GST Overhaul Set to Lower Cement Prices by Rs 30-35 per Bag

The recent overhaul of the Goods and Services Tax (GST) structure is expected to reduce the price of cement by approximately Rs 30-35 per 50 kg bag, as indicated by a report from India Ratings and Research (Ind-Ra). This change, effective from September 22, 2025, involves a shift in the taxation rate on cement from 28 percent to 18 percent. The new GST structure will feature just two slabs: 5 percent and 18 percent.

According to Ind-Ra, this revision is a “structural positive” for the cement sector, likely to stimulate demand, particularly in the affordable housing segment, which has seen a slowdown recently. The report suggests that cement companies will probably pass on the tax reduction to consumers, thereby lowering construction costs for both infrastructure and housing projects.

With the competitive landscape of the cement industry, Ind-Ra anticipates that this price reduction will lead to softer prices for consumers, even though net realizations for cement firms might remain stable. “With the rate cut likely to be passed on due to high competition, cement prices for consumers would soften while net realizations for cement companies may remain range-bound,” the report noted.

Despite the positive outlook regarding pricing, Ind-Ra maintains its forecast for cement demand growth at 5-7 percent year-on-year. The expected demand pickup across various segments may not occur immediately. The report also highlighted that the price adjustments could encourage consumers to upgrade to higher-value brands, benefiting larger tier 1 players in the market.

Market Dynamics and Future Growth Prospects

The report anticipates a slowdown in cement demand growth to single-digit figures during the seasonally weak second quarter of FY26, primarily due to the monsoon season impacting construction activities. After a slow growth phase in FY25, the cement industry began FY26 with a robust 6-7 percent growth rate in the June quarter, spurred by strong rural demand backed by real wage increases and heightened infrastructure spending.

The cement sector recorded a promising start in July 2025, with a 12 percent year-on-year volume growth. However, as construction activities are expected to decline due to the monsoon, projections indicate that net realizations may decrease sequentially in the second quarter of FY26, even though they are expected to remain higher than in previous years. Notably, the first quarter of FY26 marked the first year-on-year increase in realizations since December 2023.

Ind-Ra forecasts that rural demand is likely to remain strong, bolstered by an above-average monsoon and four consecutive quarters of positive real wage growth. In contrast, urban demand faces challenges, particularly with new housing activities remaining sluggish due to a decline in new launches during the first quarter of FY26. While the GST rate cuts might enhance urban demand in the second half of the fiscal year, growth is expected to lag behind that of rural markets.

Capacity Utilisation and Industry Outlook

The cement industry experienced significant capacity enhancements in the first quarter of FY26, with the commissioning of approximately 17 million tonnes out of a planned 75 million tonnes for the entire year. Recent acquisitions and the ramp-up of underutilized assets by leading firms have pushed industry-wide capacity utilization to nearly 72 percent, representing a slight year-on-year decline.

As the industry adapts to the new GST framework, stakeholders are optimistic about the potential for reduced consumer prices to stimulate demand. The overall impact of these changes on the cement sector will be closely monitored as the fiscal year progresses, particularly in light of the ongoing economic conditions.