After builders accused cement manufacturers of indulging in cartelisation to jack up prices, cement manufacturers have hit out at builders saying they were misleading the government and that the government should look into their margins. The development comes a day after Union Road Transport Minister Nitin Gadkari said that the cement industry was trying to raise prices through cartelisation and there was an urgent need for a regulator.
Industry players from the South have created a new body South India Cement Manufacturers Association (SICMA), which will be headed by N Srinivasan, vice chairman ánd managing director, India Cements.
The office bearers, including Ravinder Reddy, director, Bharthi Cements and vice president of SICMA and Krishna Srivastava, director, Penna Cements and Secretary of SICMA, alleged that what ails the cement industry and in-turn India's growth is the poor growth of the housing sector. They said that this was due to the artificially high price of flats/houses. There is a clear cartel working among builders under the banner of CREDAI and BAI, who are holding on to prices despite having a margin of more than 100 per cent, said the companies.
In a representation to the prime minister, they said no concrete action has been taken by the administration to rein them and their profiteering approach.
Srinivasan said that in Chennai cement prices range from Rs 300-420 per bag (50 kgs). The cost of land constitutes a large chunk of the flat price and the guideline rate for land in high-end areas in Chennai is Rs 10,000 per sq.ft. Given an FSI of 2/2.4, the cost of land in a flat would be around Rs 4,200 a sq.ft. Add to it, the construction cost of around Rs 2,000-2500 per sq.ft, the total cost of a completed flat works out to a maximum of Rs 6,700 per sq.ft. However, the selling price in these areas ranges from Rs 15,000-20,000 a sq.ft.
"It is pertinent to note that there is a huge unsold inventory. Builder lobby is not allowing the prices to fall," said Srinivasan, adding that builders get discounts, but they show inflated bills to claim false input credit and to avoid income tax.
Reddy added, in Hyderabad, the guideline value in high-end areas is such that cost of land in a flat can at best be Rs 1,500 a sq.ft. After adding construction cost, the total cost of flat should not exceed Rs 4,000 a sq.ft. However, builders sell their flats in these zones at rates of Rs 8,000-10,000 a sq.ft. The association also alleged that selling prices have doubled in the last five years.
They noted, across 9 major markets, the unsold inventory of flats is around 7,500,000. "Only if builders had cut the price and sold the inventory, would there have been a total revival of realty demand. Middle class and lower middle class are dying to get a roof on their head provided it is affordable," said the association, adding that while taking advantage of the prime minister's affordable housing scheme, builders are denying benefit to the public at large. On the other hand, despite 28 per cent GST and increase in raw material prices, cement makers are selling cement at Rs 230 for infrastructure projects, like roads and for government-sponsored affordable housing projects, said Srinivasan.
The cement makers alleged that whenever questioned, builders raise the bogey of rising input cost, specially cement, while they fail to explain that only half a bag is needed to construct one sq.ft. Cement accounts for just about 1.5-2 per cent of the selling price. Even if the price of cement was to go up by Rs 100 a bag, it will have an impact of just Rs 50 a sq.ft on the construction cost.
Reddy noted that while cement industry margin was around 15-16 per cent, builders' lowest margin was around 35-50 percent.
The sssociation has urged the government to take measures to break the builders' lobby and wants the gGovernment to ask builders to reduce the price by atleast 50 per cent. They also want action to be taken if the entire payment is not made through cheque.
Out of the country's around 500 million tonnes capacity, the southern India accounts for around 180-200 million tonnes. Nearly 30 per cent of limestone reserves are in Andhra Pradesh, Telangana and Karnataka.
Srinivasan said capacity utilisation in the South is around 50 per cent and demand is not back to pre-covid levels, while in the North and East the demand is more than pre-covid levels. In the South, however, month on month demand is improving.