Cement industry eyes further step up in infra spend in the upcoming Union Budget

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With the Union Budget 2024 on the horizon, the Indian cement industry is eagerly anticipating a significant boost in budget allocations for housing and infrastructure projects, which together account for over 80 percent of cement demand in India.

The industry is optimistic about substantial investments in highways, roads, bridges, and urban development. Ambitious initiatives like Bharatmala and Sagarmala present vast growth opportunities for the sector, contingent on receiving the necessary funding.

"A step up in infra spending is expected for demand creation," said Ravleen Sethi,  Director at CARE Ratings. "In the past two years, infra spend has been up 30 per cent, but the interim budget announced a 11 per cent increase in spend, so accelerating infra growth remains a top demand," Sethi added.

In the Interim Budget 2024-25, the Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman, announced an 11.1 percent increase in the capital expenditure outlay for infrastructure, from Rs 10 lakh crore to Rs 11.11 crore, or 3.4 per cent of GDP,  indicating the government’s resolute commitment in this direction.

The Urban Infrastructure Development Fund (UIDF) under the National Housing Bank is likely to receive a substantial boost, enhancing urban infrastructure in Tier 2 and Tier 3 cities, according to Adil Zaidi, EY Partner & Leader - Economic Development Advisory.

"We eagerly anticipate the Union Budget 2024 to further propel India's development initiatives... we hope the government will prioritise robust budgetary allocations and policy measures to bolster projects across the country," said  Arun Shukla, President and Director, JK Lakshmi Cement.

Shukla further added that he expects the budget to address the pressing need for skilled manpower in the sector. "Dedicated provisions for skill development and training programmes will be instrumental in bridging the talent gap and ensuring the successful execution of ambitious projects," he said.

Cement companies gave a thumbs up to the interim Budget proposal to develop a cement corridor, which is expected to boost multimodal connectivity.

Separately, a dedicated policy for the capex of  green power usage or an incentivising plan is important for the cement industry which has been involved in many activities to reduce carbon emissions, Sethi added.

Meanwhile, higher goods and services tax on cement also remains a concern for the industry.

Real estate services and investment firm, the CBRE Group, has recommended that the government lower GST on cement, suggesting that the building material be included in the 18 per cent slab from the current 28 per cent.

The Indian cement industry is dealing with weak realisations primarily driven by aggressive capacity expansions by conglomerates, leading to an oversupply in the market. This, coupled with a demand-supply imbalance, rising input costs, aggressive pricing strategies, regional disparities, and broader economic challenges, has resulted in pressure on cement prices and weaker realisations across the industry.