SUBMITTED BY:

NAVIN KUMAR ENROLMENT NUMBER # 947151143 STUDY CENTRE # VMC, NEW DELHI REGIONAL CENTRE # ITO, NEW DELHI

SUBMITTED TO:
SCHOOL OF MANAGEMENT STUDIES INDIRA GANDHI NATIONAL OPEN UNIVERSITY MAIDAN GARHI NEW DELHI.

EXECUTIVE SUMMARY

The project aims at analyzing the strategies adopted by various players in cement industry their structure, strategies that led to their growth, trends and various issues related to it vis--vis the present day macro environment. The first part of the study focusses on the cement industry as a whole, whereas the second part focusses on the strategies adopted by Associated Cement Companies (ACC) which is one of the major players in the cement industry.

The first part of the project deals with the growth of the cement industry, its present scenario, the various forces acting on it and the various strategies that the players are taking up to cope with the changing dynamic environment. The cement industry is going through a crucial phase of recession owing to several factors, which have been dealt with in detail. Despite the projections of huge investments in the infrastructure sector, actual funding during the year was rather meagre. This has resulted in recession in key industries such as steel and cement. The lower-than anticipated demand, coupled with addition in capacities during the year, had increased competition in the market. Though the input costs were higher, with the added competition prices began to fall and pressures on margins rose. Although the industry is presently in a dire state, still there is a tremendous potential for growth of this industry in the near future. Various strategies have been discussed which are visible in the industry nowadays, the prominent among them being acquisitions and mergers. The spate of takeovers in the industry puts a question mark on its future. These acquisitions are giving promising returns to the stakeholders in terms of: A good cement plant at a very cheap price owing to the rock bottom prices of the scrips.

Gain in terms of accelerated revenue generation. Advantage in terns of selecting an appropriate location since the assessment of the market, limestone quality, and competition is available on hand and the risk of setting up a new plant is reduced.

In the light of the above discussions, I have studied Associated Cement Companies (ACC group) in terms of its position, business, performance, and implementing strategies in terms of expansion and modernization. The company has been analyzed using Porters five forces model, which shows the position of the company with respect to the factors in the environment, which influence the capability of an organization to position itself to such advantage.

INTRODUCTION
Introduction on Indian Cement Industry Cement is one of the core industries, which plays a vital role in the growth of a nation. India ranks fifth among the cement producing countries in the world. The present per capita cement consumption is around 84kg, which is much lower than the per capita consumption of the developed countries. Recent Government pronouncements indicate that, the per capita consumption will increase to 120 kg in the next three years. With the tremendous growth potential projected, there has been and will be a tremendous increase in the number of cement plants. The cement industry is also highly energy intensive, with more than 40% of the manufacturing cost being contributed by energy. With this growth & increasing competitiveness and the increasing gap between demand and supply of energy, there is an imperative need to operate in an energy efficient manner. The best method to achieve this energy efficient operation is, to incorporate energy efficiency at the design stage itself. The various energy conservation aspects to be considered, while designing a new cement plant/upgrading an existing plant are discussed. The electrical energy saving aspects are covered under the following different headings

Mines, Crusher & Stacking Mill

Blending and homogenisation Kiln and cooler Coal mill Cement mill Packing plant Others

The thermal energy consumption in the cement plant is only in kiln section. Thermal energy is also occasionally used in the hot air furnace for drying of coal in the coal mill and for drying of slag/fly-ash in cement mill. The energy saving aspects and the specific energy consumption figures mentioned is applicable to dry process pre-calciner plants of more than 1500 TPD capacity. The production technology has went up by leaps and bounds and many modern million tonne cement plants have come up with world class standards in productivity, quality, low energy consumption and

environment friendliness. Cement industry has had some problems of infrastructure deficiencies in the areas of availability of good coke in adequate quantity, movement by rail for both coal and cement, and power from gird. These are threatening to become serious enough to affect the healthy growth of the industry and call for early attention. While the quality of the product at the manufacturing end can be world class, consumer does not get the benefit of the same quality at his

since packing ,distribution and usage are still far below the best practices in the world. There is need to introduce movement and distribution of cement in bulk. This is cheaper and environment friendly. The Consumer who is looking for concrete as the end product is best

served with high quality of service by bulk cement being converted directly into Ready Mixed Concrete (RMC) of desired quality and strength at his doorstep without the necessity of site mixing, causing pollution and urban congestion.

BACKGROUND: THE CEMENT INDUSTRY

The winds of liberalisation have swept aside technological barriers age old monopolistic practises introduced healthy competition in the market and above all, the given the consumer a wider range of choice. The cement industry was one of the few industries to be liberalised in the 1980s the government partially decontrolled the cement industry in 1982. This act generated tremendous interest and within a decade nearly 30 Mn tones capacity was added to the existing cement production rate. This improved the availability of cement which checked price rise and finally lead to improvement of the quality of cement. Till the year 1990-91, the demand for cement was mainly dependent on government spending. The era of liberalisation brought with itself novel ways of conducting business. It welcomed foreign investment and technology into the Indian industry. The entry of the private sectors into infrastructures and having development further helped in reducing the dependence on government spending for purchase of cement. The countrys present per capita cement consumption is now at around 84 kg compared to the world average of 250 kg as compared to that of the developing countries with their average being 150 kg . This leaves a large scope for rapid and continued growth.

Today the infrastructures sectors is attracting huge private and foreign investments for mega projects such as irrigation, power houses, roads, railway bridges, housing and commercial establishments. This is further

expected to boost the increase in demand for cement at a much faster pace. There has been a spurt in construction activities in the Middle East and Asian countries to add to the constantly rising demand in the neighboring countries like Bangladesh, Nepal, Sri Lanka, Pakistan and Myanmar. Inspire of fragmentation along regional lines due to high freight costs, regional disparities on growth, increase in cost of petroleum, coal, power tariffs resulting into highest cost of production and cut throat completion, the outlook for the industry seems to be bright in view of the boom in construction activities, industrial growth and the

governments commitment to boost infrastructure development. A plethora of schemes have been launched by the competitors and special attention has been and given sales to packing, prompt delivery, for early

advertising

campaign

production

activities

penetration and acceptance of their brand in the market Masons conferences, seminars and exhibitions are held for retails stockiest, dealers and architects to promote sales and distribution activities. On the ecological front pollution being a major concern stringent measure are taken to maintain the delicate ecological balance of the nature and to prevent deterioration of the environment modern technological equipment like the Electrostatic Precipitators, the Glass Bag House and the Reverse Jet Bag Filters are installed at the cement plants which has enabled them to reach almost zero levels of pollution. As the cement industry continues to move into a phase of accelerated

growth, demand for cement will continue to outstrip supply for many year to come.

The

major

landmarks

in

Indian

Cement

industry

can

be

identified as under. 1913 1936 1950 First cement plant was set up in Gujarat Associated cement companies (ACC) was formed by merging 4 groups and 9 companies First attempt for bulk movement of cement was made at Okhla bulk depot by ACC. It was especially created to meet requirements of Bhakra Nangal Dam Indian standard for Ordinary Portland Cement (IS 269) was published (now 33 grade OPC). It has since been revised in 1958, 1967, 1976 and 1989 Indian Standard (IS 455) for Portland slag cement was published. It has since bee revised in 1962, 1967, 1976 and 1991 Indian Standard (IS 1489) for Portland Pozzolana Cement was published. It has been revised in 1987, 1976 and 1991 Cement Corporation of India was formed in Public sector and first CCI plant was set up at Kurkunta Cement Research Institute was set up at Ballabgarh (Haryana) and in 1985 it was named as National Council of Cement and Building Materials Indian Standard (IS 8112) was published for 43 grade cement and subsequently revised in 1989

1951

1953

1962

1965 1966

1976

July 1976 Vertical shaft kiln technology for mini cement plants was introduced Sept1977 Government guaranteed 12% post-tax return on the net worth on new investments in cement thus accelerating the growth of cement industry. 1979 First one million ton capacity cement plant was set up by Corromendal Fertilizers at Chilampur near Cuddapah. Now it is controlled by India Cements.

Feb1982 Introduction of Partial decontrol portion of cement production in each plant was subjected to Govts control on process and distribution and rest to be sold in open market. Licensing of new capacities continued to be under govts. control. 1983-1989Unprecedented growth of Indian cement industry from (29.35 million tons to 61.55 million tons) due to entry of new industrial houses in cement business like L&T, Modis, JP, AV Birla Group (though Birlas are one of the earliest group in cement business), Ambuja, TATA steel etc. 1986 1985 1987 1987 HDPE / PP bags were introduced to replace Jute bags Introduction of sleeper cement code by Indian Railways under IRST 40 Increase in strength of cement lead to 53 grade code (IS 12269) by BIS. It has not been revised since then. The installed capacity of Mini cement plants was raised from 200 tons per day to 600 tons per day. However for capacity beyond 300 tons per day, Mini cement plant has to use rotary kiln. The capacity of Mini plants further been raised to 900 tons per day in 1998. Announcement of total decontrol Freeing of 100% of production from production and price control, end of freight equalization scheme

March 1989

July 1991 Licensing system for setting up of cement plants abolished 1992 1995 1998 2000 Bulk cement corporation (India) was formed First sea based bulk terminal was set up in New Mumbai by Ambuja 25 kg packaging was permitted by BIS a) IRST 40 sleeper cement was brought under BIS perview and called 53-S grade cement b) The limits of fly ash addition in PPC were revised by BIS from 10% - 25% to 15 to 35% and slag from 25% - 65% to 25% - 70 %

CEMENT INDUSTRY - PERFORMANCE & PROSPECTS

The cement Industry in India has come a long way since 1914 when the first successful cement plant was commissioned with the production level of 1000 tonnes per annum. Since the partial de-control of cement in 1982 followed by total de-control in 1989, the cement industry has witnessed spectacular progress mainly due to the forces of economic liberalisation and the jettisoning of price controls and capacity restrictions. Today, India is the fourth largest producer of cement in the world with 106 large plants belonging to 54 companies having an installed capacity of 105 mil. tonnes. The industry which has undertaken comprehensive modernisation and is equipped with state-of-the -art technology, employs a work force of 1.3 lakhs and also contributes in a very substantial manner by way of excise duty (Rs. 2500 crores) to the national exchequer. The industry is geared to reach a production level of 100 mil. tones by 2010 A.D. QUALITY The wet process of the 70s has been replaced by the modern dry process and today this accounts for around 85% of the total capacity of the Industry. New technologies such as on line X-Ray analyser preblending of coal, vertical roller mills for raw material grinding and cement grinding, high efficiency separators, 5 to 6 stage pre-heaters, and total computerised control of operations have led to increased productivity and consistent quality. TRANSPORT AND OPERATIONAL CONSTRAINTS

The Cement Industry has always looked to the Railways to transport a major portion of their coal requirement and cement production. However, owing to acute shortage of wagons there has been a continuous decline in the transport of cement by rail and today it is as low as 50%. This would mean that the balance 50% has to be moved by road involving long leads. It is also expensive. The Own Your Wagon Scheme introduced by the railways has not been successful since the return on investment is not commensurate with the industry

expectations. COAL As against the industrys coal requirement of 15 to 16 mil, tonnes per annum, the availability is of the order of 10 mil. tonnes only. While overall coal production is increasing, the surplus of coal is being taken up by the power sector. A against an increase in production of 70 mil. tonnes of coal during the last six years the supply to the cement sector has not increased and has remained static at 10ml. tonnes. The quality of coal also laves much to be desired, forcing cement companies to resort to open market purchase and import of coal. The answer to this problem lies in the privatisation of mining and setting up of washerie on a Build, Operate, Own basis. In this connection the Central Mine Planning Design Institute has identified 5 locations - Sasti, Deepika, Urimari, Vina and Bhyvaneswari for setting up local washeries exclusively for the Cement Industry. These washeries are expected to provide about 9.4 mil tonnes of coal per annum. The growth of Indian Cement industry over the years is given below:

At the end of YearInstalled Capacity

(Million tons) Production

1950 51 1955 56 1960 61 1965 66 1973 74 1978 79 1981 82 1984 85 1987 88 1989 90 1992 93 1996 - 97 1999 2000 2000 2001 2001 2002

3.28 5.02 9.30 12.00 19.76 22.58 29.35 42.00 57.47 61.55 70.19 105.25 119.10 130.40 136.50

2.20 4.60 7.97 10.97 14.66 19.42 21.06 30.13 39.37 45.41 54.08 76.22 100.45 97.61 104.50

POWR As the manufacture of cement is a continuous process, the quality of power affects production and hence cement companies have had to invest in captive generating sets to meet a part of their power needs. Over 15% of cement is produced with the help of captive plants. CEMENT PACKING Today, cement is mostly packed in High Density Poly Ethylene (HDPE) and a small percentage in paper bags. The Jute Packaging Act, 1987, requires the Cement Industry to pack 50% of its output in Jute bags. The Cement Manufacturers Association (CMA) has represented to the standing advisory Committee that jute is technically unsuitable for packing cement on account of its hygroscopic nature and a 4-5% seepage factor which would result in a loss to the country running into a thousand crores every year. It would also entail a total cost increase of Rs. 12/- per bag which will have to be borne by the consumer. R&D The cement Industry was one of the first to set up a research organisation in the late 60s, for the benefit of every cement company in the country. This research organisation now called the National Council for Cement and Building Materials (NCBM) is funded through the levy of chess on the Industry which ensures that the Organisation caries out research of significant size and scale . The NCBM also organises International Seminars and holds conferences.

In order to maintain the present trend of growth in the Cement Industry, the research and development agenda should concentrate on the following thrust areas. 1) 2) 3) Enlargement of raw material and fuel waste Energy conservation Promotion of Plant and Machinery design and home-grown technologies 4) Newer applications of cement.

In keeping with the spirit of liberalisation and globalisation of the Indian economy, the Indian Cement Industry which has attained international stature now needs an extended horizon for its ever0growing capacity and capacity. In order to integrate successful with the world economy, the Industry has to develop an international mindset and a global vision.

PERFORMANCE OF INDIAN CEMENT INDUSTRY

The Indian cement industry is the only industry in the infrastructure segment that has shown good growth, clocking nearly 10-per cent growth in the financial year 2001-02. In the same period, the other core sectors have shown marginal or negative growth. This is the first time in the history of the Indian cement industry that annual production of large plants has crossed the 100million mark. During 2001-02, large plants have produced 102.40 million tonnes (mt), an increase of 9.39 per cent over the previous year (93.61 mt to 102.40 mt). Also, cement production in March 2002 crossed the 10mt mark the highest ever in a month. Cement despatches during 2001-02 have increased by 9.62 per cent (93.44 mt to 102.43 mt) as compared to the corresponding period last year. Cement consumption grew by 9.7 per cent (90.29 mt to 99.05 mt) in 2001-02 a significant turnaround from 2000-01 where it showed a negative growth of nearly 2 per cent. A research paper brought out by Export-Import Bank of India (Exim Bank) has analysed the competitiveness of the Indian cement industry in major markets, and found that Indian cement is competitive in markets like Bangladesh and Kuwait, but not in other major import markets like Singapore, Sri Lanka, Malaysia and Philippines. According to the study, technological advancement would reduce the cost of production, improve quality and make Indian cement price competitive in international markets. This should happen in both stages

viz., mining of raw material as well as kiln stage, the study observed. The study outlined that Government also plays a major role in helping the industry to reduce the production cost, by way of reduction in royalty and cess on limestone and coal, meant for export production. If the existing capacity is utilised fully from the present utilisation level of 80 percent, then exports can be aggressively priced on marginal cost basis. The study observed that Thailand exports cement to USA at a price of US $ 12-15 per tonne and even with a high transport cost of US $ 30 per tonne, the export is profitable as price in USA is about US $ 70 per tonne. Government of India may also create enabling conditions for market penetration, by way of rationalising tariff differentials and negotiating for zero tariff dispensation of cement and clinker exports, especially with neighbouring countries like Bangladesh and Sri Lanka. Analysing the global market potentials, the study reveals that China and Hong Kong tops the list with 567 million tonnes (34 percent of world consumption) of cement usage. In terms of per capita consumption, however, countries like UAE, Kuwait, Taiwan and Saudi Arabia top the list, due to increasing construction activity. The study found that Singapore, Bangladesh, Kuwait, Sri Lanka, Malaysia and Philippines offer lot of potentials for export of Indian cement, provided the production cost is brought down substantially. Highlights: The cement industry has seen a tremendous growth in its capacity as compared to its demand. The prices prevailing in last two years were lower than even the minimum required for a Greenfield plant to

break-even. This has been proved by the spate of acquisitions and takeovers in the last year. Indian cement industry with an installed capacity of 100 MTPA (Million Tonnes Per Annum) is the fourth largest in the world after China, U.S and Japan. Industry Structure Cement in India derives its demand as being the most preferred building material. It is used extensively for household and industrial construction. The real driver of cement demand is creation of infrastructure, hence cement demand in emerging economies is much higher than developed countries as the infrastructural development in these countries is higher than that of the developed countries. India being one such economy has the potential for a high demand in this sector. The industry is highly competitive in nature comprising 59 companies operating 117 plants

Rural areas consume less than 25% of the total cement. Availability of cheaper building materials non-permanent structures affects the rural demand.

Per capita cement consumption in India is about 84 kg compared to the global average of around 250 kg.

Demand Scenario Demand for cement is price inelastic due to lack of substitutes, also they form a very low part of the total cost. Small imbalances in demandsupply result in a disproportionate change in cement prices. As cement is a low value commodity, freight costs assume a significant proportion of the final cost. This once again highlights the regional nature of the cement industry. In FY99, the industry witnessed a 6.3% growth in production and 7.5% in consumption.

Supply Capacity With a production of 83mn tonnes in the year 1999-00, India is the fourth largest producer after China (492 mn tonnes), Japan (95 mn tonnes) and USA (84 mn tonnes).

The installed capacity of cement in India in FY98 was 100.3 MTPA, having increased by 4.3 MTPA from FY97.

The Indian cement industry is facing a glut because of oversupply. Capacity addition in the last 5 years has been 34 MTPA. The installed capacity, which was 62 MTPA in 1993 has increased to 100 MTPA in 1998.

The all India average capacity utilisation of cement plants is at 82%. The fall in utilisation levels (from 85% in FY95 on a capacity of 71MTPA) has been on account of severe shortage of key inputs/support requirements such as power, coal and rail wagons.

EXPORT PERFORMANCE

PERFORMANCE OF CEMENT INDUSTRY (CAPACITY)

Large Plants (Large Plants means capacity more than 0.198 Mn.T. per annum) Companies (Members) (Nos.) Cement Plants (Nos.) Installed Capacity (Mn. t.) Cement Production (Mn. t.) 2001-02 Plants with Capacity of Million tonnes and above (Nos.) Manpower Employed (Nos.) Approx. Turnover in 2001-02 (Mn. US$) around 54 124 135.03 102.40 64 1,35,000 6,000

Mini Plants (Mini Plants means capacity less than 0.198 Mn.T. per annum) Cement Plants (Nos.) Installed Capacity (Mn. t.) Cement Production (Mn. t.) 300 11.10 6.00(P)

PERFORMANCE OF MAJOR PLAYERS

Production and consumption During FY 2002, domestic cement consumption increased by 9.7 %, as against a decline of about 2% in the previous fiscal. The demand growth was driven by the construction activity in the road sector. Housing demand and post-earthquake reconstruction activities in Gujarat. Production and dispatches also witnessed an upward trend. Production during the year was higher at 9.4% as compared to a decline in the previous year. Demand growth was highest in the eastern region (about 14%) followed by north (10%), South (9%) and West (6%). States witnessing double digit demand growth included HP, Delhi, Punjab, and UP. States reporting either stagnant consumption or decline in consumption included MP (including Chattisgarh), Assam, Meghalaya, TN, Kerala and Maharashtra. Cement and Clinker exports were almost at the same level as in the previous year. Sales Growth Most of the leading players in the industry reported a growth in sales as shown in the following table.

Growth in Sales volume Group Acc Group Gujarat Ambuja Group Jai prakash Group OCL Group M.P.Birla Group L & T Group Aditya Birla Group Dalmia Group B K Birla Group India Cement Group All India Price Realisation Cement process had started weakening towards the second half of RY2002 across regions. This was largely on account of weakening of the demand supply position. However, the average retail prices during Fy2002 were marginally higher than FY2001 across almost all the regions except for eastern region. FY2002 17.30% 14.90% 10.50% 9.40% 8.40% 7.10% 2.90% 2.60% 2.20% -8.80% 9.70% FY2001 0.70% 20.80% -0.20% 8.40% 0.10% 0.80% 6.80% -1.80% 1.90% -5.80% -0.50%

Average cement prices (Rs./50 kg bag) Averag e Q4-FY02 Q4-FY01 Change Q3-Fy01 Q3-FY01 Change FY02 FY01 Change 130 148 -18 141 142 -1 140 139 1 137 163 -26 133 147 -14 144 150 -6 170 184 -14 168 156 12 175 161 14 150 156 -6 153 156 -3 168 160 8 171 174 -3 165 175 -10 152 136 16 180 186 -6 175 187 -12 174 172 2 Delhi Kolkatta Mumbai Hyderabad Bangalore Chennai

PERFORMANCE OVERVIEW
During FY2002, although price realizations were under pressure during the later part of the year, higher volume sales and focus on improving operating efficiency, has resulted in most cement companies showing improved performance. While the results are still pouring in, a brief overview of performance of some of the prominent players are presented Jaypee Cement limited Jaypee cement Ltd. (JCL) is a new company, which was formed on April 1 2002 by hiving off the cement division1 of Jaiprakash Industries Ltd. (JIL) and merging it with Jaypee Rewa Cement Ltd. (JRCL2) a subsidiary of JIL. JCL was formed with the objective to consolidate the cement business of the Jaiprakash Group under one roof. JCL has three cement Plants with a combined capacity of 4.2 million tonnes located in the Rewa district of MP. This is infact the single largest cement complex in India. During FY2002, Cement production and sales by Jaypee Cement was 4.23 million tonnes and 4.22 million tonnes respectively. Clinker production and sales was 3.98mn. tonnes and 0.45mn. tonnes respectively. The capacity utillisation during FY2002 was maintained at over 100% at its cement units.

Year ending 31/3/1999 (12 months audited) Net sales Operating profit Other income Interest Depreciation 2594.5 298.3 13.7 571.1 -@

Year ending 30/9/2000 (18 months audited) 4868.2 420.3 50.8 690.8 -@ -219.7 -219.7

Year ending 31/3/2002 Provisional 11768.9 1701.5 131.3 736.2 662.7 633.9 590.8 43.1

Profit (Loss) for -259.1 the year Depreciation for earlier years Profit (Loss) -259.1 after Depreciation for earlier years All figures in Rs. million

# the figures of year ending 31/3/2002 is not comparable to the previous year as the figures for this year are of JCL (18 months of JRCL and 12 months of Cement division of JIL), whereas the figures for the earlier years are of JRCL only. @ Depreciation amounting to Rs. 590.8mn. pertaining to JRCL during the period has not be provided for . this has subsequently been provided for the year ending March 31st 2002. The enhanced benefits of consolidating the cement division are visible in the results. While, JRCL was making operating profits, high interest costs had resulted tin the company making losses at the net level. The year ending 31/3/2002 shows the JCL has made profits both at the

operational level as well as after making provision for the fixed expenses. Apart from improvements in the fundamentals of the cement industry, focus on operational cost control and synergetic benefits accruing on account of consolidating the cement business has resulted in the strong performance of the company. The future may also see further growth in sales volume and benefits of economies of scale as the company is planning to upgrade its capacity. Grasim Industries Limited FY2002 Sales PBIDT Interest Depreciation Current Tax 43866 9368 1903 2517 565 Fy2001 44715 9115 2388 2519 500 3708 Growth -1.9% 2.8% -20.3% -0.1% 13.0% 18.2%

Profit before deferred 4383 tax Deferred Tax Profit tax after 515 deferred 3868

3708

4.3%

Grasim witnessed a 1.9% decline in sales during FY2002 largely on account of reduction in sales volume and realisations of Viscose Staple Fibre. Sponge lron and Caustic soda. However, the cement division performed well reporting a 6% growth in sales volume and 4% growth in sales realisation. While the operating profit witnessed a modest growth

of 2.8% reduction of over 20% in interest cost resulted in the profit before deferred tax witnessing a growth of 18.2%. In the cement division, production at 9.53 million Tonnes and sales volumes at 9.68 million tonnes were up by 5% and 6% respectively, over the previous year. Capacity utillisation in the cement plants during the year stood at 92%. During the year, the company has commissioned 4 ready mix concrete plants of an aggregate capacity of 1 million cubic meters. At Hyderabad, Chennai, Noida and Bangalore. A one million tonne cement-grinding unit at Bhatinda has been set up as well. This has enabled the company to consolidate its position in the lucrative northern sectors of the country. In addition. The company is implementing various plans at a capex of Rs. 3440 million, as indicated: Two poser plants of 23 MW and 12.5 MW at Aditya Cement (Rajasthan) and Grasim Cement (Tamilnadu) respectively which are expected to be operational by December 2002. Ongoing modernization of plants and capacity expansion through debottlenecking has resulted in capacity enhancement of 0.5 Mn. MT so far. A further capacity addition of 1.8Mn. is expected by end FY 2003. On implementation of these projects, Grasims cement manufacturing capacity will go up to 13.2 Mn. Mt.

ACC During FY2002, although sales realisation was under pressure. ACC reported a 9.1% growth in net sales due to over 15% growth in sales volume nevertheless, enhanced focus on high growth markets in the northern and the eastern regions of the country has resulted in relatively higher realisations for the company. The operating profit of the company was higher by 24.9% indicating higher level of operating efficiency (control on raw material and power & fuel costs) and synergetic benefits on account of the strategic alliance with Gujarat Ambuja. Interest costs of the company was also lower by 13.8% due to prepayment of high cost debt and better working capital management. thus, higher volume sales, control on operating costs, and lower interest cost resulted in a 128.1% growth in profit after tax. During FY2002, the kiln at Wadi 9karnataka) was commissioned. FY02 Net sales Other income Expenditure Operating profit Interest Depreciation Profit before tax Extraordinary items Tax 28,106 825 23,950 4,157 1,467 1,511 -360 339 37 FY01 25,764 727 22,435 3,329 1,702 1,413 -333 Change 9.1% 13.5% 6.8% 24.9% -13.8% 7.0%

Profit after tax 1,304 (Loss)

572

128.1%

Gujarat Ambuja Cements FY 2002 (9 months) Net Sales Other Income Total Exp. Op. Profit Interest Depreciation Current Tax Def. Tax Profit after tax 11696.2 185.5 8325.4 3370.8 726.3 1009.8 127.5 167.5 1525.2 1110.5 37.3% All figures in Rs. Million FY 2001 (9 months) 10177.2 105.7 7037.3 3139.9 1032 983.1 120 14.9% 75.5% 18.3% 7.4% -29.6% 2.7% 6.3% Growth

During the first 9 months of FY2002, Gujarat Ambuja has shown a 14.9% growth in sales. Although, sales volume was higher by over 20% at 5.3 mn. Tonnes, pressures on sales realisation resulted in lower growth in sales in value terms. The cement plant of the company at Chandrapur (Maharashtra) has been completed and is currently under trial production. As a result, the raw material expenses of the company has increased by 89%. Inspite of this, the company was able to show a 7.4% growth in operating profit due to focus on cost reduction and enhancing

operating efficiency. Growth in operating profit coupled with sharp reduction in interest costs resulted in a 37.3% growth in net profit, even though the tax provision was higher. Birla Corporation Limited FY2002 Sales Other Income Total Exp. Op. Profit Interest Depreciation Profit before deferred tax Deferred tax Wealth tax Refund of tax relating to earlier years Profit after tax -7.6 11239.1 207.2 10739.8 499.3 362.1 351.6 -7.2 0.2 0.2 0.2 4.2 0% FY2001 10212.9 196.8 9753 459.9 437.1 350.7 -131.1 Growth 10.0% 5.3% 10.1% 8.6% -17.2% 0.3% NA

-127.1

NA All figures in Rs. Million

During FY2002, Birla Corporation witnessed a 10% topline growth helped by higher sales volume and higher realisations in its markets. Control on operating costs resulted in the operating margins being maintained at 4.4%. This resulted in the operating profits improving by 8.6%. This coupled with reduction in interest costs by 17.2% resulted in the net loss reducing from Rs.127.1 mn. In FY2001 to Rs.7.6 mn. In FY 2002. During

FY2002, Cement continued to be the dominating business of Birla Corporation accounting for 84% of turnover and 78% of total capital employed. Further, Cement was the only profit making division of the company during FY2002.

Profit before Interest and Tax (FY2002) Cement Jute Others Total 533.6 -40.7 -65 427.9 All figures in Rs. Million

Dalmia Cement (Bharat) Limited FY2002 Sales Other income Total exp. Op. Profit Interest Depreciation Profit before 4171.9 116.2 3434.2 737.7 298.1 202.2 286.1 FY2001 4117.8 155.7 3389.8 728 324.8 197.7 288 Growth 1.3% -25.4% 1.3% 1.3% -8.2% 2.3% -0.7%

deferred tax Deferred tax Profit after tax 31.5 254.6 288 -11.6%

All figures in Rs. Million

Despite over 2.5% growth in sales volume, sales in value terms witnessed a nominal growth of 1.3% due to pressure on sales realisation. Control on operating costs however resulted in a similar growth in operating profit. Interest cost were lower by 8% during FY2002. While profit before deferred tax was marginally lower than that in FY2001, provision of Rs.31.5 mn. For deferred tax resulted in the net profit witnessing a decline of 11.6%. During FY2002, Cement continued to be the dominating business of Dalmia Cements accounting for 62% of turnover, 75% of profit before interest and tax, and 51% of total capital employed.

Larsen & Toubro Limited FY2002 Cement Tonnes) Sales volume (mn. 9.53 2.40 Total Cement sales value (Rs. Bn.) Ex-Factory realisation tonne) (Rs./ 11.93 24.59 1303 18.5% 19.8% 8.95 2.36 11.31 22.77 1251 16.9% 19.0% All figures in Rs. Million 6.5% 1.7% 5.5% 8.0% 4.2% FY2001 Growth

Domestic Exports

PBDIT/ sales for cement div. PBIDT/ sales (inc. fiscal benefits) for cement div.

L&T reported strong performance by its cement division during FY2002. The topline growth (8.0%) was on account of growth in both sales realisation (4.2%) and sales volume (5.5%). Focus on cost control and improvement in operational efficiency resulted in the operating margin improving from 16.9% in FY2001 to 18.5%. Some key steps initiated by the company in this direction included. Reduction in heat consumption by 7 Kcal/ tonne of cement Reduction in power consumption by 3 units/ tonne of cement Switchover from imported coal to domestic coal. Further, purchases were made from smaller coal miners to reduce purchasing cost.

Reduction of packaging costs by optimising specifications and usage of laminated bags in place of pure paper bags.

Reduction in fixed costs by Rs.320 million in FY02. Reduction in the number of stocking points and increase direct despatches so as to reduce secondary freight, handling costs, backtracking and operating costs of dumps.

Installation of Optimisation software to manage the network to minimise total delivered cost.

Madras Cements Limited FY2002 Net Sales Other income Expenditure Operating profit Interest Depreciation Tax Net profit 7063.0 30.7 5290.5 1772.5 775.0 609.6 150.0 268.6 FY2001 6183.3 24.9 4426.4 1756.9 654.1 527.3 116.4 484.0 Growth 14.2% 23.3% 19.5% 0.9% 18.5% 15.6% 29.3% -44.5%

Madras Cements Ltd. has reported 14.2% growth in net sales during FY2002. Although, sales volume increased by over 20% to 3.26 mn. Tonnes, pressures on sales realisation resulted in lower growth in sales in value terms. Rise in operating costs by 19.5% resulted in a marginal 0.9% growth in operating expenses. All elements of the operating cost witnessed an increase, with the largest rise experienced in Freight costs (42%) followed by raw material costs (28.5%). Interest and Depreciation

charges were also higher by 18.5% and 15.6% respectively on account of capacity expansion at the Alathiyur *TN) unit. As a result the net profit declined by 44.5% to Rs. 269 mn. Operating Cost FY2002 Raw material Employee cost Power & Fuel Freight Others Total 1029.8 358.9 1645.9 994.4 1261.7 5290.5 FY2001 800.6 328.3 1434.8 700.2 1162.5 4426.4 Growth 28.6% 9.3% 14.7% 42.0% 8.5% 19.5% All figures in Rs. Million

PEST ANALYSIS POLITICAL: Rigid government policies in respect of price and distribution control. With a view to give impetus to the growth of cement industry, government took the following major decisions: Percentage post-tax return on net worth (announced by government in 1977) Partial decontrol w.e.f. 28th February 1982. Complete decontrol w.e.f. 1st March 1989. Delicensing of cement industry in July 1991.

Earlier In order to contain prices in shortage scenario, government continued controls and thus cement shortage continued as there was hardly any generation of reserves for the cement producers which could be invested in major expansion and modernization. ECONOMIC: Cement production after liberalization grew at a compounded annual growth rate (CAGR) of 8.4 percent. The demand for cement also grew at CAGR of 8.4%. Cement production grew by negligible 0.2% in 1992-93, by 6.7% in 1993-94, 7.9% in 94-95, 10.5% in 95-96 in consonance with the economic growth of the country. The recession in 1996-97 saw a drop in the growth rate for production to 8.5%. Cement industry is dominated by the private sector. It not only holds the bulk of the capacities (87%) but also produces 95% of the total production. The capacity utilization of private sector is higher at around 86% as compared to 40% in the public sector.

The multiplier effect of the cement consumption to GDP growth in India is around 1.5 times and with current liberalization and opening of the economy, the multiplier is set to grow to 1.7 times.

The multiplier effect on the basis of input stands at 0.95 times and is likely to improve in the future as economic activity picks up. Another driving force is expected to be on account of increased government spending on infrastructure projects like roads, dams, and power projects. Trend of takeovers instead of greenfield project in the present scenario.

SOCIAL: Cement is a core sector and its development is of vital importance to not only the national growth but also the growth of the society as a whole. India being among the most populous countries and with the present growth rate, an estimated 1 billion people will live in India by the year 2020. This will put an enormous strain on the existing and future roads, rail network, power sector, port facilities and on housing construction which will have to increase dramatically if it is to meet the needs of the people. Added to this will be the necessity to build improved sanitation, and sewage disposal systems and to invest in water treatment works in order to provide an adequate and clean water supply. The above mentioned requirements in the infrastructure and other basic facilities clearly indicate the growth prospects or requirements of cement in the near future. Due to increased concern towards the environmental pollution, the companies are now using advanced technologies for pollution control. It is also a mandatory clearance for setting up a new cement plant. TECHNOLOGICAL: The modernization process of cement industry included the following aspects: Precalcination technology. Computer controlled kiln operation

Centralized operation Analog and digital display of process parameters Electronic packing and Conversion of old wet process plants into dry/semi-dry plants.

The trends, which are yet to be adopted in Indian Cement industry, are use of Bulk cement distribution and use of Ready Mix Concrete. INDUSTRY ANALYSIS using Porter's Diamond Framework: Porter argues that there are inherent reasons why some industries are more competitive than others in a framework called as Porter's Diamond model. 1. Factor Conditions: Specific factor conditions provide initial advantages which are subsequently built upon to yield more advanced factors of competition. Basic conditions that are advantageous to cement industry are its immense potential for growth. The country is in a developing stage and is presently poor in infrastructure facilities. The growth of the country's economy depends a lot on the development of infrastructure facilities and hence a huge potential for cement industry. 2. Home Demand Conditions: provides the basis upon which the characteristics of the advantage of an industry are shaped. Demand patterns and trends can be used to see how important cement would be in the years to come. Future Growth Needs: National highway systems alone needs to be more than doubled, Ports will be required to improve the capacity to approximately 277 Housing construction will need to produce an added 64.4 million

an increase of 34,300 kms. million tonnes in order to cope with the increased coastal bulk freight. new homes by 2001.

 nation.

The country needs to spend 10.75 billion dollars a year on new Railway networking, state highways and sewage treatment works,

capacity. airport and other facilities needed to support an increasingly populated

3. Related and supporting industries: The major impact on the cement industry is from the construction industry which, right now is in the recession in the overall economic growth. But once we are out of this recession, the construction industry is bound to grow (as can be seen from the above mentioned future needs) and thus cement industry will have a high time once again. 4. Industry Strategies, structure and Rivalry: The prominent strategy visible in the industry now-a-days is of going for mergers and acquisitions, which is giving promising returns to the shareholder's value. The predators, mostly the larger cement companies are in the expansionist mode. The industry today is fragmented with about 115 plants spread across 50 business groups and the prediction is that at least 20 business groups will move out of the industry- the big contributor to this being recession. Acquisition gives a company an advantage in terms of selecting an appropriate location since the assessment of the market, limestone quality and competition is available on hand and the risk of setting up a new plant is reduced. An example for this is, when ACC acquired Damodar Cement, two years ago, it had the first hand knowledge of the market potential and other advantages. Also the industry being raw material intensive, availability of limestone also becomes a crucial factor. Talking about the industry structure, the major competitors in the industry are: Birla Group ACC

JK Group L&T Gujarat Ambuja India Cements Comprising about 65.6% of the industry's capacity.

In terms of rivalry, some sort of rivalry is existing in the industry owing to these acquisitions. One such recent example is of India Cement and Raasi Cement. India Cement's open offer to acquire 20% stake in Raasi Cement at a price of Rs 300 surprised the market. In return India Cements will get Raasi Cements which has a capacity of 1.6 million tonnes , which is being expanded to 2.5 million tonnes. By this, India Cements will be getting some of the most efficient manufacturing plants at far below its replacement costs.

PRODUCT DEVELOPMENT AND CONSUMER INTEREST

Ready Mixed Concrete and Bulk Cement There is a need to encourage use of ready-mixed concrete bulk movement of cement for quality and speedy construction at a considerably reduced cost. Hitherto, a large portion of cement production is utilised for urban development activities and large construction projects. There is yet a vast untapped market potential in the rural areas. Consumer Interests Presently, the cement producers are required to pack 50% of the total cement production in jute bags. This is against the interest of the consumer because jute bags are permeable in nature. Since, cement is a hygroscopic product and has limited shelf-life, it needs to be protected by superior packaging material viz Paper /HDPE / Polypropylene, etc. Consumer is becoming increasingly quality conscious and exercises his choice regarding the particular brand of product and packaging . In a situation where there are several manufacturers, it is necessary to provide suitable identifications of colour and design for quality, production and packaging. The would discourage adulteration of cement, which is undesirable. In the interest of consumer protection, the cement industry needs to pack cement in superior HDPE/Paper bags of their own choice of colour and design for easy identification by the consumer.

Suggestions and Recommendations The following recommendations are need to be considered so as to increase cement consumption. Ready-Mixed Concrete (RMC) is produced under strict controlled supervision and provides to the consumer a consistent quality product, which improves the quality of construction RMC should be encouraged by exempting it from Central Excise Duty and permitting tax holiday. etc. RMC should be specified all Government Tenders for their projects. Excise duty and sales tax on cement used for large construction projects like concrete roads, canal linings, etc. should be exempted. To encourage more bulk transportation of cement. An excise duty differential of Rs. 50 should be introduced on bulk and bagged cement. MODVAT on packaging material, which is permitted by Government at the Cement Plant, should also be extended to Bulk Cement Terminals, if cement has been transported to the Terminals in bulk form by. Sea or Rail and is packed at the terminals. Most of the countries imparting cement have bulk handling facilities at ports (on shore or even floating) and insist on importing cement in bulk. Hence, bulk transportation and establishment of bulk terminals would help in maximising exports. This will also help the domestic market to grow qualityvelyin line with international standards.

To open up diversified uses for cement consumption, the construction of concrete roads (National/State highways, Expressways, City roads), canal linings, pre-fab elements and newer applications in rural areas be given a thrust. For all future construction projects, such as concrete roads, canal lining etc. the economics of cement should be examined with alternative materials and decision should be taken in favour of those which are economical on life cycle cost basis. A nodal agency be formed for the promotion of coastal transport through establishment of terminals, bulk handling facilities, sea vessels and other infrastructure facilities. Incentives should be offered for attracting investment in this areas. The Motor Transport Act restricting and reeducating the maximum axle load to 9 tonnes should be re-examined to partly meet ever increasing requirement of movement of cement and other goods. Jute Packaging materials (Compulsory Use of Packaging Commodities) Act 1987 needs to be modified in the light of the consumer interest, in favour of alternative packaging materials which are superior in quality and provide greater protection to cement, which is hygroscopic product and hence has animated shelf-life. In the interest of the consumer, cement producers should be allowed to use superior packaging material of their own choice of colour and design for easy identification, as per the quality requirement of the customer, complying with BIS standards. Cement Regulate Account Funds, lying idle with Government , may be utilised for the benefit of the cement consumer in the promotional

activities concerning bulk transportation, redid-mixed concrete, rural applications, training activities, creating consumer awareness, etc.

FIVE FORCES ANALYSIS FOR ACC In the present day competitive scenario, the notion of strategy is more of a search for opportunity to identify basis of advantage. There is a need to identify if there are factors in the environment, which influence the capability of an organization to position itself to such advantage. Now, we will analyze the Associated Cement Companies (ACC) in Porters five forces framework. a) Threat of entrants The threat of entry in cement industry depends on a variety of factors and the extent to which they are a barrier to the entry of new companies. (a) Economies of scale: Economies of scale in cement industry are very important in the present scenario where only a few companies are able to sustain which have a prominent presence. Until and unless you want to focus on a very small, specific segment in the market, economies of scale are important. ACC, a cement major, operating mainly in North India has plants at various locations in various states like Maharashtra, Rajasthan, Madhya Pradesh, West Bengal, etc. At present, it has 13.1% share of the industry's total production. Also ACC has a diverse range of business activities as it manufactures and markets cement refractories and refractory products and also provides consultancy and engineering services. (b) Capital requirements of entry : The capital cost of entry varies according to technology and scale. The cost of setting up a new 1 million tonnes per annum is of the order of Rs.400 crores. Also the technology requirements in

terms of the latest instrumentation systems so as to design the plant for zero downtime, high product quality, and better throughput with minimum energy consumed per unit of cement production. (c) Access to distribution channels : Access to a wide and deep distribution channel is important for any company to have a big share in the cement market. The segments of cement markets are in diverse distributed areas so a good distribution network is a must for any company to sustain in the present scenario. ACC has a deep distribution network in the state of Maharashtra, Rajasthan, Madhya Pradesh, West Bengal, Tamil Nadu, Haryana, Bihar and Andhra Pradesh, so has an access to diverse market opportunities. (d) Cost advantages independent of size : It is difficult for a competitor to break into a market if there is an established operator which knows the market well, has good relationships with key players and suppliers and knows how to overcome the market and operating problems. ACC is in the cement industry since 1936 and has got diverse experiences of growth and recession in the industry. It has a good distribution setup and has good relationships with the suppliers and buyers especially with the government, who is a major supplier and a major buyer since the ages of regulation. (e) Legislation or Government control : Earlier the industry was totally regulated and licensed but now it has been de-licensed and decontrolled, so now it is not a major deterrent to any new company to enter the cement industry. (f) Differentiation : By differentiation, we mean the provision of a product or service regarded by the user as different from and of high value than the

competitors. The organizations that are able to achieve strategies of differentiation provide for themselves, a real barrier to competitive entry. ACC is using the latest technology to provide the best of the product to its competitors. ACC is the first company in India going for bulk transport at its ACC Kalamboli plant. All organizations have to maintain resources and provide goods or services, what is known as the supply chain or the value chain of the organization. The relationships of the buyers and suppliers can have an impact on constraining the strategic freedom of an organization and in influencing the margins of that organization. 2. Power of buyers Cement industry is prominently a buyers market owing to the presence of a large number of cement brands available in the market in case of the ordinary Portland cement, which is the major chunk of cement production in India. Still the companies having a strong brand name have a competitive advantage because the customers generally go for a strong brand name rather than price for the long run safety of their purposes. 3. Power of suppliers

Suppliers play an important role if they are less in number for a particular commodity. The trend nowadays is of reducing the resource dependence on the suppliers by way of backward integration. Generally, the companies who are operating in the economies of scale go in for backward integration by producing the required inputs themselves.

The supply requirements in the cement industry are mainly coal and power and they also form a good chunk in cement production. The dependence on power being reduced now a days by going in for captive power plants. ACC too has gone in for captive power plants to reduce their dependence on power, also owing to the erratic power supply. Coming to the coal now the partial liberalisation in the coal sector by the government, the dependence on government has been reduced to some extent. 4. The threat of substitutes The availability of substitutes can place a ceiling on the prices for a companys products, or make inroads into the markets and so reduce its effectiveness. Owing to the cost of cements, new innovative products are being built which are much cheaper and provide more or less the same strength as that of cement. Right now these products are not being commercially developed but it may be a threat to the industry in the long run. ACC has diversified itself into diverse areas and is also providing specialized products and services like bulk transport etc. So presently, there is not much threat to ACC from the substitute.

LEARNING ISSUES

Going for the new cement plant is not advisable in the present scenario as it takes around 3 years to build a new green field project. In the mean time, the environment may change, hence the risk of setting up a new plant is high as compared to going for acquisitions.

Acquisitions give company an advantage in terms of selecting the appropriate location since the assessment of the market, limestone quality and competition is available on hand and the risk of setting up a plant is reduced.

Most of the cement companies are still sustaining owing to the growth in other sectors of their operations. So the companies are not advised to focus on only one particular product or service.

Cost effectiveness is the word of the day. The companies producing at a lesser cost than their competitors have a strategic advantage especially in adverse conditions.

So instead of going for expansion the companies should try to improve their capacity utilization, so as to benefit most from its existing assets. Focus of the company should be more on the value of their product than on their price because a strong brand value indicates the strength, corporate image, price, recommendations, availability, etc. itself. Since it is a buyers market, the focus should be to build a strong brand image.

More emphasis should be laid on marketing since the cement market is a buyers market. Almost every market has 10+ brands, as a result of which the sales depend on the image that the company projects on the minds of the customers.

STRATEGIES RECOMMENDED FOR ACC In the light of the above learning issues that we have discussed, we put forward certain strategies for ACC to face the challenges in the present scenario and how to improve its market position in the coming years. 1. ACC should try to go for maximum cost efficiency in its Indian plants as it is doing for all its overseas operations. This is because low cost production is a major strategic advantage that the companies have in the level of competition that exists today. This is so because even if the prices of cement go down and other costs increase (which are common to all the players) ACC will be able to cope with the dipping margins owing to this cost advantage. 2. Marketing focus : Marketing the cement today presents many challenges because at present the supply outstrips the demand, prices are stagnant and the markets have failed to deliver the expected demand, thus making marketing not only demanding but exhilarating. ACC is a strong brand name and can do much better by extensive marketing. 3. Strategic Advantage from Bulk Cement and RMC : BCCI (Bulk Cement corporation of India) is a wholly owned subsidiary of ACC. ACC can target niche markets of Bulk Cement and can try to increase its awareness and relevance wherever there are bulk requirements in the cement industry. ACC should also try to build advantage on Ready Mix Concrete (RMC) as it is a better option in the upcoming construction industry, the advantages of which have been discussed before.

SWOT ANALYSIS OF INDIAN CEMENT INDUSTRY

PERSPECTIVE PLANNING: CAPACITY, DEMAND, PRODUCTION, INFRASTRUCTURE AND EMPLOYMENT GENERATION

SECTION -1

CAPACITY, PRODUCTION, CONSUMPTION AND DEMAND

Growth Cement industry is a core sector industry and forms the backbone of infrastructure development of the country. Industry has shown steady and consistent growth in the last three plan periods. The easing of controls which was initiated n 1982 culminating in total decontrol in 1989 and the implementation of policies of liberalisation put the dormant cement industry on a vibrant growth path. The industry grew 3 times both in terms of capacity and production. The industry is presently growing at the rate of 8% -10% per annum. Cement consumption Though the Indian cement industry with production of around 69 mil.t. (2001-02), ranks fourth in the world, the countrys present per capita cement consumption is low at around 82 kg. Compared to the present would average of around 250 kg. Several developing countries like Brazil, Argentina, Mexico, Malaysia etc. have per capita cement consumption above 150 kg. This leaves large scope for rapid and continued growth in the next two plan periods at least.

GDP Growth and Demand Cement consumption is related to overall economic growth (GDP) and has been growing at around 7.5% during the last two years. With the GDP growth accelerating to exceed 6%, the cement demand also has shown a sharp rise to above 11% in 2001-02 three year moving average crossing 8%. Demand Forecast As per studies done on forecasting of cement demand in the IX Plan by NCAER and IIM. Ahmedabad, with a GDP growth of around 6%, the cement is expected to grow around @ 8 to 9% annually to reach 109 mil.t. in the final year i.e. 2001-02. The grow could be even higher with higher growth of economic development and Government taking up large projects concrete roads, canal lining, mass housing etc. The production will have to reach 113 mil. T. for taking into account 8 mil.t. of exports comprising of 50% cement and 50% clinker, expected in that year. The growth is likely to be sustained at the rate of 8% over the X Plan and demand is likely to reach 160 mil. t. in the year 2006-2007.

See table I below : (Mil.t.) Year 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 Demand Ex. 73 79 86 93 101 109 8.3 Growth (%) 7 Production 76.0 83.5 90.0 97.5 105.5 113.0 Capacity 105 112 120 125 130 135

Investments
Cement capacity has also to suitably increase to a level of 135 mil.t. to meet such growing demand in the IX Plan. This would mean an investment of over Rs. 30,000 crores with current prices and similar investment will be necessary in the X Plan too. This includes the investment that has to be made in improving infrastructure areas of coal, rail and power to support increased production. These investment will be mostly in private sector.

Details given below: Rs. Crores Cement Capacity Washeries Captive Mines Railways Power Total 12,250 500 2,000 12,750 3,000 30,500

Growth Scenario The industry has plans to add a capacity of 30 to 35 mil.t. during the IX Plan. Number of proposals have been initiated already. The trends in setting up new capacities will be to wares increasing use of pozzolana materials like fly ash, a bye-product of power houses and blast furnace slag from steel plants. These will help a blast furnace slag from steel plants. These will help a better environment on one side by making effective use of the waster materials and also reduce the cost of cement. These are also world wide trends. There will be more of split location plants, with grinding units (built away from the clinkerisation unit) nearer sources of fly ash or slag etc. Hence some of the capacities are likely to come up in the neighborhood of thermal power houses and steel industries to take advantage of availability of fly-ash and slag. Some of the capacities are also likely to come up at the coasts to exploit export potential both for its own sake and as a hedge against fall in domestic demand.

Suggestions and Recommendations There is need to improve the per capita consumption of cement to match with higher standard of living and higher level of economic development. The Government has to take steps like encouraging private sector participation in concrete road construction, canal lining provision of housing for the housing for the masses using modern production technologies, prefabricated concrete components, etc. The healthy growth of cement industry in the IX Plan Would depend largely upon expeditious removal of bottlenecks : Expeditious clearances for limestone mining; Single

Window approach. Ensure Parallel growth of infrastructure support particularly

in the areas of coal, railways and power to take place concurrently to meet the needs of the industry. As per the normal practice long term forecast would necessarily need review and updating at regular intervals.

SECTION 2: INFRASTRUCTURE (A) COAL

Short Supply of Coal Performance of the cement industry entirely depends on availability of adequate quantity and proper quality of coal. Coal supply to the cement industry has not kept pace with the sharp increases in cement production. On the other hand, supplies show an alarming downward trend. REDUCTION IN RECEIPT OF LINKED COAL (Mil.t.)
Year Actual fact con. In. C.P.P. Supply Ap. Lia. Cost ----La. Lig. --(FW/Day)

1 1998-99 1999-00 2000-01 2001-02

2 12.05 12.78 13.29 14.07

3 10.49 10.34 10.28 10.00

4 1.27 0.86 1.62 2.00

5 0.09 0.12 0.71 1.00

6 0.8 0.7 0.8 0.8

7 941 963 934 824

The availability of rail wagons for coal movement is shrinking instead of going up : The supply of coal to the cement industry (large plants) against linkage has more or less remianant at 10 mil.t. The total production in the country has gone up about 240 mil.t.. in 1996-97 to 282(P) mil.t. in 2001-02i.e. an increase of about 42 mil.t.

in

five years. This extra production has been absorbed growing

requirements of power sector only. The coal shortages are being made good by using imported coal, procurement from open market at higher cost and lignite from NLC by the Southern Cement plants. Main concern of the industry is that if coal problem is not tackled urgently industry is bound to suffer a serious setback in the coming years. Estimated Coal Requirement The cement production estimates and coal requirements (large plants) based on consumption norm of 220 kg. Per tonne of cement emerges as under : Year Projected Production of Cement (Large Plant) Coal Requirement (Mil.t.)

Kiln 1996-97 2001-02 2006-07 70 105 150 15.50 23.00 33.00

Captive Power 1.00 2.50 3.00

Total 16.50 25.50 36.00

It is expected that better coal will be available by way of imports / Washeries / improved technology.

Ash content in Coal

With the ash content in coal supplies increasing to near 40%, the efficiency of production goes down. The only solution is setting up Washeries at pitheads. The cement industry is already going in for two

Washeries one at Sasti through Coal India Ltd. and other at Dipika through a foreign Build Own Operate (BOO) entrepreneur. The industry should set up early more such coal Washeries captive to them getting allotment of coal and land from Coal India. They should own and operate coal mines too, to overcome the shortages of coal supplies from Coal India Ltd. Suggestion and Recommendations As import of coal becomes uneconomical due to high duties, reduction of import duties has to be considered to help and sustain growth in the coast based ad near coast plants. This will also relieve the pressure on supplies and rail movement to other inland plants. The southern plants are using lignite mainly for making up for the shortage of coal. Regular change over to this fuel will mean putting up additional plant and machinery. Plants can consider this only if long term commitment for regular supply of lignite can be made by Naively lignite Corporation or other supplies. Such commitment in not available both in South and in West where the deposits of lignite are yet to be systematically exploited. Exploitation of lignite deposits in Rajasthan and Gujarate should be accelerated and this would help plant in Rajasthan and Gurjarate to utilise this alternate fuel. About 2 mil.t. of lignite each in South and in West need to be set apart for cement industry. Need to promote setting up of coal Washeries at the locations identified by CMPDI (Sasti, Dipika, Urimari, Bina and Bhubaneswari) to meet the quantitative and qualitative requirements of he cement

industry. While Sasti is being installed by WCL, Dipika by the cement industry under BOO Scheme on priority basis to begin with. Captive coal mines for the cement industry need to be set up. It will provide reliability of coal supply. Operation of industrys own dedicated closed circuit trains for coal from captive mines / Washeries to cement plants. As per the normal practice long term forecast would necessarily need review and updating at regular intervals.

SECTION 2: INFRASTRUCTURE (B) RAILWAYS

The industry has been facing wagons shortage for moving cement to markets and this has become steadily worse due to wagons shortage with the railways. During 2001-02, the share of rail movement to total dispatches of cement dropped to 45% from 50% in 2000-01 (rest moving by costlier road route). Considering the higher cost for longer distances by road trucks which also consumer higher energy than rail, it is desirable that atleast 60% of the total dispatches move by rail at macro level. Plants in cluster and million tonne plants will need a higher 85% movement by rail due to longer average leads for such concentration. Wagon supplies for coal movement is equally acute and continues to hurt cement industrys performance due to frequent stoppages of kiln operations for want of coal.

70 60 50 40 30 20 10 0 91-92

52.9

51

51.8

56.2

57.4 56

55.1

53.4

52.5

50.3

45

200001

Years

200102

95-96

96-97

97-98

98-99

92-93

93-94

94-95

992000

Fall in Supply of Wagons For Cement The industry is anxious to take advantage of the Own Your Wagon scheme but could not progress much due to the present unattractive terms. The industry in also keen to run captive trains both for coal and cement movement in closed circuit fashion with captive rakes owned by them. Suitable framework has to be developed by the railways and industry. Suggestions and Recommendations Railway should plan increased wagon procurement and allotment of wagons for movement of cement, coal and gypsum to the cement industry to cover at least 60% of the production at macro level and 85% of production in case of plants concentrated in clusters and million tonne plants. Railways should consider providing large number of containerised wagons for increasing cement movement. More attractive terms have to be offered for Own Your Wagon Scheme and dialogues are needed between cement industry and Railways to implement the scheme. Suitable incentives to the cement for running captive trains will have to be worked out between Railways and cement industry. There is need to upgrade the priority for movement of gypsum to cement plants from priority D to C. This will enable cement plants all over India to get an increased supply of gypsum. Moving cement and using it in bulk without packing is the normal practice around the world. Bulk movement of cement is being set up

between Bombay and Wadi by a joint sector company with Central Government participation. Similar steps are needed for other cities which are ripe for such introduction. Mechanisation : Special Cell in Railways be formed to co-ordinate and direct efforts in the industry for mechanising terminals and handling operation in a planned manner. Without mechanising the operation, wagon availability problem cannot be solved. As per the normal practice long term forecast would necessarily need review and updating at regular intervals.

SECTION 2: INFRASTRUCTURE (C) POWER

1. The industry has been facing continuous and increasing power shortages for several years in different States. 2. The industry has already installed captive generating capacity of 1100 MW (2000-01). So far these are mostly diesel generators amounting to 30% of the total requirement meant for limited short term stand by short-term operations with the power cuts assuming larger dimensions of even 80-90% at times and for long durations, industry has plans to increase it further to about 60% or more with mostly coal based thermal plants. By end of the X Plan this may amount to 1300 MW needing 2.0 2.5 mil.t. of coal. There could also be power generations at the planned coal Washeries using the washery rejects. Suggestions and Recommendations The Centre and the State grids should improve power generation and quality of supply without frequent tripping, I drop in voltage and frequency which can cause damage to equipment. For setting up captive power generating capacity, the cement industry should be given incentives similar to Independent Power Projects (IPP) Coal for power must be moved on priority as for other power plants. Parallel operations of grid and co-generation of power need to be permitted as a policy. As per the normal practice long term forecast would necessarily need review and updating at regular intervals.

SECTION 3

HUMAN RESOURCE DEVELOPMENT AND EMPLOYMENT GENERATION IN CEMENT INDUSTRY

The cement industry (large and mini plants) provides direct employment today to 2.5 lakhs people. This will increase by about 24,000 by the year 2001-02. Besides it generates in additions downstream indirect employment to about 20,000 men per mil.t. of cement produced by the way downstream services like transport, handling, distribution

construction services. Additional employment generated is given below : Year Capacity Large Mine Employment Direct (Persons in Lakhs) 2.25 0.24 Indirect (Persons in Lakh) 20.0 7.6

Existing Additio nal

199596 200102

88.23 32.00

9.0 6.0

By the year

Indian cement industry

has achieved a unique record of harmonious

industrial relations with labout Tow Wage Board Awards in the sixties; Two voluntary awards one in seventies and other in early eighties. The last settlement of wage dispute in cement industry in 1992 is unique in the sense that for the first time all the five union came together and jointly signed a bipartite settlement before the Chief Labour

Commissioner (Central), New Delhi an amicable settlement of labour dispute across the table. The Indian cement industry with aid of World Bank has set up four Regional Training Centres (RTCs) for development human resources. They have been forwarded with ,modern teaching aids and computer based learning modules. Suggestions and Recommendations The success of Japanese enterprises has been credited to their distinctive pattern of work organisation. The social organisation of production in Japanese plants based on team work, job rotation continuous upgradation of skill and self management creates a knowledge in workers and develops high trust relation. The cement industry in India should implement similar policies. While the training at technicians level appears to be provided for there is been for trained managers particularly in the climate of new technologies being introduced with automation central control room, new techniques of quality management etc. A national forum needs to be set up for the industry for periodical exchange of experience an views on management of people in the light of new technologies.

MODERISATION, TECHNOLOGY UPGRADATON, POLLUTION CONTROL AND ENERGY CONSERVATION

Mining The use of modern techniques like photogrammetry and remote sensing have become hand to discover virgin deposits especially in the hilly and inaccessible regions. These are to be adopted for optimum utilisation of reserves and steps should also be taken to encourage use of low grade limestone and other raw materials to extend the life of deposits of key raw materials for many industries. Mining Equipment Mobile crushes have high productivity, maximum utilisation and high flexibility when used in conjunction with flexible belt conveyor systems and should therefore find more application in the cement industry in future. Processes The cement industry as it stands today is a combination of old and small capacity wet process kilns and modern precalcinator plants

incorporating the latest technological advancements. The plants built in the 80s incorporated instrumentation, with centralised plant operation through PLCs / computer. Specific

computerised software package like Raw Mix control, process control and optimisation, refractory management system, Electrical energy management system, etc. have been adopted by the plants for process

optimisation. These plants have fuel consumption in the range of 750800 kcal/kg clinker and power consumption about 95-120 Kwh / tonne of cement. Latest Technology Trends The new built in the Plants incorporate the latest in hardware and aim to achieve very low thermal and electric energy consumption and are comparable to plants being built elsewhere in the world. Some of the important technological advancements adopted by these plants, are : Preblending beds for coal. Roll Press for raw material grinding in finish mode. Low-pressure grate Coolers with higher recuperation efficiency. Roll Presses for grinding of slag in finish mode and Clinker with Open / closed circuit Ball Mill together with high efficiency Separators. Specially designed Computer Software Systems for Raw Material evaluation and Management on line Raw Mix control, refractory management process control and optimisation electrical energy management and plant maintenance management etc. Captive power plants to ensure continuous operation by running these in parallel with grid. These plants have been able to achieve heat consumption level around 700-725 kcal/kg clinker and require 90-100 kwh of electrical energy per tonne of cement.

Presently 85% of the cement production is being contributed by modern energy efficient dry process plants. New devices to reduce energy consumption are costly and substantially imported, thus increasing their landed cost. This offsets the gains of reduced power consumption and prohibits its application on a wider scale in the industry. The world bank lines of credit I, II and III have been offered largely for this purpose and industry has been availing of this facility.

QUALITY UPGRADATION
Quality Control in Cement Manufacture Following sophisticated controls are now being practiced by the cement plants for quality control purposes : Computerized mine planning and deposit evaluation. Computerized fuzzy logic control system. Computer Aided Instrumentation and process measurements using gas analyzers, temperature and pressure measuring devices etc. Use of flow control diaphragms classifying liners high efficiency separators to ensure better particle size distribution for optimum performance of cement. On-line x-ray fluorescence spectrometer for raw mill control and raw mix. Quality Management and Assurance Indian cement industry has recognized that ISO 9000 quality system certification is extremely important for quality, reliability and competitiveness. About 20 cement plants in India so far have been awarded ISO 9000 certification and about 40 cement plants are at various stages of quality system implementation. After installation of quality system in line with ISO 9000 or equivalent quality level stabilises at a defined level. However this may not be sufficient as due to competitive environment the quality level has to improve continuously keeping this in view a recently introduced approach is total quality management (TAM) TQM approach is also

being put in practice and being used by few cement plants ISO 9000 quality system installation is the first step towards the TQM approach. Research and Development In todays fast progressing world no industrial system can sustain without R & D support. Also for desired results, research has to be properly focused and mission-oriented. Further adequate funds have to be made available for R&D. R&D Units During this decade a number of cement manufacturing organisation have development their in house R & D units and today 12 such Inhouse R & D units are recognised by DSIR. Data complied by Dept of scientific and Industrial research on R & D units in India shows that Inhouse R&D of units cement companies spends annually 0.08% to 0.57% of their turnover on technology development activities (average 0.29% of turnover), whereas R & D units of cement machinery manufacturing companies spend 0.04 to 0.75% of the annual turnover (average 0.55%). The manpower involvement in R&D is also very low hardly 0.004%.

R&D Expenditure The R&D expenditure in India as a percentage of the Gross National Product (GNP) has been around 0.8% during last few years. For a comparison most of the development countries spent between 2% and 3% of their GNP whereas some countries had spent even more than 4%. The expenditure on R&D as percentage of GNP for the whole world was 2.55 in 2000; in the case of developing countries this being 0.64%. R&D Personnel India employs 4.50 scientific and technical personnel per thousand of population as compared to about 185 for Canada and 111 for Japan. Out of these only 0.27 S&T personnel were engaged in R&D activities in India against 3.4 in Canada and 6.05 in Japan. These wide gaps in manpower & capital investment on R&D needs bridging up because the R&D can bring manifold returns to the industry.

TRANSPORATION AND HANDLING

Bulk Movement In India less than 1 percent f the cement is transported in bulk while in the industrially advanced countries, 70 to 80 percent of the cement produced is transported in bulk. This has to be adopted in India as well which would help in reducing the packaging, handling and transportation cost besides reducing the load on rail and road transport infrastructure. The cement plants in India are concentrated in seven major clusters near the large limestone deposits. In view of further capacity addition in these cluster the conventional mode of cement transportation may not be able to meet the increased demand. Therefore alternative ways have to be developed for the transport of cement by bulk to the large consuming centres like metropolitan cities and use of ready mix concrete should be encouraged by government and concerned agencies. Raw materials conservation Efforts should be directed to utilize marginal grade limestone to the maximum possible extent in the cement manufacture. Benefaction of limestone therefore is one area which deserves R&D attention. Notwithstanding the above, the present raw material base for the cement industry is not going to last forever and the use of various agricultural industrial urban and rural waster generated to the tune of 2650 mt annually, need to be exploited as an alternate source of raw material manufacture of fly ash and slag based cement should be further encouraged to conserve limestone. Present energy consumption levels

A study conducted by NCB, shows that the overall weighted average of the studied units energy consumption is of the order of 880 kca/kg clinker and 110.6 kwh/t cement. Table below gives process wise energy consumption of Indian cement industry from 1999-00 to 2001-02. Energy consumption data
Item 1999-00 200001 827.82 1359.48 949.31 115.27 108.18 116.20 2001-02 814.87 1339.54 943.61 111.93 100.65 113.03

1. Heat consumption, kcal / kg cl. Dry 855.83 process plants 2. Heat consumption, lcal / kg. Cl. Wet 1319.39 process plants 3. Heat consumption, kcal/kg/cl. Semi-dry 958.99 process plants 4. Power consumption, kwh/t cement Dry 119.18 process plants 5. Power consumption kwh/t cement Wet 108.68 process plants 6. Power consumption, kwh/t cement Semi- 121.34 dry process plants

Note : Based on data of 33 dry process, 3 wet process and 3 semi-dry process plants.

Kcal / Kg. cl. KWH/t

Kilo Colories per kilogram of clinker Kilo Watt Hours Per Tonne

The average specific energy consumption levels of various countries are given below : ENERGY CONSUMPTION LEVEL IN CEMENT MANUFACTURE IN DIFFERENT COUNTRIES Country Specific Thermal Energy Consumption (kcal / kg. CI) 910 760 730 790 825 850 1080 Specific Electrical Energy Consumption (Kwh/t Cement) 110 105 95 120 95 120 135 Source : NCB It could be seen that the energy consumption levels in cement industry, when compared to some other countries like Japan are high and there is scope for the industry to improve further. The NCB study, however showed that the energy consumption levels over the years have been going down.

France Germany Japan South Korea Switzerland Taiwan USA

Energy Conservation Action Plan An action plan evolved for reducing the gap in energy consumption between India and overseas countries and for achieving world standards includes : House Keeping and operational control. Process optimisation. Technology upgradation. Use of energy efficient equipment. Fuel substitution by lignite, natural gas agricultural industrial and combustible wastes. Use of renewable energy sources like wind power solar energy etc. Energy management which includes manpower training target setting and regular monitoring motivational steps and regular energy auditing. Improving the quality of power to the plants.

Action plan should lay emphasis on periodic regular energy audit and phased modernisation by retro fitting of energy efficient equipment wherever feasible. Incentives offered to power sector for power generation meant for public distribution system may also be extended to those cement plants which install their own captive power generation system for cement plant operation.

Dust Emission Levels The emission limits prescribed in our country and the limits laid down in some other countries are given below : PRESCRIBED DUST EMISSION LIMITS IN INDIA AND ABROAD Name of the Country India (for large plants only) Australia Germany South Africa Switzerland Japan U.S.A. Portugal Emission Limit mg/Nm3 150/50 (for New Kilns) 50 50 120 50 100 100/50 100 (existing kilns) 50 (new kilns)

In a survey conducted in 2002 the Central pollution control board found that 55 cement plants are fully complying with the pollution standards as given below ;

Pollutions Standards Compliance Status - 2002 Number of Units Surveyed 97 Fully Complying 55 Partially Complying 23 Not Complying 12 Not in Operation 7

Levels of permissible dust emissions in India for new capacities is 50 mg/Nm3. This is even lower than norms in some of the developed countries as indicated below : S. No. Country Production of Cement in concentrated zones Per. Sq. Km (Tonnes) 385-880 3700-5400 SPM Norms Prescribed mg/nm3

1. 2.

India Japan

50 100

Source : Pollution Control in Cement Industry paramenters ands programmes of FICCI 1999. Therefore, there is need to have a fresh look at the recently prescribed SPM levels by the authorities for new plants. NB : Constraints faced by the cement industry in complying with the emission regulations are manifold like poor quality of coal and power, which need to be tackled. In view the above it is suggested that the present SPM emission level of 150 mg/Nm3 should be maintained for some more time and gradually

reduced to the ultimate target of achieving 50 mg/Nm3 and he gradual achievement shall be possible over a period of 15 years. Studies abroad have established that the Cement Kiln Dust (CKD) and limestone dust are neither a hazard to health nor to the agriculture. Rather, the KCD is an agricultural lime and fertilizer and allowed to be used so in U.S.A. The US occupational health agencies have found in a survey in 1999 that in general the cement workers are healthier than the average for the population. It is however, suggested that some studies be instituted in India also to examine the long term effect of cement dust if any on workers and in population of nearby regions to cement plants by the Indian Medical Council or other appropriate agency. Environmental Improvement and Environment Audit The concept of environment, Audit (Statement) is comparatively new to the Indian Cement Industry and the objective is to provide assurance to top management that all stipulated regulatory standards are being met in accordance with Central / State Pollution Central Board norms. A recently introduced Environmental Management Systems (EMS) certification is an opportunity that can enable companies to acquire the label of environmentally sound enterprises and also accrue the benefits of improved performance. These EMS standards do not letdown specific environmental performance criteria, but requires organisation to

formulate policies and objectives taking into account, information about significant environmental effects. Indian Cement Industry can also go in for this.

Man Power and Training The introduction of new technology has reduced manpower per unit of cement production the production results rely on the full utilisation of the potential of all equipments and this can only be achieved by the human resources applying good operation and maintenance procedure. This calls for higher qualifications and continuous training.

Recommendations
1. The use of advanced computer aided software for mine planning are suggested as this not only enables reliable estimation of mineral reserves, grade effective blending and pit design but also facilitates environment friendly and cost effective mining through optimisation of production schedule. 2. The use of surface miners is recommended where ever possible as drilling and blasting operations are eliminated resulting in cost reduction in mining operation as well as avoiding noise and dust pollution. 3. Mobile crushers have high productivity, maximum utilisation and high flexibility when used in conjunction with belt conveyor systems and therefore should be considered for application. 4. Conversion of existing wet process plants to dry process plants should be speeded up by offering a special package consisting of various concessions including fiscal and soft loans. 5. For upgrading the technology of existing plants, energy conservation, pollution control and cost reduction the cement plants should prepare Technology Upgradation Plant for their existing operations. 6. Dispersal of Industry by developing new clusters like in North East etc. having substantial quantity of cement grade limestone, should be considered to cut down on transport costs reduce strain on Infrastructure like railways and roads. 7. From modernizing Cement dispatches the industry my go in for

Auto-feed of bags to packing machines. Mechanical computer control loading of cement bags in

trucks. Palletisation of cement bags and loading of pallets instead

of individual ags in trucks and wagons. 8. Efforts should be made to utilise Inland River water Transport system for the movement of cement from clusters to the large cement consuming centres. Rivers like Ganga and Narmada can be tapped for movement Eastward and Westward. 9. The cement industry should move towards Total Quality Management for Quality improvement and better international competitiveness, acceptability and business excellence. 10. Alignment of Indian Standards on cement with corresponding

International standards within a reasonable timeframe will give a boost to export share of Indian cement in the international market. 11. Suitable package of incentives for R & D investments need to be

evolved common for all industries to boost R & D effort. 12. R & D in cement industry should be directed towards.

Technological developments in the process of cement manufacture and related plant and machinery and systems design.

Operational improvements to ensure cost reduction, productivity enhancement environment protection and quality improvement.

Proper grade of cement to be used in construction for ensuring durability and identify areas for use of cement for newer applications.

13.

Efforts should be directed to develop technology to utilize

marginal grade limestone to the maximum possible extent in the cement manufacture. 14. 15. Energy conservations should be given further thrust. Incentives offered to private sector for power generation meant

for public distribution system may also be extended to those cement plants which install their own power generation system exclusively for cement plant operation. 16. Levels of permissible dust emissions in India for new capacities is

50 mg/Nm. This is even lower than norms in some of the developed. Therefore it is necessary to have a fresh look at the prescribed SPM levels by the authorities. 17. Keeping in view the local conditions and other trade offs between

cost and benefits, frequent dialogue between Industry and Pollution Control Authorities is necessary to voluntarily evolve an action plan and set a target for gradual implementation. 18. The present SPM emission level 250 mg/Nm3 and for existing

capacities may continue for some more time Gradual reduction in a phased manner be allowed over a further period of say 5 years for all the plants. 19. Before further reduction of SPM levels is considered it would be

prudent to ensure full compliance of existing regulations. For this the industry may go in for : Continuous stack monitoring installation with Data Logging facilities.

Interlocking of pollution control equipment and production line. This needs detailed examination and defining of maximum allowed Disturbance Time so that the continuously operated cement plants are not made to trip frequently due to variations in quality of inputs like coal and power.

20. A detailed inventory of SO2 and Nox generation from kiln stacks of existing units should be carried out. These levels should be considered as the basis for fixing norms for SO2 and Nox in consultation with the cement industry in future. 21. State Pollution Central Boards should not insist for any specific

selection of air pollution control equipment and should leave in to the judicious decision of the industry. 22. Studies be instituted to examine the effect of limestone / cement

dust on health of workers and surrounding populations by Indian Medical Council or some appropriate agency as has been by US & Britain.

TARIFF AND TAXATION

Role of Cement Cement plays an important role in the development of social and commercial infrastructures which are considered prime engines of economic development. Increasing per capital consumption The economic status of any country is reflected in its per capita consumption of cement steel and power. Though India is the fourth largest producer of cement in the world, the average per capira consumption of cement in India is approx. 71 kg. (world average around 250 kg.), which is ver low as compared to developed / developing countries. The consumption of cement in India has to catch up with the level achieved in developed / developing countries. This can be achieved by more efficient usage like laying concrete roads, increasing availability of housing water conserving canal lining etc. An additional capacity of about 35 mil.t. is expected to be set up I the IX Plan to meet the growing needs of the economy and for this an investment of the order of over Rs. 30,000 crores will be required not only for expansion of capacity but also for improving infrastructure support in the areas of coal mining rail transport power etc.

Contribution to revenue The cement industry is a stable source of revenue to government exchequer Levies on Cement The total levies / duties (Excise duty, Sales Tax Royalty on limestone / Coal, Govt. duty on power tariff etc) on cement amount to Rs. 767 per tonne. The present scenario of tax burden on cement in India in given below. Taxes and Levies on Cement Royalty & less on limestone Royalty on coal Duties on Power tariff Excise on stores & spares Excise duty on cement Sales tax on Stores & Spares / Raw Materials / Packing Materiel / Octroi etc. Total Rs. / Tonne of Cement 38 20 16 4 350 20 767

The incidence of taxes / levies on cement works out to about 60% of average exfactory price of naked cement as shown below :

Incidence of Taxes and Levies

Items Ex-factory price Duties / levies Packaging Freight Total Rs / Per Tonne of Cement (Avg.) 1275 767 120 438 2600*

(*Typical selling price excluding local transportation and dealers margin.) A comparative statement showing the tax burden on cement industry in India vis--vis other developed / developing and cement exporting countries is given below :

Specific or Ad valorem
Taxes on Cement

30 25
Percentage of seling price

29.5

20 15 10 5 0
India

20.63 13.04 10 5.54 3

Japan

0
Malaysia

Taiwan

Germany

S. Koria

Sri Lanka

Countries

There have been discussion whether excise duty structure for cement industry could be Ad-Valorem. The cement industry represented to the

Govt. to continue excise duty at the specific rate. The plea of cement industry is that cement production is continuous process and its shelf life in silo/bags is limited. Therefore around 70-80% cement produced in the factory is normally removed to sale depots on stock transfer basis and its sale price is fixed at the time of its actual sale. Around 18 to 25% of vale constitutes freight. Therefore value for excise arrived at by deducting transport and other expenses after leaving the factory will vary considerably depending on the location of plant marketing region mode of transport etc. Also in case of cement industry the present regime with specific duty has simplicity certainty and finality present in the system and there is no leakage thus 100% compliance is assured with no litigation. Cement intensive infrastructure projects The ongoing economic reforms of the Govt. attach a high priority to the better utilisation of existing infrastructure assets of existing

infrastructure assets and development of new infrastructure so that infrastructure bottlenecks do not inhibit the overall economic growth. Projects like concrete roads, concreate canal linings large Govt. projects on housing are highly cement intensive and are also sensitive to the cost of cement. A suitable remission of excise duty on cement used for above projects would go a long way in spurring fast growth of the most essential transport infrastructure ands vital social necessities for countrys economic development. Ready Mixed Concrete Plants Many technological advances in construction industry prevalent all over the world are yet to take roots in India. Ready Mixed Concrete (RMC) is

one such area. The concept of RMC is fairly new in India. It envisages mixing cement with aggregates (stone), under controlled conditions and moving the mixed concrete to the site instead of mixing at construction site itself amidst other activities. The use of RMC avoids pollution at construction site, reduces transport cost ensures uniform and standard quality of consecrate according to customers requirements does away with heaps of aggregates sands usual cement bags ands dust nuisance etc. prevents congestion on the roads and footpaths at the construction sites. Companies planning to enter the field are suffering from fear psychosis over the levy of Central Excise duty on RMC. As no excise duty is applicable on such site based RMC, RMC should be exempted from the levy of Central Excise Duty. Royalties The Royalty on limestone works out to over Rs. 38 per tonne. The pitmouth value of limestone on an average work out to Rs. 45 to 50 per tonne. The rate royalty on limestone should be a reasonable percentage of PMV. Import duty on Coal The quality as well as quantity of coal supplied to cement industry is worsening year after year. Also plants in South and West are located farthest to coalfields and served poorly by rail. The industry has managed to keep up the production by using partly lignite which is of restricted availability and partly by importing coal in limited quantity. However 35% import duty on coal makes it very costly. Therefore import duty on coal may be brought down to 5% in line with coke imported for steel plants. This will increase the efficiency of industry and also reduce

the pressure on rail movement as the railway wagons released from serving these long lead plants can serve the other plants better. MODVAT At present MODVAT on packaging for cement in given where the packaging is done at the manufacturing end i.e. at factory. However when loose cement or bulk cement is transported by sea or rail to a bulk terminal away from the manufacturing unit and packaging is done at the Bulk Terminal the MODVAT on packaging material is denied because the Bulk Terminal is not considered as a part of the manufacturing facility. It is fair that the same MODVAT facility that is given for packaging at the manufacturing end should also be made available when cement gets transported in bulk and unbarred from to modern cement terminals and is packed at the terminals MODVAT benefit be allowed on HSD/any used for generation of electricity in outside the factory for production of the final product i.e. cement. Limestone is a major raw material for manufacturing cement, for excavating limestone huge investment on machineries have been made by the industry. MODVAT Credit on such capital goods is not being allowed on the ground that these goods are not used in the factory but outside the factory. Mines are part and parcel of cement therefore MODVAT Credit should be allowed on capital goods used in the captive mines. Promotion of Bulk Transportation of Cement To encourage usage and transportation of cement in bulk the Govt. should introduce differential excise duty of Rs. 50/- per tonne on bulk bagged cement.

Incentive for Setting up Captive Power Plants To insulate against the power shortage cement industry is installing captive power plants by making huge investments. No incentives are available for installation of captive power plants. Cement units installing captive power plants should get same incentives as in the case of installation of power plants by private entrepreneur. Confessional rate of Import Duty To make the existing and new cement units environment friendly and energy efficient the custom duty on equipments and machinery used for pollution control and energy saving devices be charged at the same rate as for project imports.

Cement Regulation Account (CRA) Around Rs. 60 crores are lying idle in the Cement regulation Account (CRA). After making an allowance for the dues of certain cement companies the Govt. many transfer the rest of the funds at the disposal of Development Council for cement industry for its effective utilisation in promotional areas like exploration of limestone reserves modernising cement distribution and usage in bulk and improving facilities for export and other similar areas for development of the cement industry. Sale Tax Sales Tax on cement varies from State to State ; it ranges from 5% to 17%. Govt. may consider that cement be included in the list of Declared Goods so that cement attracts a uniform low rate of Sales Tax all over the country. Suggestions / Recommendations The continuation of specific rate of excise duty on cement should be considered favorably by the Govt. A suitable remission of excise duty on cement used for large projects like : Concrete Roads Concrete Canal Linings Government Housing Projects.

Would go a long way in spurring fast growth of the most essential transport infrastructure and vital social necessities for countys economic development. To encourage private builders / individuals

building houses, Government should set up housing financing agencies banking and mortgage facilities to make funds available at low rate of interest in this sector. Exempt Ready Mixed Concrete (RMC) from the levy of Central Excise Duty Without incentives the concept of RMC will not take off in India. Royalty on Limestone should be livied primarily as a percentage of Pit Month Value (PMV) and it should be reasonable. Import duty on coal be brought down to 5% from existing 35%. This will not only go a long way to increase efficiency of cement production but also release railway wagons locked up in long cirucits thereby easing movement in other areas. MODVAT facility which is available for packaging cement at the manufacturing end should be made available when cement gets transported in bulk and unbarred from to modern cement terminals and is packed at the terminals. MODVAT benefit should be allowed on HSD / any fuel oil used for generation of electricity in / outside the factory for production of final produce. MODVAT Credit should be allowed on Capital goods used in Captive Mines. Introduce a differential rate of Rs. 50/- per tonne excise duty on

cement between bulk and bagged cement. Suitable incentives on the lines of power plants being set up by private entrepreneur may also be considered by Govt. for he Captive

Power Plants being set up the cement industry in or outside the factory. Policy on Captive Power Plants should be made unambiguous and clear. The Import Duty on Cement project may be levied at the same rate for power projects i.e. 20% against the present rate of 25% + 10% CVD. The Custom Duty on Equipment and Machinery used for Pollution control and Energy Saving Devices be charged at the same rate as for project imp[orts. Govt. may transfer the surplus fund lying in Cement Regulation

Account to a development fund at the disposal of development council for cement industry under the ministry of industry for its effective utilisation in promotional area which are essential for the development of cement industry in the country. Govt. may consider that cement be included in the list of Declared Goods under the provisions of central Sales Tax Act. So that cement attracts a uniform low rate of sales tax all over the country.