For an industry plagued by overcapacity, the proposed withdrawal of tax incentives could prove to be a blessing in disguise. The proposal, if implemented, will effectively stop all addition of new capacities. This excludes plants which have already been granted incentives. And, there aren’t many numbers in that category.

Moreover, even with the incentives in place, capacity-addition had slowed down to a trickle. This is mainly because in many states like Gujarat, Andhra Pradesh and the eastern states, low cement prices have rendered capacity additions a commercially unviable exercise.

Now, this does not mean that India will not need more capacities in the future. In fact, once the demand-supply gap vanishes, capacity creation will have to keep pace with the demand growth to avoid a shortage situation.

This means that the industry will have to see a capacity growth of 8-9 mt per annum beginning 2002. This seems like a difficult task, especially after the bitter experience of the mid-nineties, when capacities grew fast creating a glut in the market.

But, for now, with demand growing robustly and brakes on capacity creation, prices inevitably, will rise as the demand-supply gap closes in. However, disparities in the cement prices will prevail as in the short run the demand-supply imbalances will remain in specific regions.

But the players are not complaining as the emerging scenario bodes well for them. For one, price increase will add to the bottomline taking care of increased costs of inputs like diesel. Secondly, the higher capacity utilisation will enable companies to achieve economies of scale.