Time for a new code
The penalty imposed by the Competition Commission of India (CCI) on 10 cement companies to the tune of Rs 6,306.59 has sent shock waves in the cement industry. While deciding on the plea filed by Builders Association of India (BAI), CCI has admitted that there is no trail of direct evidence against the cement companies, and hence it has relied on circumstantial evidence to arrive at the conclusion that the companies were guilty of cartelisation. The cement companies would be challenging the CCI order in the Appellate Tribunal. The commodity cycle, input costs, power, coal and such many other issues are variables that have affected the price and to determine the allegation without direct evidence is difficult and unfair. Perhaps that's the reason the stocks of the affected companies have not even blinked.
There should be no two opinions on the need to maintain cement prices at reasonable levels. If any one of the parties resorts to profiteering, then it hurts the end-users the most. In the case of construction and real estate, the cement users (developers) usually pass on the hike in prices to the end-users, which include companies buying office spaces or individuals buying residential houses. High cost of office spaces or apartments drives away the buyers which in turn impacts the demand for residential and commercial spaces. So, this cycle continues till the producers themselves get hurt. Moral of the story: abnormal profiteering benefits none and hence it is hardly likely that the affected companies would have indulged in a self-defeating exercise! The talk of cartelisation has been doing the rounds for the last twenty years during my journalistic career but this is the first time anyone has come so far so as to impose a penalty. The verdict will definitely encourage the evolution of a better code of conduct within the industry for a better future. It is time the industry wrote new norms so that it is not faced with these accusations again.
India's growth story may have faltered a bit due to the global economic slowdown, but the best is yet to come. The upsurge of tier-II and tier-III cities is the next big story which is waiting to unfold. As per a McKinsey Global Institute report, out of the 440 fast developing cities in the world - which it calls Emerging 440 - 36 cities are in India. This clearly indicates that the demand for housing and infrastructure is going to grow exponentially in these cities, which augurs well for the construction business and cement industry in particular. No wonder then that the market is abuzz with the talks of Ultratech's offer for Jaypee Group's cement business.
In the In Conversation column, Maurizio Caneppele, Managing Director of Zuari Cement, tells us that the trillion dollar investments on infrastructure proposed by the Indian government in the 12th Five Year Plan will bring cheer to the cement industry. In Marketing Wizard, Jailesh Dalal, Director of Jaycee Buildcon, tells us about the significance of marketing in brand building.
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