Lafarge-Holcim may emerge as largest producer post merger; CCI needs to be cautious against abuse of market dominance

The announcement that the world's largest cement producer, Lafarge, has agreed to merge with the second largest, Holcim Plc, implies welcome consolidation in India as well. The combined entity Lafarge-Holcim would emerge as the largest producer here, and given that operational expenses in cement mostly involve raw materials, power and freight, the merger should provide potential for synergy, sourcing of inputs like limestone and other attendant economies of scale. Domestic cement stocks, including current No. 1 UltraTech Cement, have surged of late, on hopes of further consolidation.

Now, Swiss specialist Holcim controls ACC and Ambuja Cements, and French major Lafarge has production capacities adding up to about eight million tonnes here, concentrated in the east. So, Lafarge-Holcim and UltraTech would together account for over 40% of total domestic production capacity. The concentration must not automatically be deemed to be anti-competitive, susceptible to collusion.

Rather, the Competition Commission of India (CCI) needs to track developments in the marketplace to guard against abuse of market dominance as and when it comes to light.

It is possible that Holcim would opt to run the unlisted Lafarge operations here as a separate business unit, to avoid tax implications, and eagle-eye scrutiny by the CCI. But with 40 cement companies nationally, not counting over 300 mini cement plants, we surely need proactive policy for rationalisation of cement capacity although some distributed capacity would be warranted in our large country. In parallel, the CCI also needs to rope in talent in such areas as law and microeconomics and bring out a regular discussion paper series to keep a tab on competitive practices across industries.