Boost India’s infrastructure
The Government has already announced a slew of infrastructure projects; more such steps in the Budget will aid growth
Union Finance Minister Arun Jaitley will present the first post-Goods and Services Tax Budget on February 1. Since the 17th General Election is scheduled for 2019, the Union Budget for 2018-19 will effectively be the last one to be presented by the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA). Some weeks ago, speaking at a global meet in New Delhi, Jaitley had indicated that a major focus in the Budget will be spending on infrastructure and the rural sector. He said that the Government wants to maintain the momentum at which new infrastructure is being developed in the country. Focus on developing rural and urban infrastructure will be welcome, given the current economic scenario.
The past year has been a relatively tough year for the cement industry, with growth coming in at a muted low single digit. The most obvious cause of this is the slowdown in the housing sector, which consumes about 65 per cent of India’s total cement consumption. Financial year 2017-2018 was also the year of challenges — the ban on sand mining and the use of pet coke.
In the year 2018-2019, demand for cement is expected to grow by six per cent to seven per cent to reach 307 million tonnes. This is likely to be driven by a slew of infrastructure projects that have been announced by the Union Government. Chief among these are the Bharatmala project that seeks to develop 84,000 kilometres of roads by 2022, the Smart Cities project and the Housing for All programme by 2022. The number of infrastructure projects planned by the Government are now in a phase where we expect work to progress in right earnest. With General Election nearing, it is expected that there would be a greater push by all agencies to finish these projects.
Despite the infrastructure push, the sector will most likely continue to face some severe headwinds, such as higher fuel prices, which may cause an uptick in logistics cost with an ultimate impact on margins. Capacity utilisation in the cement sector remains on the lower side, which may put pressure on prices. The industry has made huge investments for potential increase in cement demand. If by any chance this uptick in demand were not to materialise, cement makers will experience a glut situation, leading to an immediate and sharp fall in prices.
Perhaps, the biggest cause of worry at present is uncertainty over pet coke imports. Given the demand and supply scenario of domestic pet coke, any restriction in import of pet coke will force the industry to resort to coal — a more expensive proposition. In the absence of price elasticity and the inability of the market to absorb higher prices of cement, margins are likely to remain under pressure as well.
While challenges abound, historically, the Indian cement industry has remained prepared for eventualities. This time around, the industry has answered the Government’s call for infrastructure push by increasing production capacity. With a view to have inclusive growth for all sectors, emphasis will be to create demand for the real estate sector, with a focus on affordable housing, Government-led higher infrastructure spending in the form of higher fund allocation and incentive for public private partnership (PPP) to keep robust demand for cement. Post the Goods and Services Tax, the industry too is exploring avenues for optimisation in logistics cost by direct supplies, creating hubs to serve distant markets at lower costs.
The new Budget should put impetus on developing rural infrastructure. Under the Bharatmala project, the biggest ever highway development plan has already been approved by the Government. We expect urban infrastructure, housing, water and sanitation needs to be discussed at the new Budget announcement. Thankfully, the Finance Minister too has indicated that growth will be driven by public capex or public spend. It is widely expected that there are two areas where the Government is putting its money — one will be affordable housing and the second is roads. We believe that the Government is extremely focussed on improving infrastructure, especially in the rural areas. There is no doubt that the path to economic growth will be paved with the investment in infrastructure. To what extent will Budget 2018-2019 reflect these concerns is an overwhelming question. Those in the infrastructure sector are certainly expecting the Government to rise to the occasion.
(The writer is Chairman and Managing Director, JK Cement)
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