India Intelligence Report

No Price Reduction Proposal from Cement           Manufacturers


Commerce and Industry Minister Kamal Nath announced that cement manufacturers will supply cement for Government projects at a 5% discount and increase production but did not say what proposals the manufacturers had to keep the price down. Nath had demanded the cement manufacturers control prices  to curb what he called “limitless profiteering” and present a plan by May 15.

Cement prices have gone up substantially in India and Nath thinks that this is because of a supply issue. He warned that the Government would impose a cess or ban exports to increase supply. While supply-demand economics work in normal conditions, the fundamental issue here is that the cost of good sold (COGS) has gone up because of many reasons resulting in prices also rising by 40-50 percent in North and Western regions since November 2005.

First, the cost of electricity has gone up because of increase in oil prices. Second, a Supreme Court order in November 2005 banning overloading of trucks has increase transport inputs. Third, the cement manufacturers have to buy coal from the open market which is more expensive than buying it in auction lots from Coal India Limited. 

The sooner Nath understand this and interferes less with industry the better it is for the nation. Passé policies of controlling prices, forcing companies to absorb losses, and forcing a price cut hurt the nation more than help the people.

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