Govt's Housing for All Set To Boost Cement Industry
Cement is a vital building material which holds a structure intact. It is widely used in the construction of buildings, roads and other infrastructure. India is known to be the second largest producer of cement in the world. The housing sector is the key demand driver for the cement industry and accounts for about 67 per cent of the total demand. The quantity of cement produced in India, is to the tune of 350 million tonnes per year. It is expected to become 550 million tonnes by financial year 2020. The demand for cement is steadily on the rise owing to rapid urbanisation and construction activities. Moreover, the government's infrastructure development, Smart Cities Mission and 'Housing for All' initiative will further accelerate the growth of the cement industry.
The cement industry in the country has undergone a major change as several companies in the sector are focusing on building global capacities, modernising and augmenting efficiencies of plants and restructuring their businesses to keep pace with growing competition. There is a total of 188 large cement plants which together contribute 97 per cent of the total installed capacity in the country and another 365 small plants contribute to the rest. In recent years, the industry has witnessed tremendous growth. Cement and gypsum products garnered Foreign Direct investments (FDI) worth USD 3.1 billion during the period April 2000 to September 2015.
Here are some insights on the impact of various government initiatives on the cement industry.
Impact of 'Housing for All' and related developments
The Indian government is aiming to increase the infrastructure investments to $1 trillion, in the 12th Five Year Plan (2012-17). The government is also planning to develop 500 cities with a population of over 1 lakh. This, in addition to other factors like large-scale urbanisation and rising demand for affordable housing, will set the demand for cement soaring. Industry experts are of the view that 'rural' or low-cost housing under the PMAY (Pradhan MantriAwass Yojana- Gramin Scheme) will propel demand for cement to maximum levels. Increased allocation of budget for rural housing, to Rs 23,000 crore from Rs 16,000 crore in financial year 2017, will drive cement demand up by two per cent.
Although, infrastructure developments like construction of roads, flyovers and highways and metro projects, will increase the demand for cement, it is the housing development sector that will take up the lion's share when it comes to the consumption of cement. According to research and rating agency CRISIL, the incremental demand in the country's cement sector, will outpace the incremental supply over the next three financial years.
Impact of GST on the cement industry
With a higher slab of 28 per cent allocated for the cement sector under GST, the industry shows signs of subdued growth owing to increased costs. However, the situation is not all gloomy since the supply chain management and warehouses supporting the industry, will get a boost under GST.
The Cement Manufacturers Association, the apex representative body of large cement manufacturers in India, expressed concerns that high GST on cement, will affect the health of the industry.
New developments impacting the cement industry
- The Indian government is aiming to revive state-run cement factories across India.
- The Reserve Bank of India (RBI) recently allowed banks to invest in Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs) which will help revive the infrastructure and realty sector, ultimately benefiting the cement industry.
- The cement industry is not only attracting global players but also paving the way for new mergers and acquisitions (M&A). Industry giants namely Unthatch Cement, Birla Corporation Ltd and Delia Bharat have acquired Jaypee Cement, Odisha Cement and Reliance Cement, respectively. Further, M&As are expected to happen between steel and cement companies.
Tips to check cement quality
Although cement quality is confirmed through lab tests before it reaches the end-user, factors such as the cement's age, packing and storage conditions, can significantly affect its overall quality. Here's a quick guide to determine if the cement is of good quality.
- When touched by hand, a good quality cement gives a cool feeling. The texture should be smooth.
- The ideal colour of good quality cement is greenish grey.
- There should not be any lumps, stones, sand or dust in the cement.
- When added to a little amount of water, the cement should float before it sinks. Immediate sinking indicates the presence of impurities.