‘Cement is the next target in war against inflation’

Labourers work at a cement brick factory in Bangalore.

Labourers work at a cement brick factory in Bangalore. | Photo Credit: AFP

The government has tasked a panel led by Cabinet Secretary Rajiv Gauba to examine an array of measures to ease cement prices amid supply constraints in parts of the country, including the possibility of using the sea route to transport cement from units in South India that have idle capacities.

While reining in cement prices is part of the Centre’s push to tame high inflation, which included the recent fuel tax cuts and recalibration of import and export duties on steel and plastic, the government is also keen to ensure that there are no shortages of the critical building material at a time when public infrastructure is being pushed to stoke growth, a senior government official said.

Inflation is also the main reason that changes in the Goods and Services Tax (GST) rate structure, currently being deliberated upon by a group of ministers (GoM) under the GST Council, would likely have to be delayed given the potential inflationary impact that a rationalisation of the multiple tax rates could have.

“The GST Council members, be it the Centre or the States, are not unmindful of the desperate need for rationalising the rate slabs and structure but we just need to get the timing right,” said the official, who spoke on the condition of anonymity. “Even if the GoM submits its report, is the Council ready to deal with it when inflation is the top worry, is a key question,” the official wondered.

Any rejig of GST rates and the levies applicable on different products and services will entail some increases and some reductions. The GST Council has been aware of the need to rationalise rates since at least 2019, but the onset of the COVID-19 pandemic in 2020 and the need to support the recovery last year, had compelled the deferral of the exercise, the official noted. 

Raising cement output

While there are suspicions about some degree of cartelisation among cement players that is likely responsible for the constriction of supplies and higher prices, the Centre is exploring ways to tap the surplus production capacities that are currently idling in the southern parts of the country. The government is in talks with the South India Cement Manufacturers’ Association to work out ways for members to meet the rising demand in other regions., the official noted. 

“They don’t need any fiscal sops, just logistical support to move cement out, so we are looking at provision of more railway rakes as an option to pricier road transport. Even the sea route is being considered – for instance, the key input for construction could be sent to Haldia port, from say Chennai port, and then moved onwards through inland waterways, with the last mile covered by road or rail,” the official explained.

The relaxation in customs duties on imports of key raw materials for plastics and the curbs on steel exports were aimed at easing the lot of micro, small and medium enterprises, who were severely affected by non-availability or high prices for these key inputs.

Stressing that India’s inflation pressures were being driven by global factors such as high fuel and commodity prices as well as supply chain disruptions caused by the war in Ukraine and China’s stringent lockdowns to curb COVID-19 transmission, the official said this was also leading to a surge in global investor interest in India as they seek to diversify supply risks.

“Investments looking for an alternative to China, are seeing greater feasibility in India than say, a Vietnam where it may not be so easy to scale up and the talent pool has already been fully absorbed by existing firms,” the official noted, adding that firms like Fedex were ramping up their Indian presence.

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Printable version | May 26, 2022 12:53:43 am |