Govt targets steel & cement companies

But industry is officially backing the PM’s call for moderation in prices

MUMBAI: When finance minister P Chidambaram asked companies to curtail profitability to help control inflation, he probably had the steel and cement industries in mind. Perhaps the prime minister too was thinking of the same sectors when he called for companies to be socially responsible at a meeting of the Confederation of Indian Industry (CII) in Delhi.

According to industry insiders, it was the government’s subtle way of warning these two sectors not to increase prices indiscriminately in these inflationary times. In fact, the issue of cement has in the past raised the hackles of state governments like Tamil Nadu, which had even threatened to take over companies that did not fall in line and reduce prices.

The 2007 budget also tried to address the issue but, clearly, the government is still unhappy.

Similarly, there has been talk of reining in steel under the Essential Commodities Act if there is no check on prices.

 “It will be unfortunate if the government steps into the picture because it will severely impact the bottomlines of steel and cement companies. They will find themselves in the same sticky situation as public sector oil companies,” sources said. India’s public sector oil companies are facing losses of nearly Rs1,60,000 crore this year because the government is unwilling to raise petroleum prices in line with global trends.

Cement company executives whom DNA spoke to some days ago said they were being unfairly targeted.

AL Kapur, managing director, Ambuja Cement, said, “The cement price has increased only 2.67% in the last one year, which is even lesser than the country’s inflation figure, whereas coal, diesel and power costs have shot up manifold in the same duration.” Sumit Banerjee, managing director of ACC, the country’s largest cement producer, said: “A year ago, setting up a new plant cost around $100 per tonne. However, in the present scenario, it costs more than $200 per tonne…. still they [the government] want us to reduce prices.”

The government’s real worry though is that it is going into an electoral year with inflation raging. Analysts say the dream of inclusive growth is fast disappearing and there is little the government can do to keep prices in check when this is a global crisis.

“The prime minister is, therefore, urging the more fortunate not to indulge in conspicuous consumption and display greater sensitivity to this disparity in society,” sources said.

For the record, the captains of industry are making the right noises. Outgoing CII president Sunil Mittal and TVS Suzuki chairman Venu Srinivasan have strongly endorsed the prime minister’s call for corporate sobriety.

The key question though remains: What is it about steel and cement in particular that has the government so worked up when the real issue is controlling the prices of food items which have hit the common man hard?

Steel industry insiders point out that they have seen their share of dark days in the past when prices were depressed. They had to hang in there and struggle to stay afloat. The same applies to cement, where companies had little going for them till three years ago.

The government is, however, convinced that these are cases of excessive profiteering at a time when restraint is the need of the hour. The truth possibly lies somewhere in between.