IE has been intrigued by the vast differential in pricing cement in different regions/states. Axis Capital in its recent analysis refers to cement prices in the north and west regions continuing to be weak: “prices in north are near five-year low at Rs 220/bag (vs Rs 290/bag in October 2015). Prices in south have been broadly stable at Rs 330-390/bag as large players continue to favour (enjoy) pricing over volumes.”
In Tamil Nadu prices were hiked from around Rs 390 by Rs 40 and ruled around Rs 430/bag, nearly double that in the north.
Tamil Nadu Chief Minister J Jayalalithaa attempted a correction: she offered Amma Cement at a low price of Rs 190 per kg to help consumers in the lower income group. In this, cement manufacturers agreed to provide a portion of their production at this price with the freedom to price higher the balance.
This resulted in the above distortion. It is gathered that manufacturers, working in tandem, offer around 10 per cent of their production at this low price of Rs 190 but make a killing by pricing cement nearly double the price in the north.
Thus, the scheme by the chief minister has worked to harm the interests of thousands of middle class consumers.
The earlier scheme of the Chief Minister, implemented during her previous term during 2001-06, allowed tax concessions only for prices up to a threshold limit, was more effective. Cement manufacturers, known for their propensity to cartelise, seem to have little qualm in making humongous margins on the 90 per cent while ostensibly parting with a small portion at low prices.
The construction industry is already in an extremely bad shape with a number of contractors doing the vanishing trick or are at the threshold of bankruptcy. Daily newspapers are flooded with cover jacket advertisements on handsome reductions and special offers in the price of flats in an un-ending stream.
IE has been pointing to the frequent and steep increase in the prices of cement and other construction materials including steel, bricks, sand, paint, sanitaryware… in tandem. There is also systematic rise in the cost of labour – masons, carpenters, plumbers, electricians… Cement manufacturers offer handsome discounts to large players but are not quite sympathetic to the individual customer investing his/her life savings on his/her dream house. This, despite the fact that the industry has been operating much below installed capacity – at around 60 per cent. The normal economic factor of prices falling at times of low demand and low capacity utilization is not happening in the south.
The Competition Commission of India (CCI) held the reason for the huge rise in prices as the result of cartelisation and imposed a hefty fine of Rs 6316 crore on 11 cement companies. But this has been turned down by the Competition Appellate Tribunal.
Policymakers in Delhi and in states should analyse the reason for such a vast differential in pricing between the north and the south. Nitin Gadkari, Minister for Road Transport, Highways and Shipping, frequently refers to the focus on coastal shipping; he should coordinate with Railway Minister Suresh Prabhu to look at the prospects of moving large tonnage of cement from the north and west to the south to provide relief to the hapless consumers in Tamil Nadu.