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Interaction | March 2014

The current tax structure in India acts as a major reason for RMC industry not picking up

 Purchaser has to pay an excise of 2.06 per cent and applicable VAT in the state to buy RMC from the market. This is the major reason why the RMC market is not picking up in India, feels Rashid R Merchant, Associate Vice President (Development & Marketing), RMC Readymix (India). In an interaction with ELIZA WAGHMARE, Merchant says that most of the construction builders still prefer using concrete at site.

How do you view the current ready-mix concrete (RMC) industry of India? What according to you is the current market size?
In India, as of now, the commercial RMC market is about 35 million cumulative per year, and the project based captive consumption of RMC is estimated to be in excess of 40 million cum. These captive plants are mainly put up by the contractors for their internal consumption.

Currently, the infrastructure sector accounts for around 35 per cent of cement demand. Do you expect this share to rise in future?
Demand for cement is generally driven by real estate and infrastructure structure (about 35 per cent to 40 per cent of the total cement production). The conversion factor for cement to RMC will soon exceed by another 10 per cent. This is mainly due to factors such as urban development, infrastructure projects in power, road, ports, railways, irrigation, and emergence of activities in the Tier II and Tier III cities. At the moment, formation of a stable government post general elections which may enable higher investment in infrastructure than before is likely to positively impact the infrastructure sector. Infrastructure project execution has been declining continuously and projects are being shelved at an alarming rate in the last two years.

What are the different types of RMC products you manufacture?
RMC Readymix (India) is a supplier of RMC, aggregates and manufactured natural sand across India. Our plants manufacture and supply RMC produced in plants that meet audit standards in terms of potential efficiencies, better production controls and an enhanced overall concrete quality. All our RMC plants are built-in with well equipped testing laboratories complying with provisions of the Bureau of India Standards (BIS) ensuring use of high quality raw materials in production of RMC. Our technical team has a vast experience of producing unique concrete mixes for individual jobs, and offers concrete with characteristic attributes like "High Strength", "High Performance" and "Self Compacting". RMC Readymix (India) has evolved a whole new series of special concretes by the proprietary trademarked names "RMC Specials".

We offer a variety of concrete to our customers. These include megacrete, easycrete, FRCcrete, elitecrete, dyecrete, highdensecrete, thermocrete, perviouscrete, aquaresistcrete, coastcrete, and environprotectcrete.

Has the increasing raw material prices affected your business?
Post recession, raw material prices knew only one direction: the only way was up. The sky seemed to be the limit for scarce input commodities like aggregates and natural sand. No one seems to know in which direction raw material prices will go. They go up and down with irregularity and without any discernible pattern. RMC companies have a hard time correctly judging the risk of strongly fluctuating raw material costs. If they pass on increasing costs only minimally, delayed or too conservatively, or if increasing raw material costs coincide with decreasing sales prices, a margin squeeze is inevitable.

What makes RMC an attractive option for the modern age construction?
The acceptance of RMC continues to grow while site-mixing declines. RMC can be delivered anywhere a truck mixer can travel. The biggest difficulty with site-mixing lies in handling the concrete from the mixer to the various points of placing. RMC can be discharged directly into formwork or handling equipment at the point of use. RMC, produced under factory conditions, guarantees the highest possible quality.

Despite the huge benefits RMC offers, why still the use of RMC has not picked up well by the construction community?
The most important aspect here is the current tax structure. Purchaser has to pay an excise of 2.06 per cent and applicable VAT in the state to buy RMC from the market, so most construction contractors /builders prefer to make concrete at site. The tax burden may weigh heavy for large projects running in long durations.

Good percentage of construction industry is still operated by unorganised companies who forge invoices and quantities to save taxes. Lack of tougher health and environmental regulations makes it easy for fly by night operators to set up plants and carry out seasonal business.

What are the major challenges that the RMC industry faces?

  • Aggregates and natural sand are fast becoming scarce and depleting natural resources, till now there are no tough government legislations in place for use of alternatives / by-products in making concrete.
  • Cartelisation by cement and aggregate suppliers endanger the business dynamics of demand and supply.
  • High taxation on sale of commercial concrete has lured more purchasers to make concrete at project site.
  • Absence of any quality recommendations from the government has made it possible for new entrants without any technical know-how to operate plants and sell concrete under priced.

The ratio of unorganised RMC manufacturers to the organised ones is rising day-by-day. Do you think the same?
Yes it is. As explained above, absence of any quality recommendations from the government has made it possible for new entrants without any technical know-how to operate plants and sell concrete under priced. Sub-standard quality and service received from the unorganised sector of this industry leads to the bad mouthing of the entire RMC industry at large.

What is your current production capacity? Is it meeting the demand-supply gap in the country?
Today, we are one of India's leading producers of commercial RMC with 90 plants in 37 cities. RMC Readymix (India) has a total installed capacity of about 4,000 cum per hour.

What steps do you think should be taken by the government to boost this industry?

  • Aggregates and natural sand are fast becoming scarce and depleting natural resources, till now there are no tough government legislations in place for use of alternatives/by-products in making concrete.
  • Absence of any quality recommendations from the government has made it possible for new entrants without any technical know-how to operate plants and sell sub-standard concrete.
  • High levies and taxes increases the cost of the product to the end user visa vie that of site mixed concrete. It is felt that the introduction of GST can help.

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