The construction industry has reacted strongly to the cement price hike, with CREDAI and ACCE saying it will result only in project delays and escalation in prices. A look by RANJANI GOVIND

Whatever the reasons being quoted by the Cement Manufacturers Association, the real estate industry professionals don’t seem to be convinced with this kind of an unprecedented price hike for cement. “It is unwarranted, it comes as a rude shock,” said R. Nagaraj, President, CREDAI-Karnataka, in a telephone interview with The Hindu-HABITAT.

The governing body of the Confederation of Real Estate Developers Association of India (CREDAI-Karnataka) in its State-level convention in Bangalore discussed the arbitrary hike in cement prices announced by the CMA. “The price of cement has gone up from Rs. 255 to Rs. 315 per bag, an increase of almost 25 per cent. CREDAI-India will take a petition to the Central Government of India requesting for slashing the increased rates in a week’s time, failing which we would be forced to halt construction activities across all South Indian States (Karnataka, Kerala, Andhra Pradesh and Tamil Nadu). This could lead to increased apartment prices. Where is the need to do such things now? Why are we forced into an unhealthy situation like this?” queries Mr. Nagaraj.

At the same time, four organisations – the Builders Association of India, Construction Federation of India, National Highways Authority of India and CREDAI — will also take a presentation to the Competition Commission of India (CCI) for intervention, protesting the price rise.

‘Artificially created’

Argues Mr. Nagaraj, “Generally there is scarcity in summer due to increased construction activity and the demand usually pushes cement prices up. Monsoons bring down the number of constructions, so the prices too slip. This averages out the yearly pricing parameters which has always been the norm. Look at the scene now, everything in reverse, this is not real, it looks as if there has been artificially created reasons for a random, illogical increase in cement prices.”

CREDAI has also gone on record to say that the price increase is grossly timed wrong when prices are generously supposed to be on the downtick due to the slowing of construction pace. “Monsoons generally reduce cement prices by 25 per cent, so with the 25 per cent unusual increase this season, we could calculate it as a 50 per cent higher slapping of prices on consumers,” say CREDAI officials. And what about the overall increases in construction? “The overall cost of construction is poised to escalate pan-India, which means that the end-consumer is going to be burdened with a rise in apartment costs,” they say.

Coupled with the hike in cement, is a steep increase in steel prices that have gone up from Rs. 47,000 to Rs. 52,000 per metric tonne. Labourers cost has increased by 20 per cent, building products like electrical, wood, paint and sanitaryware by 5 per cent. “So, construction cost will overall see nearly 20 per cent hike,” says Nagaraj.

What are the reasons behind such cement price hikes according to CREDAI? Production capacity in cement is being brought down to create an artificial demand, feels CREDAI. The association acknowledges that the change in economy may result in a small change to the price of cement trading.

“But the input cost for cement manufacturers, who largely owe it to the rise in diesel costs, railway wagon charges, doubling of labour in loading and unloading, does not warrant the current level of hike.”

CREDAI has 9,000 members across India, and 450 in Karnataka. “Out of the total production of cement, we are the major users with 25 per cent being used by the CREDAI members,” says Mr. Nagaraj. Such price hike may bring down infrastructure work too taken up in the PPP model, where prices have been previously worked and agreed upon, he says. “About three to four months ago, when a cement price hike was reported to the Competition Commission of India, there was a penalty imposed on the cement manufacturers. After all, one should understand that there are 200 allied industries in construction which would experience the ripple effect along with workers who would have no jobs if the industry slows down.”

Unwarranted

The Association of Consulting Civil Engineers (ACCE) too feels the price hike would add to the already lukewarm construction activity for the last five months. Says M.S. Sudarshan, Secretary General, ACCE (India), “With too many units/projects left out without being sold, this price hike may soon lead to a saturation point where selling the units constructed would pose further challenge to the developers.”

Except brand names in the construction industry, smaller developers could find it difficult to convince people to buy their built spaces in the increased rates scenario, he says. “Nobody knows what the yardstick is for this kind of unreasonable increase in cement prices. Until the investments in real estate are realised, further construction activity with the new cement and steel rates would be a dream, especially for the affordable homes category,” says Mr. Sudarshan, who feels untimely negative interventions could play spoil-sport to an otherwise encouraging trend expected this year.