Mumbai: Long held in the highest tax bracket, cement now shifts to a different slab. The Goods and Services Tax (GST) Council has lowered the tax rate on the key building material from 28% to 18%. The change will take effect from September 22, a date chosen to coincide with Navratri, a festival that sees an increase in construction-related activity.
At a press briefing held late on Wednesday, Finance Minister Nirmala Sitharaman shared the rationale for the decision.
“…because cement is so essential for the middle class when building homes, that is why the 28% has been reduced to 18%,” she said.
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This policy move addresses a long-standing request from both industry stakeholders and consumers. It also arrives at a time when the government is working toward making indirect taxation more aligned with sector-specific realities.
Cement plays a central role in infrastructure, home-building and urban expansion. The rate reduction places it alongside other essential goods that support the country’s physical growth story. It simplifies the pricing mechanism and aligns taxation with the end-use of the product.
A Yes Securities report dated August 24 estimates that this revision can reduce the retail price of cement by up to Rs 30 per bag. This aligns with the Council’s broader effort to support key consumption and investment sectors.
Authored by analyst Girija Ray, a note by the stockbroking and wealth management arm of YES BANK observed, “As demand is largely inelastic, a GST reduction may not immediately trigger a surge in consumption.”
The note suggests that buyers may opt for better-quality cement under the revised structure. This may allow for improved user experience and quality enhancement in construction without altering overall spend.
A research note by UBS, dated August 22, highlighted possible benefits. It pointed out that the revision may support growth in both near-term and long-term cycles. The report also mentioned that, despite the presence of price-monitoring frameworks in the past, the rate cut can improve margin flexibility.
The anti-profiteering authority, which previously monitored the passthrough of tax benefits to consumers, was dissolved in December 2022.
The note further added that the revised GST slab has the potential to aid infrastructure projects and housing demand once seasonal pressures begin to ease.
Cement volume growth reached 3% year-on-year in the June quarter, below the expected 10%, according to UBS. Companies explained the slower growth by pointing to the early onset of monsoon. Most firms have maintained their FY26 targets and remain consistent in their forward guidance.
Industry checks by Yes Securities in August reported a 20-25% drop in demand compared to the previous year. Factors affecting this include monsoon disruptions, labour availability, sand mining regulations and liquidity constraints across regions.
On August 15, Prime Minister Narendra Modi addressed the nation with an announcement regarding GST reforms. He referred to a “double Diwali”, in which a simplified GST regime with just two slabs (5% and 18%) would be introduced.
On Wednesday, the finance minister confirmed that the Council approved the two-slab structure.
“The decision to reduce rate slabs to 5% and 18% was unanimously supported by the members of the GST Council,” she said.
The Yes Securities note explained that the impact on company revenues is expected to be minimal. As the rate reduction benefits end-consumers directly, price hikes may only be taken selectively.
Analysts expect that such hikes would attract attention from the Competition Commission of India (CCI), especially in a phase marked by uneven demand.
Cost trends provide some support for producers. Diesel prices have remained stable. Coal prices have softened. These trends contribute to margin resilience during periods of weak sales.
According to analysts, a modest rise in demand may begin in the December quarter, following the festive season.
This GST rate cut does not operate in isolation. It integrates into a broader framework of economic planning. By adjusting the tax burden on a key input such as cement, the Council has marked its focus on long-term growth areas like housing, infrastructure and local construction.
With demand trends currently shaped by seasonal and operational factors, policy support adds a steady foundation. The Council’s decision builds a signal layer into the sector’s future, opening space for momentum when conditions stabilise.
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