Cements India Ltd, a joint venture between the
Ambuja Group and the Swiss multinational Holcim, brought the
fortune. Gujrat Ambuja Cement Ltd (GACL), held by the Ambuja
Group, south India-based India Cement and BK Birla’s Century
Textiles & Industries Ltd follow in that order. The top five
collectively control 52 per cent of the market.
Profit Margins
The gross profit
margin of the top five in the last five years was as good as those
of the top five global companies, i.e. more than 20 per cent of
turnover. GACL is one of the most profitable cement companies in
the world, with a great profit turnover ratio. Several factors
have contributed to this scenario. It gets cheap raw material in
the first place and cut costs by using waste materials like flyash.
With raw material costs pegged at just 7.3 per cent of turnover,
Indian cement is on velvet.
Most cement
companies modernized after 1989 with a result in cost cuts in
energy which accounts for 25 per cent of turnover. Automation has
reduced labour cost by 3.4 per cent of turnover.
International
Players
The industry is so
lucrative that few multinationals can compete without availing the
advantage base in India. France based Lafarge Cements, Holcim
Group and Italcementi from Italy have entered markets by investing
in or buying out Indian companies. Holcim invested in Kalyanpur
Cements in 1990, Lafarge acquired Tata Steel’s plants in 1999
and Italcementi set up shop with the KK Birla Group by acquiring
50 per cent stake in Zuari Cement in 2000.
At the cost of
Environment
When the Centre of
Science and Environment’s Green Rating Project did a job on 41
plants owned by 23 companies with a 79 per cent of total installed
capacity and 83 per cent production, it found the downside of this
massive boom, an immensely destructive ecological cost spiraling
out of control.
Hidden Subsidy
Limestone, the
main raw material in cement manufacturing, is obtained by
large-scale open cast mining. In India, the absence of tight
regulation and clear policy directive gives the industry an upper
hand while local communities suffer because their natural resource
base is degraded.
India has abundant
reserves of limestone – 149,145 hectares has been leased out for
mining limestone, according to Monograph on Limestone and
Dolomite, published by the Indian Bureau of Mines in 2003. The
cement industry’s limestone is mainly found in nine states,
which are home to many cement plants.
Monopoly using
cartel
Cement is the
major component for any construction. Timely delivery and quality
is the essence for any construction activities. Cement
manufacturers in the country have well established cartel to keep
up the selling price. Various tactics are adopted. Keep the
production low, conserving and not releasing the stock for sale at
maximum demand period, asking for payments first before delivering
and appointing cement traders who stock it for long and keep an
eye on boss to release it and forward trading.
Who suffers?
Common citizen of
this great country suffers ultimately. Either
paying for whooping cost to the builders, who are also
helpless in the hands of cement cartel, or paying taxes to
government for infrastructure development which the state or
centre plans it.
When international
hands have well deep routed in the industry, what we can expect
from the industry. It is a clear cut cartel of industry and
international players. Cement import is also not given a look when
powerful cement lobby at centre restricted it successfully.
With 200 million
tones per annum capacity and free to rap the limestone mining,
cement is sold at Rs.250/- per bag of 50 kg cement bag. It is a
time for the government who has Bharat Nirman and Urban Renewal
Mission on card, to make policy to administer the prices.
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