Rs 6 K cr penalty on Cement Cos: Competition Commission on slippery ground

The Competition Commission of India (CCI) has imposed a fine of more than Rs 6,000 crore on 11 cement makers alleging cartelisation and price fixing from May 2009 to March 2011.

It is a record penalty and is seen as an attempt by the ant-trust regulator to assert itself. But the last word has not been said on the issue, yet. The cement makers can go on appeal to the Competition Appellate Tribunal (COMPAT), and even to the Supreme Court.

Legal experts think the CCI is on slippery ground here. Cement companies say the CCI rules require the commission to establish the existence of a cartel only if there is a written agreement among the parties involved. That is not the case here and the commission has based its findings on circumstantial evidence. There are around 47 cement players and any sort of agreement or understanding is next to impossible. That too, when the industry has added around 100 million tons capacity in the last three years.

Fact is, despite all the arguments about lower capacity utilization at cement plants and higher prices that informants in the case -- the Builders Association of India -- has brought against the cement companies, it would be tough to prove that cement prices rose because of cartelisation. As the Cement Manufacturers Association (CMA) submitted before the commission, that the capacity utilization is bound to be lower on account of higher capacity growth rate as compared to cement demand growth rate and that the report is based on surmises and conjecture.

The CCI ruling said its director general has submitted that the cement companies have enough scope to reduce the price of cement but have tried to earn better margins on sales instead of utilizing more capacity. The argument flies in the face of the very system of free market economics where the price of cement is determined by demand and supply in the market. Interestingly CCI has totally ignored the submission of the cement industry that cement manufacturers cost is more than the increase in the Wholesale Price Index as well as the cement price increase in the market.

 The shareholders of cement companies want the managements to bring them the best possible returns. But in fact, it is the government which wants to earn more from the cement sector, as government levies have gone up from Rs 49 per bag in FY07 to Rs 72 per bag in FY 12.  This adds to the cement price increase. The result is that despite increase in cement prices, costs, and government levies, PAT margins of companies have come down in FY 11.  

Revive Realty to Rejuvenate Economy

• CREDAI to PM - need widespread realty reforms
• Says Real Estate supports 250 industries, creates massive employment, contributes 11% to GDP
• Calls for end to policy paralysis, presents 10-point agenda
• Targets Housing Surplus India 

NEW DELHI: Pointing out that real estate development can revive the sagging economy, developers’ apex body CREDAI has called for launching a mission to make India Housing Surplus from the current status of a housing deficit nation by 2020.
Real Estate supports 250 industries, generates employment and contributes 11% to GDP, CREDAI national President Mr. Lalit Kumar Jain said a statement today..

Mr Lalit Kumar Jain (centre) flanked by Mr Pradeep Jain, Chairman - Credai
and Mr Shekhar Reddy of CREDAI-HYderabad Chapter

CREDAI also has written an open letter to the Prime Minister and set an 10-point agenda of action for taking the nation on an accelerated growth path while solving the housing problem faced by millions of people across the country.
Pointing out that the economic liberalisation initiated by Prime Minister Dr Manmohan Singh as the finance Minister in 1990 have not covered the real estate sector, CREDAI called for comprehensive reforms for the sector covering land, administration, banking and tax.

CREDAI reiterated its long standing demand for a Single Window clearance system and pointed out that McKinsey has said in its report to the Government of India that delays in approval processes alone increase sale value of houses by 40%. Delays due to multi clearances/approvals numbering over 40 by various Agencies/Departments of the Government - the average time being 18 months – are the order of the day though most of the Departments have the same series of check lists. This obviously leads to duplication of submission by architects. In fact, the number of building plans sanctioned over the past ten to fifteen months has drastically come down.
The only way forward for a clean and cost effective housing sector is an e-based standardization of single window approval process. CREDAI has submitted a Single Window Act for consideration to Ministry of Housing (HUPA) and Ministry of Urban Development. However, there has been no progress at all, Mr Jain said.
Presenting CREDAI case for close coordination among various government departments, he said the various Central and State Government Departments are issuing directives in isolation. For instance, the Environment Ministry issued Building Approval guidelines authorising its Committees to link the height of a building to its distance from a Fire Station, though the Ministry is neither the technical nor the administrative head of Fire Safety issues! Such arbitrary exercise of power by MoEF has crippled the sector due to approval delays, adding to costs.
“Sir, we developers are entrepreneurs, conducting our business to the best our ability. We too hate the system that labels us as crooks, cheats and breeders of black money. Few people seem to realise that we are victims of the system and not beneficiaries or generators of black money for that matter,” he said in the open letter to PM.
He pointed out that developers are forced to deal with 140 officials at various stages to obtain 40 plus clearances and history is witness to the fact that corruption creeps in wherever there is a human interface. “Files are not cleared unless one greases the palms,” he lamented.
On land reforms, CREDAI said restrictive land use has led to raising the cost of the tenements, killing agriculture land, reducing Green cover and made physical infrastructure costlier. It is high time the policy makers consciously shed their skeptical, narrow views on land use. Andhra Pradesh has set the right trend by removing the concept of FAR leading to stabilization of prices and creating adequate supply.
The current home loans for affordable housing segment with 1% interest incentive is still very costly for many needy people. The interest rates on home loan, especially in affordable category, cannot and should not be more than 7%. Also, the current guidelines by the Reserve Bank are anti-housing industry as the cost of finance is very high that in turn makes housing costlier.
Currently, any purchase of housing unit costs @ 36% in direct and indirect taxes which include VAT, Service Tax, Excise Duty and Municipal Taxes etc., At this rate, one has to earn 150% of one’s current income to be able to afford a house and end up paying a heavy income tax of 32%!
There is a need to devise a special tax-free affordable housing project scheme. Though there will be seemingly a revenue loss, this will be more than offset by the collection of other indirect taxes, he said.
Delving on slum rehabilitation, CREDAI said as much as 15% of entire population of this country lives in slums. Few urban areas in state like Maharashtra have come up with slum rehabilitation policy. However, these policies fall short of expectations to achieve desired results, mainly because they are impractical. Also, the Rajiv Awas Yojana in its present form cannot achieve desired results. “What we require is slum lord free environment where all the slum-dwellers attaining majority age of 21 get their own rightful homes,” Mr Jain argued.
These issues cannot be resolved by routine administrative remarks on files like “Please attend to” or “for your attention please”. Housing is a State subject. Even at the centre, housing policy making is fractured between two Urban Ministries, and several other Central Ministries which dabble into the matter at their own sweet will without even referring the matter to either of the Urban Ministries.
From the point of accountability, CREDAI suggested that for every building proposal submitted, there should be a mention of Revenue to be generated, Employment opportunity created, contribution to GDP, along with the date of application submission and the date of final approval. In case of delay, those responsible must be punished.
CREDAI said India’s urban population has grown from 290 million in 2001 to 377 million in 2011 which accounts for over 30 percent of the country’s population. The number of cities and towns has also increased from 5,161 in 2001 to 7,935 in 2011 - a 51% growth. The number of 1 million plus cities has grown from 35 in 2001 to 53 in 2011, registering a 45% growth.
By 2031, India will have more than 87 metropolitan areas and the country’s urban population is likely to soar to over 600 million, adding about 225 million people to present urban population.
“If this goes unchecked and unattended, we will have an explosive situation of hundreds of slum colonies everywhere because housing has become unaffordable,” Mr Jain said.
“Sir, we have been trying to seek an appointment with you for long since we cannot hope to achieve anything tangible without your intervention. We have already made several representations to all the concerned ministries but with no positive response,” the open letter said.
“It is in this context that, Prime Minister Sir, we would like to urge upon your honour to pay an immediate attention to the Future Shock scenario and take concrete steps to tackle the crisis,” the letter added.