Corresponding to the huge demand for housing, the demand for cement is going to...
How was the demand-supply scenario for the housing sector in 2013? What can we expect in the year 2014?
Going by Planning Commission figures in 2011, the urban population was in short supply of 80 lakh houses. Also, more than 2 crore houses were needed in the rural areas. Today, urban dwellers constitute 28-29 per cent of the total population which by 2030 is likely to go up to 40 per cent at least. The population too, will grow from the current level of 1.27 billion to around more than 1.5 billion by that time. So, approximately 600 million people will be staying in urban areas. This will increase the housing demand drastically. 80 lakh houses are already needed and by 2030, we will need more than 2 crore houses!
Presently, only 33-34 million houses are available in urban areas. At this given moment, we are building only 8 to 9 lakh houses in urban areas in the whole country every year. To meet the fast growing demand, we must build at least 30 lakh houses every year in urban areas up from the present 7-8 lakh. So there is going to be a huge demand.
In spite of such heavy demand, why was the housing sector sluggish in 2013?
Presently the need for houses is there but people want houses that can fit their budget. It is mainly because we have never made any long-term affordable housing policy in this country.
None of the city corporations have any idea that in another 50 years how much more area they will have, to expand. And when we say expand; first we have to think of infrastructure. There is no 50- year or 100- year planning for infrastructure development. For example, Mumbai has been developing for the last 150 years and now there is no place for housing development. So for the same property which cost Rs 100, now costs Rs 200. And that is the way we have been functioning not only in Mumbai but in practically every urban area of this country. These rates are not logical. The costs are pushed up due to scarcity. We have to have good policies about FSI in place to tackle these problems. It is strange that in a country where we have huge capacity to produce cement and where we have a high demand for houses, we are not able to deliver housing to the people who need it. The government needs to give an in-depth thought to the issue and come up with a solution that will help bringing down the cost of owning a house.
What reform in the loan sanctioning process can help the housing sector?
RBI loan granting norms are a bit convoluted. RBI has given guidelines to all the banks that no fund can be given against land. I don´t understand this. Any bank would be interested in the security of their money and assured returns on investments. So any land with a clear title and which is going to give returns, should be automatically eligible for loans. Instead, the banks have taken a stand that they will finance only home loan or projects.
As a result, builders are forced to borrow money from private lenders who charge exorbitant interest. Consequently, the extra prices are passed on to the customer. If the RBI corrects itself, things can become very easy. In cities like Mumbai, 80 per cent of the construction cost is land.
How do you assess the approval system for projects?
We have made such a lengthy approval system that sometimes it takes one-and-a-half years to get all approvals in place. It is like a very long hurdle race. In the Mumbai Municipal Corporation, we need more than 55 permissions which consist of 35-36 from the BMC, 11-12 from the state government and 5-6 from the central government. The system seems to be designed in such a way that you are bound to default in something or the other. This system must change.
Cement prices have been increasing. How has this impacted the market and what is BAI doing about it?
As you know, we are absolutely sure that cement manufactures are forming a price cartel. Today, rates in the market are not natural rates. They are not driven by demand and supply, or based on the production costs. Since only a few people are manufacturing most of the cement in the whole country, they are controlling the prices.
With many methodologies, we have shown that there is some price fixing arrangement going on. BAI had filed a case against such companies under the Competition Commission of India and they have been fined for Rs 6,600 crore. Against that, they had gone to the tribunal which refused to hear them unless they paid the money. Against that order, they then went to the Supreme Court which said that as ordered by the Competition Commission Tribunal, ten per cent of the fine must be deposited.
Accordingly, they paid the penalty of Rs 600 crore and may have to pay the remaining Rs 6,000 crore once the tribunal decides.
BAI has taken up the issue with all parliamentarians; we have written personally to each and every parliamentarian of the Lok Sabha and the Rajya Sabha, we have taken up this matter with the Standing Committee of Commerce. However, despite the fine, there is no improvement. Recently, we wrote another letter to the Competition Committee pointing out the different rates in different parts of the country in a given month and tried to prove that though the intention of our order was to warn them to desist from such activities, they have not done so. We have urged the committee to do something in the legal forum.
The cement production cost according to us, is less than Rs 200; this includes all production costs, excise, transport, loading, unloading, and delivery. Today, the rate is around Rs 300, so they are making an extra profit of Rs 100 per bag. If the government of India or the Competition Commission had agreed to our suggestion to set up a cement regulatory authority, like they have done for the stock exchange, or for insurance, then the price would have been under control.
Today because of this undue price hike, every consumer of this country has to pay Rs 50 more per sq ft of the flat. If you ask me, this is due to bad governance. In housing, per sq ft, half-a-bag goes into construction. So if I am constructing a house of 1000 sq ft, from foundation to finished product 500 bags will be used.
What are the alternatives?
BAI has suggested other ways to control prices. Presently there is a ten per cent custom duty and a few more taxes on the imported cement. We have suggested that they be removed. The imported cement from Pakistan, Malaysia, Indonesia, Ukraine will be cheaper here. This will automatically force all the cement manufacturers and factories to correct prices. So, two wrong things are happening here. First we are not allowing others to enter the market with this artificial tax and duty barrier. Secondly, we are allowing them to continue with cartelisation since no harsh action has been taken. And even if it is taken, it is not seen on the ground.
How much are we importing?
Presently, I don´t think we are importing anything. Other than the taxation system, we have also created unnecessary barriers to imports. One of them is the approval process. If I have to import cement, then I will have to send ISI officers to the importing country for a factory and material audit. Why do we have to go through this route? If the cement confirms to the global standards, then why do we have to redo the approval process as per Indian specification? Is there any document that says that Indian standard specifications for cement are better than global standards? Naturally, such systems serve as nothing more than barriers.
How do you see cement demand in coming year?
Corresponding to the huge demand for housing, which is a major consumer of cement, the demand is going to rise significantly.
What is the future of RMC in India?
I think in the last 15-20 years, RMC has reached every big or small town. Particularly in cities, the use of RMC is very high. However, in certain far-off regions, even if you want it, RMC is not available. We have to set up our own RMC plant. This is not possible for everybody. Then again, the future of RMC in this country is very bright.