Hats Off To Udayan Mukherjee

Udayan Vs. Kamal Nath

Yesterday a saw this interview on CNBC and Mr. Kamla Nath was seriously on the backfoot unable to defend and the interview also affirms my views in previous post.

Clarifying the government's stand on the ban on cement exports, Commerce Minister Kamal Nath mentions that he has not said that they will ban cement exports, rather he would look at all options.

He says that the government wants cement companies to be healthy and profitable. He does not want cement companies to take advantage of the demand-supply mismatch. Nath also mentions that they are examining the reasons whether levies can be absorbed.

According to Nath, the ban on exports may not be imposed if companies choose to absorb duties. In his view, cement companies must make profits; he is concerned about excessive profits.

Excerpt's from CNBC-TV18's exclusive interview with Kamal Nath:

Q: The market is very worried by what you said this afternoon. Did you actually go on record saying that you are considering banning exports for cement?

A: I didn’t say that. I said that we are going to look at all aspects to see if cement companies will absorb new levies that have been imposed. We do not want them to profiteer; we want them to make a profit in a healthy way. At the same time we have to ensure that there is no extra fat there. It’s a question of having muscle and not fat.

Q: What is profiteering in your eyes, since these are cyclical businesses, which sometimes do well and sometimes don’t. Where does the concept of profiteering come in?

A: Excessive profit; taking advantage of a supply-demand mismatch or temporary supply demand constraints, raising prices by taking advantages is profiteering.

Q: It is disturbing to hear you say that because in all industries across the world when demand exceeds supply prices go up. Isn’t that the basic law of economics that when demand exceeds supply prices move it?

A: It’s certainly the law and that’s how the market operates. The market operates on supply demand basis but when there is an unnatural temporary situation, one has to consider it. So we are examining the options on whether these levies can be absorbed. Infact the Finance Minister has said that his intention was to ensure that there is no increase in prices. It’s a matter of looking into this whole issue in detail and also for cement companies to see to what extent these levies can be absorbed with or without them being passed on.

Q: If they cannot absorb the levies and choose to pass it on would you consider banning exports to cool prices?

A: I do not think there is any point in answering the question, which starts with IF because that would be another question.

Q: If they choose to absorb it then will you not consider it?

A: Certainly not. Price control is not something, which should be used and not export banning because export markets are developed and you must remember that I also want to see exports rise. But at the same time one has to look at it holistically, so we are in discussions with them and I am sure solution will be found.

Q: What if a solution is not found because our talks with the cement companies seem to indicate that they are reluctant to absorb this entire excise themselves?

A: Those are your talks, we are also having talks and that is not necessary everybody’s talks are your talks.

Q: Your talks are showing up that they will absorb the excise hike?

A: My talks are with everybody looking at it and it is going to be studied in the next 2-3 days.

Q: What is your definition of excess profits, you used the phrase that they are making excess profits?

A: Excessive profits are when an advantage is taken for temporary dislocations in supply-demand. I am sure everybody understands what excessive profits are and what profiteering is. I said that the companies must be healthy and should make profits. That’s the whole basis of this.

Q: By the same logic, if these companies face a temporary excessive supply in the market then would the government actually step in to stem some of the losses of the cement companies because if you are taking away their profits today, then excess supply situations leading to losses should also be addressed which you did not when the cement companies really when through bad times for the last many years?

A: I have not said we are going to take their profits away. So don’t put those words in my mouth.

Q: I don’t think there is any great hue and cry from the consumer. We don’t hear any resistance on the part of consumers of cement. Is it not that the government has a problem with the inflation number which is why its training a few sectors like cement?

A: If you have not heard it, I don’t know how much ears you have to the ground because no consumer wants a price rise.

Q: Why don’t you freeze all prices in the economy then? Why just cement?

A: We will do what we have to; we are doing whatever we can to curtail the rise in price rise. We will continue to take effective steps.

Q: Which are the sectors you are training other than cement because it has started with sugar, which you have effectively killed in the last 3 months?

A: That’s your perception of it. That’s not the consumer’s perception of it.

Q: On the sugar sector?

A: No, that’s not the perception for the sugar sector.

Q: That is very much the perception of the sugar sector; I can play you sound byte after sound byte of the sugar manufacturers coming out and saying that they will start making losses this quarter and throughout this year because of your ban on sugar exports?

A: They have made losses, that’s not what the figures have shown, that’s not what they have said in their discussion with me.

Q: Of course that figure shows that? Have you seen the quarterly numbers of sugar companies this quarter?

A: Their losses are not because of prices.

Q: Their losses are centrally due to the ban on export of sugar, which has led to a collapse in sugar prices locally?

A: Do you know how much sugar was imported two years ago?

Q: Why don’t we discuss the issue at hand? Because of your ban on sugar exports, sugar companies are making losses today, is that a fact or not? Will you please go and check with the sugar companies?

A: Will you please go and check with the consumers what they have to say and will you go and check with the farmer, if you ever have any connection with him because you should not talk just on behalf of the sugar companies. You got to talk to the farmers, you got to talk to the consumers. That’s it. If you ever have an opportunity to talk to farmers, then talk to them and then make a statement of it.

Source : Moneycontrol.com