Talk of the cement companies forming cartels and cutting output to raise prices has been doing the rounds in North Block for a while. The industry has vehemently contested these charges.
For some months now, the finance ministry has held the view that inflation is high because of cement prices. As high inflation is a tax on the poor, the government is worried about its political fallout.
To contain prices, the government abolished the import duty on cement in January and devised a dual excise duty structure in the Budget to lure producers to drop prices. The cement producers, on their part, raised prices earlier this month, though they had, in March, agreed to hold prices for a year.
Indications are that the confrontation is unlikely to ease in the near future. To begin with, the industry has started saying that the new capacities it has planned may not fully fructify.
Kumar Mangalam Birla told the shareholders of Century Textiles & Industries at the annual general meeting last week that there could be delays in the commissioning of the plants due to the non-availability of equipment.
A recent Deutsche Bank Securities report said there was a "strong possibility that new capacity expansion could be lower than estimated". The report said equipment-makers would take at least three years to deliver the machinery.
Industry bigwigs say they will be able to add only 80 per cent of the targeted expansion of 90 million tonnes in the next three years. This will lead to no change in the tight supply scenario.
According to the report of the working group on the cement industry for the Eleventh Five-Year Plan, the overall demand, including domestic and exports, will surge to 218.38 million tonnes by 2009-10.
As the plants run at 90 per cent of the capacity, the industry will need an installed capacity of 242.65 million tonnes to meet this demand.
At present, the industry's capacity is 170 million tonnes. The Deutsche Bank Securities report said only 73. 72 million tonnes of fresh capacity would be added by 2009-10, leading to a total capacity of 243.72 million tonnes, which was not very different from the demand.
This is in contrast with the market buzz that there will be surplus capacity by the end of 2009.
Acquisition of land is also proving to be a stumbling block for capacity expansion. RC Gupta, the president of Mangalam Cement, said land acquisition for greenfield projects had become tough due to the ongoing controversies over the use of agricultural land for industry.
Several cement companies are yet to acquire the land for the projects they have announced.
AK Saraogi, the chief financial officer of JK Cement, said getting clearances, including those related to land acquisition and environmental safety, could take up to two years. Clearly, the industry has laid the problems at the government's doorstep.
Still, a difference of opinion seems to have emerged among the cement companies over taking on the government.
Companies like Jaiprakash Industries and Shree Cements, whose promoters hold key positions in the Cement Manufacturers' Association, the lobby group for the industry, did not increase prices this month, when most other companies raised prices by Rs 3 tot Rs 5 per 50 kg bag.
Insiders told Business Standard that while standalone cement producers wanted to take the fight to the "enemy camp," producers who had other interests too were reluctant, lest their other businesses be impacted.
Meanwhile, the Bureau of Indian Standards, the agency responsible for providing quality certification, is working overtime to verify the produce of overseas suppliers.
"We have managed to reduce the procedural time from four months to two months," said PK Batra, director (central marks), Bureau of Indian Standards.
Six foreign companies (three each in Pakistan and Bangladesh) are at an advanced stage of getting the certification by mid-August. After this, they will be able to export to India.
Though cement imports into India are negligible because of the high transport costs, the Bureau of Indian Standards' green signal to the producers from the neighbouring countries can be a thorn in the side of Indian cement companies.
