ADVERTISING & SALES PROMOTION
PROF. ANAND DESAI
Roll no 07 (MMM IV)
The cement industry has come a long way since 1914 when the first cement plant was set up at Porbandar. In the past, the government's regulation restricted the growth of the Indian cement industry. The removal of these controls resulted in rapid progress in terms of new capacity creation and higher production. As of March 2012, the country had an installed cement capacity of around 325-330 million tonnes with most of the capacities being added only during the last decade.
Evolution of the cement industry
The cement industry is one of India's core sectors. The country's first cement plant was set up in Porbandar, Gujarat in 1914. Earlier, the government regulated the industry with licensing, price and distribution controls. A gradual removal of these controls resulted in rapid capacity creation. Following this, the country moved from a cement scarcity situation to a surplus position. As of March 2012, the pan India total installed cement capacity stood at around 325-330 million tonnes. Currently, India is the second-largest producer of cement in the world. The evolution of the cement industry in India can be broadly divided into three periods - the period of total government control (up to 1982), the period of partial decontrol (1982 to 1989) and the period of total decontrol (after 1989). Period of total government control
Events during the period of government control
This period marked the beginning of cement industry where government, with an intention to promote the sector, exercised strict control over the industry. It set out production limits, price as well as the distribution channels that should be employed to sell cement. This was aimed at ensuring fair prices to producers and consumers across the country, thus reducing regional imbalances. The fixed price at which producers would sell cement was based on the cost of production of cement throughout the country plus a marginal profit. This price contained a freight component that was averaged over the country as a whole. If the actual freight component of a manufacturer was lower than that included in the uniform price, producers had to pass on the amount to the pool sum, representing the difference between the uniform price freight component and the freight costs incurred by them. On the other hand, if the actual freight incidence was higher than the freight element accounted for in the uniform price, producers were reimbursed the difference. This freight pooling system encouraged producers to set up manufacturing plants across the country. Before this system, the industry was concentrated in the eastern part of the country where accesses to raw materials were readily available. However, a drawback of this system was the lack of incentive to producers to minimise costs since they would be reimbursed by the uniform pricing system. As a result, the average cost of production as well as demand for scarce railway capacity increased. Period of partial government decontrol
Events during the period of partial decontrol
On account of inefficiencies of the uniform price system, the government introduced a system of partial decontrol in 1982. A levy quota of 66.6 per cent for sales to the government was imposed on existing units while for new and sick units the quota was lowered to 50 per cent. The balance 33.4 per cent could be sold in the open market to general consumers. A ceiling price was set for sales in the open market to protect consumers from unreasonable high pricing. During this period, cement producers were able to earn profits from the levy sale to government at fixed prices. But for the non-levy sales, profits decreased as there was a sudden increase in cement supply in the open market which led to greater competition among the manufacturers. During this period, the government gradually reduced the levy...
Please join StudyMode to read the full document