The prospects and challenges of the Indian cement industry
JUST as air, water and food are the three essential ingredients required for a healthy growth of a human being, so are adequate demand, availability of input materials and logistics support, the three major factors indispensable for sustainable growth of any industry. Unfortunately, the cement industry has been confronting severe problems on all these three counts for the last few years resulting in a sharp drop in its capacity utilisation which has been ironically perceived by the Competition Commission Watchdog as a step in encouraging cartelisation and has, therefore, severely penalised the CMA and a few cement manufacturers for no fault of theirs.
The cement industry has witnessed appreciable growth only after the introduction of partial decontrol in 1982 culminating in total decontrol in 1989. With the implementation of liberalisation policies of the government in 1991, followed by its thrust on infrastructure development in the country, the growth of the cement industry had been further accelerated which can be gauged from the fact that cement capacity which was a mere 64.55 million tonnes in 1990-91, had reached 340.44 million tonnes in 2011-12. Similarly, cement production leap-frogged from 48.90 million tonnes to 247.32 million tonnes for the same period.
Indian cement industry has a pride of place, being the second largest cement producer in the world. It has made rapid strides not only in terms of capacity addition but also in producing world-class quality cement from state-of-the-art technology. Our industry today accounts for about 7 per cent of the global production.
On the energy front, the cement industry has proactively responded to the initiatives of the Bureau of Energy Efficiency (BEE), which comes under the Ministry of Power, in improvement of and reduction in energy consumption norms for the cement sector; and today, some of the Indian plants have become global benchmarks in energy consumption, second only to Japan.
The cement industry has been very friendly and pro-active in protecting the environment. It has contributed significantly to eco-friendly use of industrial wastes and thereby reducing its carbon emission. It has been currently consuming around 27 per cent of fly ash generated from thermal power plants, an environmentally hazardous waste and almost hundred per cent slag generated by the steel industry. The industry is on the top in Certified Emission Reductions Projects registered with the Clean Development Mechanism (CDM) of Kyoto protocol. On the corporate social responsibility front, cement industry has also been contributing significantly, particularly for the amelioration of the communities living in and around its plants and quarries through imparting education, healthcare and mounting cultural integration programmes, apart from providing them basic needs of water, roads, etc, and creating downstream job opportunities.
The cement industry has excelled in areas which are within its control. However, the constraints and limitations of the three main infrastructure support needed, which are mainly in the public sector and under the domain of the government , namely coal; transportation, particularly railways, and power, have been severely impacting the growth of the industry. Coal is one of the major raw materials needed by the industry, both in the manufacturing of cement and also for generating power. In the last couple of years, the supply position of coal to the cement industry, as percentage of its total consumption of fuel, has been declining at a faster pace year after year and this declining trend has touched its nadir now with the supply position dropping to 34 per cent from a comfortable 70 per cent in FY 2004. Cement companies, therefore, have perforce to resort to either open market purchase or imported coal which even after a steep drop in the prices of imported coal today works out to nearly 50-60 per cent higher as against 2 to 2.5 times earlier of the domestic price or use of alternate fuels like petcoke, lignite, etc, which also adds up significantly to the additional cost of production. Cement industry which consumes just about 5 per cent of the total coal production needs to be assured of full and consistent supply of its coal requirement on a regular basis, along with having in place regulatory measures conducive for encouraging the use of alternate fuels which stands today at an abysmally low of less than one per cent in India as against the maximum global thermal substitution rate, which is as high as 83 per cent.
Rail transportation is yet another major bottleneck for the cement industry. Although, rail transport is the logical and economical mode of transport, non-availability of wagons, particularly in peak season, coupled with infrastructure constraints at terminals and the slant in some of the policies of the railways not only hamper the planned movement of cement to the consumption centres, but also make the end cost of rail transportation higher than road transport for a majority of market centres.
Cement is one of the highly taxed commodities (at 60 per cent of the ex-factory price), even more than luxury goods. It is ironic that the rate of VAT charged on steel, a construction material like cement, is only 4 per cent, whereas it is 12.5 per cent on cement / clinker which goes up-to even 15 per cent in some of the states. If this industry has to grow and also compete in the global market the government must consider lowering the taxation burden on the cement industry by at least 20 -25 per cent from its present level apart from providing a level playing field with the global cement exporters by re-imposing the basic import duty on cement, which is presently nil.
The current economic slowdown has inevitably left a severe dent on the growth of the cement industry as well. The decline of cement industry from an average growth of around 8-9 per cent in the last couple of years to the present low of 5 per cent has shown no sign of improvement in capacity utilisation which is still a major cause of concern. Currently the demand-supply situation of cement is highly skewed, with the latter being significantly higher by over 90 million tonnes as the cement demand projections made by the government earlier have not materialised.
In the face of acute supply constraints of input materials and logistics support to the cement industry which keep on aggravating every year, the government has ambitious plans to enhance the share of manufacturing in the GDP from present 16 per cent to 25 per cent by 2022. This means that the cement industry has to grow by at least 14 per cent annually. This ambitious target of the government looks well-nigh impossible of accomplishing unless and until its policies create a climate which results in a committed increased cement demand and measures are taken to ensure requisite supply of input materials and logistics support, apart from lowering the taxation burden on the industry.
More specifically, although the government of India has recently moved ahead with reforms needed to arrest the down-trend in the economy, what is needed, amongst others is the timely execution of the policies with adequate funding with regard to infrastructure sectors that includes housing, irrigation, roads, ports, airports, etc, for the sustained and inclusive growth of the economy.
The acute shortage of housing numbering around 27 million units in urban India and 40 million units in rural India has been a major cause of concern. In order to ease the housing problem, government must encourage affordable housing for middle and low income groups as also for the economically weaker sections with soft loans and enhanced tax exemption limits.
Cement industry is highly transport intensive. It is estimated that by the terminal year of the 12th Plan, cement industry will require to move about 407 million tonnes of cement and another 35 to 40 per cent of this tonnage as input materials. Therefore, for the haulage of this huge quantity a multi-modal transport system (Rail, Road, coastal shipping and IWT), apart from bulk movement needs to be encouraged with attractive incentives, wherever private investments are made.
The end-cost in the case of rail transport has been unremittingly increasing due to the freight-related policies of the Railways and infrastructure constraints at the terminals. This is one of the reasons for the continuously declining the rail share for cement year after year. The rail coefficient in 2012-13 has come down to about 35 per cent now from 57 per cent about a decade back. Railways, therefore, need to come out with simple, clear and investor-friendly policies in addition to assured and committed supply of wagons throughout the year. Apart from this, there is need to promote bulk movement of cement which stands at about 2 per cent of the total installed capacity at present, by lowering tariff classification for bulk cement and also by providing suitable freight discount to those who purchase special purpose wagons for the entire life of wagons, which is 35-40 years as against the current provision of 15 years.
Transportation by road is becoming very cumbersome due to the pathetic conditions of roads.
Government's long cherished dream to provide world-class roads can be fulfilled only if, taking a long-term view, the technologies of cement concrete roads and white-topping (a technology on which a concrete layer is laid on the existing bitumen road) are adopted in the country on a larger scale in place of bitumen roads. It is axiomatic that cement concrete roads are long-lasting, maintenance-free for 30-40 years and today, in most of the cases, are even economical than bitumen roads in the construction stage itself. Further, it is only cement roads which can simultaneously address considerably, without entailing any extra financial cost, some of the burning national problems pertaining to the conservation of diesel and petrol; preservation of precious foreign exchange being spent on the import of bitumen; conservation of electricity used for street lights; protection of our quarries and mines; protection of ambient temperature from increasing; generation of substantial downstream employment and effective utilisation of fly ash up to 35 per cent, disposal of which is a nuisance and a health hazard. Another important mode of transport which needs to be developed and encouraged for cement, wherever feasible, is Inland Water Transport (IWT). IWT, apart from being energy efficient and environment friendly, is also about 24 per cent cheaper mode of transport vis-a-vis rail. It is estimated that one litre of fuel can move 24 tonne/km by road, 85 tonne/km by rail and 105 tonne/km by IWT. We strongly urge that power houses should not charge but should continue to supply fly ash to the cement industry free of cost as was being done earlier on the globally accepted principle of 'polluter to pay' as the cement industry has already made huge investments to the tune of more than Rs.1000 crore in the various processes that are required for the effective utilisation of fly ash.
(The author, N.A. Viswanathan, is Secretary General of the Cement Manufacturer's Association.)
The Working Group on Cement Industry for the 12th Plan in its report submitted to the Planning Commission, had made a host of recommendations concerning to various Departments / Ministries for the revival of the growth of the cement industry after critically examining the whole gamut of the issues of this industry.