Cement firms disappointed over no shift in GST slab

India’s 460-million tonne cement sector is disappointed at being kept in the 28 per cent goods and services tax (GST) bracket even after the latest rejig in rates. The hope was for being repositioned in the 18 per cent bracket, along with other building material segments.

These high hopes were mainly on the back of the central government’s big push on infrastructure development and affordable housing. They believed as cement is an indispensable building material, the relief sought would come.

However, cement continues in the highest tax bracket, “along with luxury items such as washing machines and air conditioners”, says Shailendra Chouksey, president, Cement Manufacturers’ Association (CMA). “This is a disappointment for the entire industry...cement is integral to the government’s key schemes such as Housing for All, Swachch Bharat and building of other infrastructure projects that are fundamental for building an India for the future.”

Historically, cement has been a highly taxed commodity. Companies in the sector have long been demanding this be rationalised. “It is quite unfair to be in the highest tax bracket. How could this commodity share the same space as luxury goods in the tax list?” asks the executive vice-president of a large South India-based cement entity.

Says H M Bangur, managing director of Shree Cement: “I do not think there will be any impact on the sector with this retention. From July 1, when the GST came into force, we were mentally prepared for 28 per cent. Having said that, a tax slab of 18 per cent would have been a positive surprise. After all, who does not want to pay less tax?”

“Rationalisation in the tax rate would have not only lifted this industry from the depression phase it is passing through but sent positive signals of the government’s intent to bring back the economy to a faster pace of growth,” added the CMA. The cement industry’s average annual growth for the past five years has been four per cent. In 2016-17, it was minus 1.2 per cent, for the first time in over a decade. And, in the first six months of 2017-18 (April-September), the sector's growth rate was a negative two-odd per cent. The hope is that demand should pick up, due to better monsoon. Even so, growth for the full year might be less than two per cent.

“There is a visible downfall in cement demand growth. Though government spending on infrastructure is good, giving a much needed push, demand from organised construction continues to remain poor. With RERA (the new and stringent law on the real estate sector) coming into force, the construction sector is hit. In the next one to two years, (the expectation is that) growth will be back to normal,” said Bangur.

Shares of cement companies on the stock exchange have been trading strongly over the past year. They are now 40-45 per cent higher than their 52-week low. This is because they're expected to be a major beneficiary of the government’s infrastructure push.