The moves are undesirable for a variety of reasons. Most importantly, not allowing free market play distorts price signals. With the economy growing at over 8 per cent for four years on the trot, and 9 per cent in the current year, it should be obvious that prices will go up if fresh capacity does not come up. This applies not just to cement or steel but also to all industries that have been functioning at near capacity for some time. If, however, prices are not allowed to rise, it is not clear how fresh investments will come in, since potential investors will see no upside. As in the case of the ban on commodity futures, there is little evidence that cement exports are the reason for the price rise, or that the price rise is excessive in comparison with the Rs 190 per 50 kg bag of cement, which the FM says is remunerative. For one, exports comprise just about 5 per cent of total supplies; demand is growing much faster. There is also the issue of cyclicality of prices/profits. Many industries accused of profiteering, including cement, are those that were operating on wafer-thin margins not too long ago. Surely, any talk of profiteering should have kept this in mindIt starts by rightly bemoaning how markets are becoming less free. But sadly the reasons it gives are weak.
Take this. "This applies not just to cement or steel but also to all industries that have been functioning at near capacity for some time. If, however, prices are not allowed to rise, it is not clear how fresh investments will come in, since potential investors will see no upside." If prices are not allowed to rise, it's great for exporters, is it not? Probably the writer meant, if businesses are not allowed to set their own prices, it is not....
Take this. "For one, exports comprise just about 5 per cent of total supplies; demand is growing much faster." Even 5% can make a lot of difference to price - when there is limited supply and people think a commodity is essential and have money to pay for it.
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