Friday, January 16, 2015

Amma Cement: a concrete solution?

Following the recent launch of the much-awaited Amma Cement Scheme, industry experts share their reactions with Nidhi Adlakha…


The Amma Cement Scheme couldn't possibly have been timed better. With the industry reeling from the stark increase in cement prices (almost 40 per cent) over the past few months, the new scheme is expected to have a tangible impact on the construction industry. Aimed at the lower and middle classes, the social incentive scheme will see Tamil Nadu Cements Corporation (TNCC) providing cement at a subsidised cost (Rs. 190 for a 50 kg bag), by procuring it cheap from manufacturers in the state. It is estimated that over two lakh metric tonnes of cement would be sold through local bodies every month, on account of this scheme. "Beneficiaries can avail anywhere between 50 bags of cement (for 100 sq. ft) and 750 bags (for 1,500 sq. ft), against the submission of an approved building plan. An additional 10-100 bags can be availed for house repair works," according to a representative of TNCC.



The Amma Cement Scheme couldn't possibly have been timed better. With the industry reeling from the stark increase in cement prices (almost 40 per cent) over the past few months, the new scheme is expected to have a tangible impact on the construction industry. Aimed at the lower and middle classes, the social incentive scheme will see Tamil Nadu Cements Corporation (TNCC) providing cement at a subsidised cost (Rs. 190 for a 50 kg bag), by procuring it cheap from manufacturers in the state. It is estimated that over two lakh metric tonnes of cement would be sold through local bodies every month, on account of this scheme. "Beneficiaries can avail anywhere between 50 bags of cement (for 100 sq. ft) and 750 bags (for 1,500 sq. ft), against the submission of an approved building plan. An additional 10-100 bags can be availed for house repair works," according to a representative of TNCC.


The Portland Pozzolana Cement (PPC) that will be supplied under this scheme will be available in 470 godowns in the state — 250 belonging to the Rural Development and Panchayat Raj Department and 220 to the Tamil Nadu Civil Supplies Corporation (TNCSC). "Amma Cement, a boost to the affordable housing segment, will also be utilised for housing projects under the Chief Minister's Solar Powered Green House Scheme (CMSPGHS) and Indira Awaas Yojana (IAY)," he adds.


A. Shankar, National Director-Strategic Consulting, JLL, is also convinced that it will be useful. "An improvement over the earlier government's subsidised cement scheme with slight modifications, the new scheme will be particularly beneficial to those building individual houses." Mallika Ravi, CEO, Lancor Holdings, illustrates the difference in pricing, when she says, "While retail cement is priced anywhere between Rs. 380 and Rs. 400 per bag, Amma Cement is priced at Rs. 190." According to her, there's more reason for optimism as manufacturers, who are selling cement as part of this scheme, will meet quality standards set by the Bureau of Indian Standards (BIS).


The unanimous verdict is that it will benefit lower income groups, a view also shared by Ajit Kumar Chordia, President, CREDAI Chennai. "It will be useful to them as wastage and building material costs are higher when constructing smaller homes," he says. However, there are a few areas of concern too. "Cement manufacturers will earmark a certain amount of cement (approximately 2 lakh tonnes a month) for distribution under this scheme. However, in order to offset this sale, they may well go on to increase the retail price of cement again. So, this scheme could well end up increasing the overall prices and cause a burden on residential property developers," he says.


Chandan Jain, JMD, Vijay Shanthi Builders, has a contradictory opinion. He believes that the scheme will eventually lead to a reduction in cement prices. "That the government is offering cement at a reduced price will surely make retailers reconsider their pricing strategy and perhaps opt for a reduction — a decision that will benefit all sectors of the construction industry," he says.


Ajit points out another area of concern. "It must also be remembered that the state government recently increased the minimum wage for construction workers by 50 per cent, a development that will eventually result in the use of alternative technologies. With such a steep increase in cost, developers may well gravitate towards avoiding cement and instead use other budget-friendly materials such as gypsum walls and dry walls," he explains.


Shankar of JLL looks at the larger picture when he explains that the reduced cement price, by itself, will not benefit home buyers. "Interest rates will have to be brought down to cause a serious impact. The success of the scheme also depends on the quality of cement and its availability across the state throughout the year. The government must also keep a tab on the scheme being misused in the black market by small-time developers," he says. On the whole though, he doesn't see a great reduction in construction costs, as the cost of other materials continues to rise. These are still early days though, and even as contradictory opinions from real estate experts are being floated, it remains to be seen if the Amma Cement Scheme proves to be a game changer.


Keywords: Amma Cement, Tamil Nadu Cements Corporation, subsidised cement