Mr. FM trying to question the economics of Demand and Supply of Cement in India

The current budget has brought back the autocratic behaviour of Government which was prevalant in 70's and 80's to control the price. This totally is against the economics of demand and supply and FM today has gone ahead and warned Cement Manufacturers against any cartel approach. Well, Mr. FM needs to be reminded that economics would survive in a democratic world irrespective of whatever control would be tried to be imposed through taxation. Well, I am not sure whether Government would be trying to put the cement manufacturers behind bar. I would not be surprised if they try to do that.

Sugar Industry was going through their worst time after about 5 years of deregulated environment. Government's decision of controling the prices through different measures has left them hapless and even though they are trying to make sure cane manufacturer's are not affected to avoid backlash in the mills or any kind of stricter measures from the Government again. But they would definitely think many times before expanding their capacities.

Anyway, today's news has been unfortunate in terms of democratic set up of India :

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In a veiled warning to cement companies which have raised prices after the Budget, Finance Minister P Chidambaram today cautioned cement companies against acting as a cartel.

The companies had raised prices a day after the Budget, which reduced the excise duty on cement by Rs 50 on cement sold at Rs190 per bag. The duty was, however, raised for cement sold at Rs 200 per tonne. In the process, they ignored the minister's plea to hold the price line.

"I hope they are not acting as a cartel. But if they are, it will be a very unfortunate situation. I am still hopeful that they will moderate prices," Chidambaram said.

About the hike in car prices, which the manufacturers had attributed to the 1 per cent increase in education cess, the minister said, "the 1 per cent cess cannot result in increase in the prices by Rs10,000 or Rs 8,000. It is not 1 per cent on the taxable income but 1 per cent on the tax. It actually works out to 0.03 per cent."

Ruling out any rethinking on the new imposts, Chidambaram said it was a conscious decision to provide for sectors such as basic education.

Clarifying that the new imposts were not a big burden, the minister said those earning an income between Rs 1 lakh and Rs 5 lakh were paying a cess of Rs 5,000 till now. They will now pay only Rs 4,120 after the raising of the exemption limit by Rs 1,000. "It is only when the income crosses Rs 5,10,000 that you don't have a benefit. But how many people earning over Rs 5 lakh pay taxes," he asked.

He said a total of 120,000 people filed returns of Rs 10 lakh in a country of 30 million taxpayers.

Chidambaram said the fringe benefit tax on employee stock options (ESOPs) proposed in the Budget would be payable by the company and also apply to ESOPs not encashed.

"What has been stated (in the Budget) is that ESOPs are a fringe benefit and they will be taxed. The rules have not been worked out and the method of calculation has not been prescribed. It is only a policy announcement," the minister pointed out.

On whether the tax would apply to ESOPs given before the Budget and not encashed, Chidambaram said, "Of course it will! The gain is taxed only when the ESOP is exercised. When the ESOP is not exercised, there is no gain at all."

Explaining the philosophy behind the Budget, the minister said ,"This Budget said growth seems to be a given today. So don't hurt growth. And if the growth is a given, can we spread the growth to a larger section?" Two postulates underline the Budget. One, growth will happen in 2007-08 also, and the gains of growth will be distributed "more fairly, more justly", he said.

Chidambaram said that the government had "done its best, in fact, its very best" for the first time in recent years. "