The Cement industry is part of the core industrial sector and plays a crucial role in building up the nation’s economy. Cement demand is closely linked to the overall economic growth, particularly of the housing and infrastructure sector. Increasing demand from affordable housing and construction and from other government infrastructure projects like roads, metros, airports, irrigation etc. are demand drivers which support cement demand.
Pandemic induced government lockdowns has affected the demand-supply dynamics of the industry which has led to production and capacity utilisation falling to an all-time low. Prior to the onset of the COVID-19 pandemic, the cement industry was already impacted by the general economic slowdown prevalent in the Indian economy. The cement sector is an indirect beneficiary of higher government spending and any measure in the budget to improve the spending augurs well for the sector. Keeping this in mind here is the wishlist for the upcoming Union Budget 2020-21.
The Industry expects infrastructure to be one of the key areas of focus for the upcoming Budget. While the government has been consistently working to revive the realty and infrastructure sectors (introduction and road-mapping of NIP and inviting foreign players to invest in Infrastructure creation) – it has not yielded the desired effect till date. This is despite an increase in the budget allocation for infrastructure projects and Pradhan Mantri Aawas Yojana (PMAY). During the on-going year, despite allocating higher budgetary resources, the government has cut the spending to accommodate the fiscal deficit math; Given how fiscally strained the government finances are at the moment, not all infrastructure projects have resumed construction which is putting a halt to new investments towards infrastructure creation thus affecting the demand for cement.
For the upcoming budget, the industry expects ~10% increase in budgetary allocation to various ministries in infrastructure sector. This includes railways, roads, ports, rural development and shipping. With the “Housing for All” target coming close (by 2022), it is expected the government will announce allocations over and above the usual limit to spearhead and fast track the construction process.
The pandemic has also stalled many on-going projects which will need some handholding from the government with respect to resumption of work by allocating funds. A dedicated funding institution for funding stuck and stressed infrastructure projects is also expected to be announced which is to aid in augmenting cement demand going forward.
The author is a Research Analyst, Industry Research with Care Ratings