Cement GST cut supports demand, spurs shift towards premium products

The GST cut improved cement affordability and encouraged a shift towards premium products, though analysts say its direct impact on overall demand volumes remained limited

The reduction in goods and services tax (GST) on cement from 28 per cent to 18 per cent, effective September 22, 2025, improved affordability for end consumers, but its direct impact on cement demand volumes has been limited, industry experts said. However, companies and analysts said the tax cut also made premium products more affordable, driving some shift towards those options.

 

“The reduction improved affordability for end consumers and led to a modest reduction in overall construction costs. However, cement demand continues to be driven primarily by underlying housing and infrastructure activity,” said Anupama Reddy, vice-president (V-P) and co-group head, corporate ratings, Icra. “Consequently, while the tax reduction has been supportive from an affordability perspective, its direct impact on demand volumes is likely to have been limited.”

 

The reduction translated into roughly a 7.8 per cent reduction in the tax-inclusive price, equivalent to roughly ~25 per 50-kilogram bag at prevailing prices, according to Raghav Maheshwari, assistant V-P, Equirus. Cement manufacturers passed on the benefit to consumers through lower cement prices, he said.

 

The pan-Indian average cement price for trade in September 2025 fell by ~23 per bag to ~345 per bag, mainly due to GST-related pricing adjustments, according to a report by BP Wealth. According to InCred Equities, the average cement price as of August was around ~360 per bag.

 

Maheshwari said the tax reduction had not resulted in a discernible structural acceleration in cement volumes. Cement demand remained driven primarily by infrastructure and real estate construction, government capital expenditure, labour availability, project execution, and seasonal factors such as the monsoon. “Hence, we believe that consumers may shift to a higher premium mix due to a decrease in prices,” he said.

 

Industry volumes grew around 8 per cent in 2025-26 (FY26), according to Akshay R Shetty, research analyst, Mirae Asset Sharekhan. However, he said the growth also reflected infrastructure spending, housing demand, and a favourable base. He expects industry demand growth to moderate to 6-7 per cent in 2026-27 (FY27).

 

The GST cut also coincided with a shift in consumer preference towards premium products, according to companies. In its second-quarter (July-September/Q2) FY26 earnings call in October 2025, UltraTech Cement’s Chief Financial Officer Atul Daga highlighted that there was no impact on profitability, saying, “GST 2.0 will definitely boost demand for premium cement because some people will be able to buy their aspirational brands due to a reduction in the cost of purchase.”

 

In its third-quarter (October-December/Q3) FY26 earnings call in January 2026, Ambuja Cements’ Chief Executive Officer Vinod Bahety said, “GST reduction only has helped in terms of shifting the consumer preference towards the higher-quality, performance-driven products.”

 

On manufacturers’ realisations, Reddy said, “As GST is a pass-through levy, the rate cut did not have any direct bearing on manufacturers’ realisations, which continue to be influenced by demand-supply dynamics and competitive intensity across regions.”

 

The consumer benefit from the GST reduction has subsequently been partly offset by higher input costs. According to Maheshwari, imported petroleum coke (petcoke) prices rose from around $110 per tonne before the West Asian conflict to $155-160 per tonne, while polypropylene packaging costs increased by around 50 per cent, and freight rates also increased with higher diesel prices. Power and fuel account for roughly 30 per cent of cement manufacturing costs, he said.

 

Overall, the GST cut should be viewed primarily as an affordability and demand tailwind rather than a direct margin benefit. Much of the tax benefit has been passed on to consumers, while subsequent cost inflation has absorbed a meaningful part of the benefit for manufacturers.

 

Manufacturers attempted price increases of ~10-15 per bag across several regions during March and April, according to Maheshwari. Some increases were rolled back due to seasonally weak monsoon demand, but prices have again started to rise from September onwards by ~10-15 per bag across various regions.

 

Reddy said cement industry margins had recovered in FY26, supported by improved pricing across several markets and relatively stable fuel, power, and freight costs. However, she expects higher petcoke and coal prices, rising logistics costs, and the impact of rupee depreciation on imported inputs to exert some pressure on margins in FY27.