Finance minister P Chidambaram?s call to the industry on the concluding day of the India Economic Summit, to cut prices to stimulate consumer spending did not find much takers in sectors like automobile, real estate and aviation. However, apex chambers of commerce reacted favourably to his statement.
While there was a consensus in the industry that market dynamics will dictate the way prices will go in future, captains of India Inc outlined other factors like credit crunch and input costs as crucial for boosting demand in the industry verticals.
The two-wheeler and four-wheeler industry was almost unanimous in voicing that future price reductions were unlikely as the credit crunch was the biggest factor affecting the demand in the industry. ?Price cuts are unlikely to spur demand,? said Brij Mohan Lall Munjal, chairman, Hero Honda Motors, the country?s largest two-wheeler manufacturer. He added that price cuts were not possible as minimum wages are rising, fuel price has increased and electricity prices have also increased.
Chairman of the country?s second largest two-wheeler manufacturer, Bajaj Auto and an outspoken member of India Inc, Rahul Bajaj was more vociferous when he stated that price reduction was not the solution to the problem faced by the two-wheeler industry as the main issue of credit availability to consumers still remains unaddressed. ?The two-wheeler industry is not like other industries where the margins are 30-35%. This industry has a margin of about 4-5% only and in the near future we do not see any price cuts,? he said.
Agreeing with Bajaj?s stand General Motors India spokesperson said that if excise duty was cut, the company will probably pass it on to the consumers as the industry had done when the duty was slashed in March this year.
The real estate sector, which has seen a significant drop in rates in the last couple of months, may further see some rationalisation in prices as input costs have eased considerably. KP Singh, chairman, DLF said that the government should facilitate housing through legislation to bring down prices. ?We have already cut prices and they have come down from what they were before,? he said. He added that market forces would bring rates further down as they were tied to input prices, which were also coming down.
Hinting that price reduction would not be possible, CMD, Omaxe Ltd, Rohtas Goel said, ?The government should facilitate the developers by rescheduling their loans with moratorium of one to two years. Moreover, prices are not the only factor. Availability of the requisite funds and liquidity at the reasonable cost (rate of interest) is equally important. The margins are negligible.?
Meanwhile, industry chambers have supported the FM?s statement. ?Members of the Indian industry understand that the present challenging economic situation calls for revised business models of lower margin and higher volume,? said Rajeev Chandrasekhar, MP and president, Ficci. The CII president and ICICI CEO and MD also held a similar view. ?I am sure you will find newer set of prices in most product categories,? he said. Assocham said that duties relaxations will curtail prices.