GST implementation will bring good news for cement industry in India. Significant tax reduction is being expected by experts for this sector of economy. Currently, the prevalent tax rates are 27-32% but GST will bring the rates down to 18-20%. The new tax system will help cement industry in reducing their logistics costs. GST will also cover logistics and warehousing industry. Cement industry is heavily dependent on logistics and warehousing industry which contribute to 20-25% of their revenue generation.
Indian cement industry is aimed to grow at a CAGR of 11.14% in volume terms during FY 2011-FY 2017 and is expected to reach 407 million tons by March 2017. This robust growth rate will further be boosted by GST. Several big names among cement manufacturers, such as Ultratech, JK Cement, and Shree Cement are expected to benefit from the new tax reform in India. The reports suggest that the introduction of Goods and Services Tax in India will certainly benefit the Indian cement industry and improve their profitability as well. GST India is likely to have a positive impact on the cement industry and will also benefit the concrete admixtures manufacturing sector.
According to a recent report, “India Naphthalene and PCE based Admixtures Market By Type, Competition Forecast & Opportunities, 2011 – 2021”, naphthalene and polycarboxylate (PCE) admixtures market in India is expected to reach USD 683 million by the year 2021. Real estate sector is the major consumer for cement industry. However the growth in the sector has been nearly stagnant for the past few years. Several reforms taken by the government are expected to give realty sector a boost. Strong growth in the real estate sector, increasing government projects on infrastructure development and implementation of stringent regulatory norms will help in boosting demand for naphthalene and polycarboxylate (PCE) based admixtures in India by the coming next five years. Again the major names among the naphthalene and PCE based admixtures manufacturers in the country include BASF, Fosroc and SIKA.
Cement India is the second largest producer in the world and in the next 10 years, India can become the net exporter of cement and clinker. The main raw materials for cement are limestone, coal and electricity. Limestone, for quarrying, the cement companies have to pay royalty to the state governments and for coal, apart from the GST, there will be levy of clean energy cess which is not available as a credit because it is not part of the GST regime subsumes. So, therefore, as far as the cement industry is concerned, these two factors will continue to be outside the GST and therefore, it has to be absorbed as cost of the cement production.
If GST is levied on electricity, again it is going to increase the cost. So we hope all this is available as a credit while paying GST on the cement.
The service tax paid on the transportation cost, etc. if it is not made available at the dealers’ level, all becomes cost of the cement production and unless and until the rates of GST on cement is kept at the level of not more than 12 percent, it is going to have adverse impact as far as the infrastructure industry is concerned.
In contrast to the expectations of the industry, the government has levied GST @ 28% on cement. This has resulted in higher cement prices. However, since some of the inputs have been put under 5% tax bracket and logistics costs are expected to go down, you can expect cement prices to go down once things settle in place. The current rise in price should be temporary but more clarity will come on the same with time.