The cement industry in India: a brief history

The first cement factory in India, established in 1904 by South India Industrial Limited near
Madras, with a capacity of 30 tonnes per day, was a failed venture. The next cement plant in
the country was put up at Porbandar, Gujarat, in October 1914, with a capacity of 100 tons
per day, at a time when lime-and-mortar was the conventional building material in the
country. Two more factories came up in quick succession at Katni, Madhya Pradesh, and
Lakheri, in what is now the state of Rajasthan. These three factories together supplied 85,000
tons of cement per annum, mainly to meet the demand resulting from the First World War.

The Indian Cement Company Limited set up by the House of Tatas, in Porbandar, started
manufacture in October 1914. The Bundi Portland Cement Limited was formed by Killick
Nixon & Company Limited near Lakheri, in Bundi state in Rajputana, and started making
cement in 1916 after the installation of a rotary kiln. The Katni Cement & Industrial
Company was floated by C MacDonald & Co in 1912 at Katni, on the Bombay-Calcutta
trunk route in the then Central Provinces. Production commenced in January 1915.

ACC
By 1924 there were as many as nine cement manufacturers in India, with a total installed
capacity of 560,000 tons and an output of 260,945 tons, a capacity utilisation of 46.6%. To
overcome the difficulties experienced by the industry, not the least of which were the
distances between the factories and their eventual markets, these nine cement companies
merged into the Associated Cement Companies Limited on August 1, 1936 and on January
14, 1937, another agreement was signed by the ACC Limited with the Cement Agencies
Limited, formed by the four Managing Agencies of the day.

The evolution of the cement industry from those small beginnings to today’s massive output
was marked by government intervention characterised by the following phases.

1914-1924 The imports era

1925-1941 Struggle and survival
1942-1951 Pre-Plan period of price controls
1952-1982 Total control
1982-1988 Partial decontrol
1989 on Total decontrol

The imports era

During the early years, domestic demand for cement was poor, as lime-and-mortar was still
the favoured building material all over India. But the indigenous production of cement could
not meet even that demand. In 1914, for instance, hardly 1000 tons were manufactured in
India against a demand of 166000 tons. The bulk was imported.

The First World War increased the demand for local cement as British cement, largely
consumed by the war effort, became difficult to obtain. When the war ended, the total Indian
production was about 88,000 tons still only about half of the demand before the war. In five
years after the war, the combined domestic production capacity went up six-fold to about
555000 tons per annum. In a couple of years, production outstripped demand, despite the
industry operating at half capacity. British cement was back in the market, and that
represented unfair competition, as it was preferred to local cement for the simple reason that
it was British, and the exporters were selling their product at a lower price than the Indians’
cost of production. It was an early instance of dumping.

By 1916, the three existing manufacturing units had a combined capacity of 100000 tons but
were unable to compete with imported cement, perceived to be superior. The domestic
product was as good as the imported cement, but had not yet been accepted by the market.
This was the first major crisis to confront the Indian cement industry. “Capacities had been
added, heavy investments had been made but the realization was marginal. Selling cement
had become extremely difficult due to the stiff competition from not only imported cement
but also domestic manufacturers.” (ACC)

Unplanned growth also meant that huge distances often separated the points of production
from the ultimate destination the cement had to reach. Railway wagons were expensive and
their availability was erratic.

“All these factors led to an unprecedented rate war. In those areas where the supply exceeded
demand, the companies had to sell cement below their cost price for extended periods. On
the other hand, there were pockets where the demand could not be met because cement could
not be supplied adequately due to transportation problems. Also the freight costs made the
product so expensive that many potential clients in these centres scurried back to the much
cheaper and better-known raw material, hydraulic lime.” (ACC)

The cement factories had been set up at very high costs and they were now suffering losses.
Three factories were forced to shut down.

The Government of India, the biggest consumer of cement, for use in its defence and
development projects, set up a Tariff Board on April 10,1924, in response to industry pleas
for protection by way of increased customs duties on imported cement, in a move to shelter
them against the practice of dumping by foreign manufacturers. To counter this menace, the
Tariff Board advocated cooperation and coordination among the cement companies in pricing
and distribution. It also recommended subsidies for Indian manufacturers, provided the price
wars were ended.

Struggle and survival

By 1930, the quantum of imports came down from 32 per cent of the cement consumed in
1924 to 11 per cent, as a result of a pooling arrangement among domestic manufacturers,
whereby lower rates for port towns and higher rates for interior locations were charged. This
allowed the Indian companies a price advantage, vis-à-vis foreign suppliers. By 1932, prices
stabilized and demand grew rapidly to equal the industry’s capacity to manufacture.

The Concrete Association of India (CAI) formed in 1927, undertook the task of propagating
the use of cement in preference to conventional materials. In addition to educating the public
on the proper use of cement, CAI gave engineers and contractors technical advice. It also
launched a monthly publication The Indian Concrete Journal in 1927.

In 1930, the Cement Marketing Company of India (CMI) was formed to supervise and
regulate the sale and distribution of cement from various factories. (ACC)

The production centres of cement had to be spread all over the country as they had to be
located close to limestone deposits as well as their markets. Large investments and proper
understanding among the producers were needed to match capacities with demand. This
needed much greater understanding and coordination among the various manufacturers to
avoid the price wars of earlier times and to come to mutually acceptable plans of action.
This led in 1936 to the merger of nine manufacturing companies into the ACC Limited. The
amalgamation involved business houses based in Bombay, a notable abstention from the
merger coming from Calcutta-based Sone Valley Portland Cement Company Limited
(SVPC). In later years, the renowned Dalmias and Jains stayed out of it.

Pre-Plan period of price controls

During the period 1942 to 1946, cement production in India came under the purview of the
Defence of India Rules, which governed production, price and distribution. Most of the
cement produced was earmarked for defence usage, only about 10% getting released for
domestic consumption.

Imports dwindled during this period, amounting to no more than 2.5 % of the total
consumption. Prices were determined by government action from time to time.
Planning and controls
Under the Five Year Plans of the Government Of India, starting in 1951, cement became a
controlled item governed by the Cement Control Order of 1956, both pricing and distribution
coming under this order. There was a brief period of decontrol but otherwise the industry’s
growth was throttled by government policy. This was a time of perennial shortages of
cement, a period of hoarding and blackmarketing as well. The bad times lasted until 1982
when partial decontrol was introduced.

Partial decontrol
The 1977 government announcement of a guaranteed 12 per cent post tax return on net worth
to boost cement capacity was perhaps the first step taken in the direction of releasing the
industry from the stranglehold of the control regime of three decades. It led to partial
decontrol in 1982 which led to a quantum jump in capacity and production as well as
aggressive marketing by the manufacturers. By 1987, cement had become surplus for the
first time in the country.

Total decontrol
All controls on the manufacture and distribution of cement were removed in India with effect
from 1st March 1989.
The cement manufacturing capacity in India is now over 100 million tonnes, with an annual
growth rate in excess of 5%. Today, it is the fifth largest cement industry in the world, a
world class industry at that. The growth in the industry has been accompanied by several
steps to modernize old plants and to adopt the state of the art while commissioning new ones.

By and large, the Indian cement industry has today shifted from the wet process of
manufacture to dry processes to minimise energy consumption –important in a nation that has
to import fossil fuels and where energy costs are high. Capacity utilisation has also improved
considerably.

India’s cement majors have also created captive power to keep the essential processes going.
Coal supplies are augmented in some cases by alternative fuels like lignite or imported coal
in cases where the coalmines are far from the manufacturing sites.

Economies of scale have been an important factor, and the newer plants are large in size and
adopt the latest global advancements in the production processes and control.

The following factors make the Indian cement industry world class:-

o The ex-factory cost of cement (unpacked) compares favourably with that of any other
in the world.
o Quality control from raw material blending to final grinding is to international
standards using modern monitoring and computerised controls. Different grades of
cement are manufactured to suit a variety of applications.
o Exports to neighbouring countries are on the increase.
o Energy consumption per tonne of cement produced is low. Use of preheaters,
precalcinators, roller presses, and other production and process control technologies
have contributed to these efficiencies.

Emission norms followed are better than international and national standards. Many plants
use ESP’s and/or bag filters. Many are developing green belts around the factories.