Building a New India
The Indian cement industry will play a pivotal role in building a new India with cement demand poised to more than double by 2030. However, to translate this potential into reality the industry will need to adopt a new growth framework.
- Article |
- 01 December, 2018
- The Indian cement industry is key to building a new India.
- By 2030 the Indian cement industry will reach 660 MMT driven by growth in infrastructure and housing.
- To realise vision 2030 the Indian cement industry should make substantial investment in new greenfield capacity, embrace industry 4.0 and adopt more sustainable technologies.
By 2030 India will be the world’s most populous nation and its third-largest economy. In a little over a decade, the country will undergo a unique and unprecedented transformation. The huge challenges brought about by this rapid pace of development will place a heavy responsibility on the shoulders of the Indian cement industry. To rise to this opportunity and cement its position as the leading partner for building a new India the industry will need to go beyond business as usual. It will need to adopt a new shared vision for the industry and work with the entire ecosystem to Build More, Build Well and Build Right.
The Indian cement industry is key to building a new India
The Indian cement industry is destined to play a unique part in building the new India due to its important role in creating the infrastructure that drives growth, generating employment, contributing tax revenues, attracting foreign direct investment (FDI) in manufacturing, and ensuring environmentally sustainable development.
In the years to 2030, cement-intensive infrastructure development will be key to sustaining the high-level of broad-based GDP growth that India requires to lift the livings standards of a population that will have passed 1.5 billion people.
In the process, the cement industry will generate much needed skilled employment across the country, particularly in areas away from large cities that currently suffer from a lack of good job opportunities.
The high levels of investment that the Government will commit in the coming years to building a new India will be dependent on robust revenue streams. As the third largest contributor of tax revenues, a growing and successful cement industry is vital to financing a better future for the country.
Further, as India seeks global capital to accelerate ‘Make in India’, the cement industry’s strong long-term growth fundamentals will be a major attraction for FDI given the necessity to locate cement production close to the sources of demand.
Finally, a new India needs to be built sustainably if it is to deliver a better future for coming generations. In its position as both a major contributor of CO2 emissions but also a global leader in energy efficiency, Indian cement can be a beacon for best practice to other industries as the country strives to achieve its ambitious commitments to the Paris Agreement on Climate Change.
Indian cement has not realised its potential in the recent past
Whilst the Indian cement industry has abundant potential, it has not been able to realise this in the recent past due to subdued demand and overcapacity which has slowed revenue growth and kept a cap on price rises. The effect of this along with rising costs has been to shrink EBTIDA/Ton.
Five major factors have contributed to the industry not realising its potential till date: a sharp slowdown in real estate construction; low industrial investment; bans on sand mining; the impact of major policy changes including demonetisation, RERA, and GST; and the effect of rising input costs. As a result of these challenges, cement demand growth has struggled to get above 4% and industry-wide capacity utilisation stands at just 70%.
The future of Indian cement is bright
Despite the recent challenges, the Indian cement industry can look forward to a bright future. Kanvic’s Cement Demand Projection Model developed specifically for Indian Cement Review Vision 2030 shows that cement demand in India will increase by 116% by 2030 to 660 million metric tons (MMT) at a CAGR of 6.6%.
The model shows that future growth will be driven by increased infrastructure spending, as its share of cement demand rises from 22% today to around 31% in 2030. Demand for cement from infrastructure will grow at around 10% through to 2030 with the fastest growth coming from the Government’s ambitious Sagarmala programme. At the same time, roads will remain the biggest single source of cement demand from infrastructure as a result of the implementation of the Bharatmala programme and increasing adoption of concrete roads.
Although declining in share from around 60% today to 54% in 2030, the residential sector will continue to be the single largest contributor to cement demand. Housing’s demand for cement will continue to rise at close to 6% per annum as India’s population becomes increasingly urbanised and household size steadily falls. At the same time, the Government’s major push on Housing for All will stimulate near-term growth, particularly in rural housing.
Along with the shift toward infrastructure, the industry will also witness a move toward institutional and ready-made concrete (RMC) customers who predominantly buy in dry bulk rather than bag. This promises to shift the bargaining power from manufacturers to customers but also bring efficiency and cost savings for cement companies.
The regional make-up of cement demand will also evolve by 2030. In a reversal of recent trends, traditional regional drivers of cement demand like South will see a recovery in the coming years. East will continue to see high growth but Central will moderate.
To meet the future demand for cement in 2030 the Indian cement industry will need to invest in 368 MMT additional capacity - an increase of 83%. This will not only require setting up new plants but also acquiring adequate land, securing raw material supplies and hiring additional talent.
Indian cement industry’s Vision 2030: Building a New India
In order to realise the vision of a new India in 2030, the Indian cement industry will need to work with the Government and other stakeholders to Build More, Build Well, and Build Right.
Building more will, first of all, require a substantial investment in additional new greenfield capacity. Further, the Indian cement industry will need to adopt an ecosystem mindset to work with suppliers and customers to accelerate growth for all construction-related industries.
The cement industry will also need to promote new applications of cement like concrete roads and AAC blocks that will not only stimulate cement demand but also deliver superior performance to existing alternatives.
To ensure construction demand can be fulfilled, the industry will have to work to promote sustainable supplies of key input materials.
At the same time, the cement industry must collaborate with the construction sector to improve its performance in areas like air pollution. This will prevent the increasing prohibitions on building activity in India’s cities that are dampening growth.
Along with the cement industry, the Government must also take important further steps to build a new India.
Firstly, there is a need to accelerate the positive steps already taken in infrastructure development. While road construction has accelerated under the Bharatmala initiative and the ambitious Sagarmala programme is underway, India still suffers from a large and persistent infrastructure deficit that will require $4.5 trillion investment by 2040. To illustrate this point, India’s infrastructure to GDP ratio remains around 5.8% while China has consistently invested at levels above 8%.z
Secondly, the early successes seen in the rural component of the Government’s Housing for All programme (PMAY-G) need to be replicated in the urban sector where challenges surrounding land availability and acquisition have slowed construction. In tandem, efforts need to be made to stimulate private sector demand for housing.
Thirdly, the current low levels of fixed capital formation in the industrial sector need to be kick-started by improving the flow of credit and easing the process of obtaining land and environmental clearances which are holding back investment.
Fourth and finally, the Government can play a critical role in supporting the cement industry by addressing infrastructure bottlenecks in the transportation of input materials and cement. In particular, by investing in waterways and rail freight, the Government can help reverse the continuously increasing share of road transportation in cement transportation - which is not only more expensive but also more CO2 intensive.
The second imperative for the Indian cement industry’s Vision 2030 is to build well. As the expectations of customers rise and the volume and complexity of building increases, the industry will need to become a value-adding partner for the construction industry.
First and foremost, cement companies must upgrade their know-how and product range for the coming wave of construction and design innovation - from 3D printing to factory-based pre-fabrication.
Second, to achieve the next level of efficiency and productivity gains, Indian cement companies will need to embrace industry 4.0 and digitalise their business. From tracking vehicles at the quarry to remotely monitoring the performance of completed concrete structures, digital can take cement to the cutting-edge. However, to realise its full potential, the industry also needs to promote the rapid digitalisation of the entire construction ecosystem.
Third, the future growth of the Indian cement industry will be dependent on attracting and developing the right talent. Today the sector suffers from a poor perception among potential employees and takes too narrow a view of talent. The cement industry needs to work together to change how young people see the industry by developing a clear value proposition to attract future talent. In parallel, the industry needs to invest in upgrading the existing workforce for the digital era and end the outdated dichotomy between skilled and unskilled labour.
Fourth and finally, to build well, the Indian cement industry needs a Research & Development (R&D) roadmap to avoid falling behind in product innovation, operational efficiency, and sustainability. Today, India accounts for less than 2% of patents filed in cement and concrete compared to 57% from China. By investing more in R&D, funding 7PhDs and establishing centres of research excellence for cement, the industry can begin to address this major shortfall.
Vision 2030 for Indian cement cannot be realised without ensuring the environmental sustainability of the industry’s growth. Building right is not only good for the planet but it also makes sound business sense. The Indian cement industry can build on past successes in sustainability by focusing on 7 key areas through to 2030.
1. Switch to alternative fuels
Switching to alternative fuels can help reduce the cement industry’s CO2 emissions. At the same time, it can address India’s current challenge of managing municipal waste and reducing the burning of crop residue. In Europe, over 36% of the cement industry’s energy needs are met by alternative fuels like biomass and household and industrial waste, and the figure is as high as 65% in Germany.
2. Invest in Waste Heat Recovery
Indian cement companies need to take bigger steps to address the huge unrealised potential in Waste Heat Recovery (WHR). The technology can reduce energy consumption and improve EBITDA margins by between 10% and 15%.
3. Increase clinker substitution
Substituting limestone clinker with waste products like fly ash and slag preserves scarce limestone reserves and reduces the emissions from the clinker production process. However, to prevent clinker substitution plateauing at current levels, the industry needs to ramp up efforts on composite cement and explore new options like calcined clay cements.
4. Explore carbon capture & storage and novel cements
Even with a higher substitution of clinker, CO2 emissions cannot be entirely eliminated. Therefore the Indian cement industry needs to actively explore and test carbon capture and storage (CCS) solutions that can be scaled up and rolled out at an affordable cost. In the same vein, Indian cement manufacturers need to get abreast of novel cements that emit lower emissions than Portland cement.
5. Promote Green buildings
Green buildings are a rapidly growing market in India as customers demand more energy efficient and environmentally friendly spaces. Concrete buildings are well placed to meet these increasingly stringent environmental standards due to their energy efficiency and durability. The cement industry should help popularise green building standards and raise awareness of concrete’s advantages.
6. Advocate concrete recycling
The cement industry can help improve the supply of aggregates and reduce the amount of construction waste going to landfill or being dumped illegally by encouraging concrete recycling. The industry can also use it in co-processing of new cement.
7. Engage and communicate more effectively with society
Lastly and perhaps most importantly, to realise Vision 2030 the Indian cement industry needs to transform its public perception by communicating more effectively with society. By learning from pioneers in this area like NASSCOM in IT, the cement industry can begin to speak with a common voice to raise awareness of its vital role in job creation, skilling, social development, innovation, and sustainability.