Stupidity + Power = Disaster

If there is one thing that prevents India from fully utlising its potential - it is the crumbling infrastructure.Poor infrastructure often imposes additional costs on the industries and areas with weak infrastructure often get neglected.India needs a massive investment in this sector if it has to sustain a growth rate of 8-9%.And already we have embarked upon ambitious projects like the Golden Quadrilateral,the metros etc.

In such a situation of high demand it is but natural that cement prices will climb up.The duties that are imposed on the raw materials add to the costs.It is very much expected that high prices and profits will help them increase future production and stabilise prices.But the government couldnt wait.The budget introduced a ludicrous differential duty on cement bags with a base price of Rs.190.This when it was selling above Rs.200 for months.

A senior official of a leading cement manufacturer said the present prevailing price of the commodity is around Rs 210 to Rs 230 per bag depending on the place. Like in Mumbai it is quoting at Rs 230 per bag.
At Rs 600 per tonne, the excise duty per bag of 50 kg comes out to be Rs 30 per bag. Earlier, the duty was Rs 400 per tonne or Rs 20 per bag. Therefore, in the Budget, the duty per bag has increased by Rs 10.
The official argued that to avail the duty at the reduced rate of Rs 350 per tonne or Rs 17.50 per bag, the manufacturers will have to bring down the price to Rs 190. This means, they will have to reduce the price by Rs 20 to Rs 40.
So he added that even if they absorb the entire increased duty of Rs 30 per bag, his income will be Rs 180 to Rs 200 per bag.
But, if he brings down the price to Rs 190 per bag, his income will be only Rs 172.50 per bag.
Therefore, he said the industry is better off to sell it even at the current prevailing prices. But as the demand for the commodity is hitting the roof, the industry has decided to increase the price.

Thus the incentive to earn by cutting prices was less than the profit that they were already making.The ministry managed to coerce steel manufacturers from raising prices.It is trying to arm-twist the cement manufacturers similarly.It has threatened to ban exports to "stabilise" prices.Forcible control might bring the prices down but it will cause serious side effects in terms of discouraging production.

In fact cement has been one of the better performing sectors this quarter.A healthy cement industry is essential for adequate supplies for infrastructure projects.Some adverse reactions with regards to this matter are already being seen with builders threatening to strike work unless cement prices are brought down or government pays the increase in the price.Whether this is some kind of 'blackmailing' by the builders or not it may surely cause delays and losses in such projects.And what with the real estate prices already towering- it has got one more ingredient. So in trying to reduce inflation the government has aggravated it and possibly burdened the infrastructure crisis.

If only the government had more brains and less brawn.