Budget 2026-27 boost, price hikes to support India's cement sector

The Budget allocation is up about 9 per cent in nominal terms and, given grant-in-aid, it would push effective capex for FY27 to Rs 17.1 trillion

Cement and steel sectors may witness demand boost, as the Union government allocated ₹12.2 trillion for capex in its Budget for 2026-27, given they are key commodities for infrastructure projects.

 

The Budget allocation is up about 9 per cent in nominal terms, and given grant-in-aid, it would push effective capex for financial year 2027 (FY27) to ₹17.1 trillion. That may translate into high single-digit growth in cement demand volume. Conservatively, cement demand volume should grow by 7 per cent or more in FY27, led by higher spend on roads, railways and possibly housing.

 

If FY27’s Budget estimates (BE) are expended, it may actually lead to higher cement consumption compared to FY26, since the revised estimates for 9MFY26 were lower than the BE. Apart from government-driven infrastructure spending, there could be a demand pull from urban development in Tier-II and Tier-III cities. It may be noted that sustainability targets will lead to greener production processes. The government set mandatory emission reduction targets for 186 cement plants in Q3FY26, aiming for mid-single digit reductions in emissions by FY27. This may lead to changed cost structures.

 

Among cement-heavy sectors, FY27 capex allocated for roads and highways was up 8 per cent at ₹2.94 trillion for FY27, compared to ₹2.72 trillion for FY26. Railway capex was up 10 per cent at ₹2.77 trillion in FY27, against ₹2.52 trillion in FY26. This includes plans for seven high-speed railway corridors and new dedicated freight corridors. Data centres are another potential area of demand, with private sector capex flowing in, as well as a proposed tax-holiday for overseas companies. Assuming flat cement prices in FY27, demand for the raw material could top out at over 15 per cent year-on-year (Y-o-Y) from government capex and welfare programmes combined.

 

Housing is the most cement-intensive sector. Total capex on housing and urban development has been increased by ₹7,000 crore, from FY26. But execution as opposed to allocation is a question mark given the under-expenditure in FY26 revised estimates versus budget estimates.

 

Cement saw 8 per cent Y-o-Y volume increase in H1FY26, on a low base, and reasonable momentum in Q3FY26, while GST and income-tax reductions supported demand recovery. Further recovery in housing demand is possible, while higher allocation to welfare should also push demand. Rural demand may outpace urban in this regard.

 

The FY26 revised estimates indicate that the BE for PMAY-Rural and PMGSY were missed, and this was also true for FY25. However, as in FY26 versus FY25, the targets are being reiterated in FY27 versus FY26 and may result in growth in FY27. But housing capex is the least reliable segment when it comes to driving cement demand, as housing spends can be unpredictable.

 

In terms of demand and pricing cycles, prices bottomed in September 2025 and that was followed by a brief rebound followed by a price drop which bottomed in Q3FY26. Since December, cement has seen price hikes which have been sustained. Cement prices could therefore recover in FY27, supported by better volumes.

 

Another round of hikes may be attempted in February itself and in FY27. But there could be another price rebound while demand rises again. Every cement major is also invested in a strong capex cycle and it’s possible that surplus capacity will build up quickly to a point where capacity utilisation remains low. Hence prices may not rise much. Moreover, price discipline may not be maintained by cement companies, which are fighting for market share in a crowded market. Despite these caveats, the industry seems to be confident that it is headed for better times through H2FY26 and FY27.