Retailyatra.com - March, 2005

Confederation of Real Estate Developers Association of India (CREDAI), Maharashtra Chamber of Housing Industry (MCHI) and Builders Association of India (BAI) today expressed their non consent and concerns on the current hike in cement and steel prices which has impacted the construction industry and consumers drastically. All the three bodies have come together to appeal to the Government of India to consider this issue and eliminate the import duty on Steel and Cement imports to the country.

The current increase in the Steel and Cement prices will derail the construction industry completely as they are an important element of any construction activity and form 33% of the total cost. The price of Cement has risen from Rs. 95/- to Rs. 160 per bag within the last 3 - 4 months and Steel has risen from Rs. 19,500/- to Rs. 28,000/- per ton within the last 2 - 3 months reflecting an overall rise of over 50% in both Cement and Steel. Markets indications suggest that the price is likely to increase up to 100% from the original levels in a very short time period.

The cement and steel manufacturers claim that this increase in price in such abnormal and extraordinary manner has been caused due to rise in the International / Import prices of raw material going into the manufacturing of Steel and Cement.

Typically housing construction requires 40 to 45 bags of cement / 100 sq ft. and 3 to 3.5 Kg of steel / sq ft which translates into Rst 70 / sq ft (cement) and Rs. 100 / sq ft (steel). Therefore, every 50% escalation in the price will increase the cost of apartment by Rs. 75/- to Rs. 100/- per sq ft.

The construction industry provides employment to over 3.2 crores of people, with the industry contributing 5.1% in the GDP growth and is the largest employer after agriculture. The total turnover of the industry is Rs. 2,47,000 crores. This rise in steel and cement prices will drastically impact over 250 industries and may lead to sudden halt in the construction industry including work relating to water pipeline, highway works, bridges, etc. Infact under the leadership of Mr. Arun Chaturvedi,President, FREDAG, the construction industry in Gujarat are on in an indefinite strike stopping all construction work to oppose this price rise and have stopped purchase of Steel and Cement.

Impact of investment in the housing sector on GDP and employment has found that housing sector ranks third among the fourteen major sectors in terms of total linkage effect with other sectors of the national economy. In terms of income multiplier, it ranks fourth and is ahead of other- sectors like transport and agriculture. It is estimated that a unit increase in the final expenditure would generate additional income as high as five times. As housing acts as a major contributor of employment and income generation and helps the individuals both directly and indirectly in their socioeconomic development.

Expressing concern on this issue Mr. Kumar Gera, President CREDAIcommented "This increase will affect the real estate across the country. Every Indian today has a dream of owning their own house, but this rise in price will escalate costs making it unaffordable and a distant dream for a common man to own a house."

Commenting at this issue Mr. Niranjan Hiranandani, President MCHI said, "Today when we are talking of India shinning, this unjustifiable increase only leads to more heartburn for common men and Indians at large. This increase will impact the industry at large across all sections right from housing complexes, townships, malls, highways and even concretization of roads. We feel the Government should look into this price hike and curtail it with immediately. "

Communicating his concerns for builders and consumers, Mr. D.L.Desai,Hon. General Secretary, BAI commented "With such situation, it is clear that there is no security for the contractors, builders and consumers. Today when a tender is filed, at the most the builder takes into account price rise of last one year, but how does one take into account such unforeseen price rise which constitute to over 33% of the construction cost. Consumers are equally affected with these rises as they have to bear the brunt of such unjustifying situations"

Mr. Rajni Ajmera, Vice President, CREDAI said on the occasion "This rise has badly affected the real estate industry. Besides carteling the prices and creating a shortage, the manufactures of steel and cement have not passed on their benefit on excise duty to the builders. If this price increase continues, it will get reflected in the increase of approx 8% - 10% in the cost of flats, which would lead to disputes between consumers and builders."

Construction industry has been requesting the Government for reduction in Custom Duty from 25% to 10% and also deletion of 16% countervailing Duty as well as 4% special duty, in order to make steel bars and rods affordable. This is being opposed by the Steel Industry. However Government in its mini-budget proposal has not adequately reduced the Customs duty on Steel.

The Construction Industry has an alternative in hand. It has started dialogues with China, Indonesia and Korea for importing steel and cement from these countries as it would be cheaper than buying it from Indian suppliers.

The obvious conclusion to be drawn is existence of an informal pricing arrangement mechanism amongst steel producers. Departmental Financial Institution and Banks are supporting steel industry simply because it has huge credit exposure to industry which would have otherwise turn in Non Performing Assets (NPA).

Recent budget announcement has hardly dealt with the problem; if this situation is not attended to by Government. Construction industry will have to move M.RTP commission for restrictive trade practice and simultaneously demand reimbursement of steel price from P.W.D, C.P.W.D., N.H.A.I, Railways and all other Works Authorities.

The real estate development sector encompassing the housing and construction activity has a substantial potential to kick-start the economy on account of the significant backward and forward linkages with crucial and critical sectors of the economy including over 280 associated industries. It is therefore imperative that the Government urgently address the concerns of the construction industry and ensure that the cement and steel prices are rolled back.

For Further Information Contact
Vinay B Ullal and Zainab Morbiwala
Abacus ICC : 022-2285 5689 / 90