AP mulls export sop cuts for cheaper cement

After Finance Minister P Chidambaram's strictures to the cement industry to lower prices, the Andhra Pradesh government is examining ways to disincentivise cement exports from the state, including levy of more taxes or cess.

The intention is to improve local supplies and reduce retail prices to Rs 175 per bag. This is significantly below the benchmark price of Rs 190 per bag announced in the Union Budget.

A senior official said the state government needed to retain the advantage of being a surplus cement producer and lower prices to boost infrastructure and housing. "This is possible only if we can address the supply-side issues," he said.

Chief Secretary J Harinarayana has been instructed by the chief minister to come out with workable solutions in terms of additional levies.

"Taxes or the cess levied on inputs like limestone and coal can be set off against VAT if the cement is sold within the state. If they sell outside the state, it would cost them more," the official said.

Cement consumption in Andhra has been increasing at over 1.6 million tonne a month from December 2006, against over 1.3 million tonne in the corresponding period in 2005.

Industry estimates put the state's total installed capacity at about 22 million tonne a month (government figures put it at 24.5 million tonne a month). Current average prices in the state are Rs 200 and had risen to Rs 220 for premium brands in cities like Hyderabad.

If the move yields the desired results, cement prices in neighbouring states like TN, Karnataka and Maharashtra, where most of the cement despatches from Andhra go, may worsen.

The state government has not accepted the recent increase in prices by Rs 12 per bag on supplies for housing for low-income sections.